Abstract:
In one aspect, the invention comprises a method comprising: (1) selling a note to an investor for a specified amount; and (2) using proceeds from selling the note to purchase (a) one or more zero coupon municipal bonds, and (b) an option on at least one of the group comprising: a hedge fund, a fund of funds, and a hedge fund index; wherein the note entitles the investor to substantially all of the returns on the one or more bonds and on the option, wherein the one or more bonds are configured to provide a return substantially equal to the specified amount, and wherein the option is a European option. This option can be a variable option.

Description:
CROSS-REFERENCE TO RELATED APPLICATIONS  
       [0001]     This application claims the benefit of U.S. Provisional Application No. 60/648,965, filed Feb. 1, 2005. The entire contents of that provisional application are incorporated herein by reference. 
     
    
     BACKGROUND &amp; SUMMARY  
       [0002]     As both the equity and fixed income markets have experienced lackluster returns, growth in alternative investments as an asset class has exploded. With this growth investors are looking for smart ways to invest: principal protection, tax efficiency, reduced income volatility, favorable capital treatment, etc.  
         [0003]     The present invention relates to a principally protected hedge fund linked municipal note for clients wanting to avoid phantom income tax and recognize long term capital gains/losses.  
         [0004]     In general terms, the invention is directed to providing an investor with a note that has two main components: a municipal (i.e., tax-free) bond and a (preferably European) hedge fund option. As is known in the art, a European option may be exercised only at the expiry date of the option, i.e. at a single pre-defined point in time, as opposed to an American option, which may be exercised at any time before the expiry date.  
         [0005]     In one aspect, the invention comprises a method comprising: (1) selling a note to an investor for a specified amount; and (2) using proceeds from selling the note to purchase (a) one or more zero coupon municipal bonds, and (b) an option on at least one of the group comprising: a hedge fund, a fund of funds, and a hedge fund index; wherein the note entitles the investor to substantially all of the returns on the one or more bonds and on the option, wherein the one or more bonds are configured to provide a return substantially equal to the specified amount, and wherein the option is a European option.  
         [0006]     In various embodiments: (a) the option is a variable option; (b) the one or more zero coupon municipal bonds mature on a specified maturity date, and the option is exercisable on a date within 12 months of the specified maturity date; (c) the variable option is a periodic reset call option; and (d) a sum of an amount paid to purchase the one or more zero coupon municipal bonds and an amount paid to purchase the option is equal to the specified amount, less commercially reasonable fees.  
         [0007]     Some embodiments of the present invention comprise computer components and computer-implemented steps that will be apparent to those skilled in the art. For example, calculations and communications can be performed electronically, and agreements can be composed, transmitted and executed electronically.  
         [0008]     For ease of exposition, not every step or element of the present invention is described herein as part of a computer system, but those skilled in the art will recognize that each step or element may have a corresponding computer system or software component. Such computer system and/or software components are therefore enabled by describing their corresponding steps or elements (that is, their functionality), and are within the scope of the present invention. 
     
    
     BRIEF DESCRIPTION OF THE DRAWINGS  
       [0009]      FIG. 1  illustrates a preferred embodiment of the present invention. 
     
    
     DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS  
       [0010]     In one embodiment, a 7.5 year note, priced at par ($100), can be viewed in two parts: a zero coupon municipal bond and a leveraged hedge fund investment (i.e., an option). The zero coupon bond, worth approximately $80 (in this example), accretes to par ($100), guaranteeing principal.  
         [0011]     The invention advantageously uses a hedge fund option instead of a direct hedge fund investment. Direct hedge fund investments subject investors to short term gains/losses due to the trading nature of the fund, yet the investor does not reap actual benefits until her stake in the fund is sold.  
         [0012]     In a preferred embodiment, the remaining $20 of the note purchases an option on a fund of funds. Since the $20 purchases an option, the investor is not subject to short term gains/losses (which are taxed at the same rate as ordinary income) but rather long term capital gains/losses (which are taxed at a lower rate than ordinary income) at the expiration of the option.  
         [0013]     The option preferably is a variable option—that is, it represents a variable interest in the fund of funds. Initially the note has 100% participation in the performance of the fund of funds (see Notional Amount in Appendix A). On a monthly basis, the participation in the fund of fund return will be adjusted based upon the performance of the fund of funds and the accretion rate charged by a note issuer. Positive performance of the fund of funds may result in an increased participation in the fund of funds (i.e., additional leverage provided by the note issuer). Negative performance of the fund of funds may result in reduced participation in the fund of funds. This feature is often referred to as a Periodic Reset Option (see “Option Adjustment” in Appendix A).  
         [0014]     Table A below illustrates the possible outcomes of this note at maturity.  
                   TABLE A                       Return   Tax implication                   &lt;$100   N/A* since the zero accretes to $100       $100 to $120   Tax loss since the purchase price of           the option was not recouped       &gt;$120   Long term capital gain                 *N/A assuming that the municipal note does not default.             
 
         [0015]     As depicted in  FIG. 1 , in a preferred embodiment a 7.5 year note  100  is sold by a note issuer to an investor. The note entitles the investor to receive the proceeds (less a fee charged by the issuer) from two investments: a tax-free municipal bond  110  and a hedge fund option  120 . Preferably, approximately 80% of the funds received for the note are invested in one or more (tax-free) zero coupon municipal bonds, and approximately 20% is used to purchase a hedge fund option (preferably an option on a 100% participation—that is, five times the value of the option). At the end of the 7.5 year period, the investor receives the return  140  on the mature bond (approximately 100% of the price of the note) and the option is either exercised or expires, resulting in a gain or loss  160 .  
         [0016]     An important feature of at least one embodiment is variability of the participation related to the option. As stated above, for each $20 invested in the option, the holder is given an initial participation in a fund of funds of $100. However (see Appendix A), on a monthly or other periodic basis, that participation may be adjusted, based on the performance of the fund of funds. Appendix A provides exemplary adjustment formulas, but these are intended to be only exemplary—those skilled in the art will recognize that various other adjustment formulas could be used without departing from the scope of the present invention.  
         [0017]     An exemplary INDEX (see Appendix A) used in an embodiment of the invention is the Dow Jones Hedge Fund Balanced Portfolio Index.  
         [0018]     In an alternate embodiment, certificates (due, say, October 2012) are issued by a trust established pursuant to a series Trust Agreement between a Depositor and a Trustee. The Trust Agreement incorporates the standard terms for trust agreements. Each certificate represents a fractional undivided ownership interest in the Trust.  
         [0019]     The principal assets of the Trust are (i)(a) a (for example) $2,950,000 principal amount of a Zero Coupon Custodial Receipt (see Appendix B) due Jul. 1, 2012, issued by a Custodial Receipt Agent, and (b) a Final Interest Payment Custodial Receipt (see Appendix B) issued by the Custodial Receipt Agent; and (ii) the rights of the Trust under a 1992 ISDA Master Agreement (Multicurrency—Cross Border) (a Periodic Reset Call Option Agreement—see Appendix C) with a Call Option Seller pursuant to which, in exchange for a Call Option Premium received from the Trust on an Effective Date, the Call Option Seller pays each Call Option Settlement Amount, if any, on any Call Option Settlement Date. The amount of a Call Option Settlement Amount is determined based on performance of an Index (e.g., the Dow Jones Hedge Fund Balanced Portfolio Index). Each certificate entitles the holder to a pro rata share of distributions from the Trust.  
         [0020]     While particular elements, embodiments, and applications of the present invention have been shown and described, it should be understood that the invention is not limited thereto, since modifications may be made by those skilled in the art, particularly in light of the foregoing teaching. The appended claims are intended to cover all such modifications that come within the spirit and scope of the invention. This description does not constitute and is not intended to provide tax or accounting advice. Those seeking to implement any aspect of the described invention should seek the advice of their own accounting and legal advisors as to the treatment of proposed implementations in the context of specific circumstances.  
                                                         APPENDIX A                       PRINCIPAL PROTECTED [INDEX] LINKED NOTE       USD DENOMINATED PRINCIPAL PROTECTED NOTE       LINKED TO THE [INDEX]                                Note Issuer:   Special Purpose Issuer [Delaware business trust]       Principal   USD 100,000,000       Amount:       Denominations:   USD 1,000 - minimum purchase of USD 100,000       Maturity Date:   Oct. 31, 2012, subject to adjustment in accordance with the           Following Business Day Convention, an Early Redemption Event or           if the Valuation Date is postponed.       Maturity Value:   100% + Cash Settlement Amount       Index:   [INDEX description]       Index Level:   INDEX value as of Apr. 27, 2005.       Trade Date:   TBD       Issue Date:   Apr. 27, 2005       Deposited Assets:   USD 100,000,000 Municipal Certificate maturing Jul. 1, 2012.           USD 100,000,000 Notional amount of the Index Option.       Municipal   A certificate representing the right to receive the principal paid on       Certificate:   AAA/Aaa rated municipal bonds on the Jul. 1, 2012.       Index Option:   Cash settled option contract between the Note Issuer and the Option           Seller under which the Note Issuer will pay the Premium and the           Option Seller will pay the Cash Settlement Amount, as described           below.       Early Redemption   Upon the occurrence of an Early Redemption Event, the Notes will       Events:   be redeemed on the Early Redemption Date at a price equal to the           Early Redemption Amount.           An “Early Redemption Event” means the occurrence of any of the           following events, as determined by the Calculation Agent:           1. The occurrence of an Early Termination Event with respect           to the Index Option; or           2. The Deposited Bonds default or are deemed taxable.           If an Early Redemption Event occurs, the Note Issuer will send           notice of early redemption to Note holders, the Notes will be           redeemed as of the Early Redemption Date and the Note Issuer will           pay to Note holders on the Early Redemption Date the Early           Redemption Amount.       Early Redemption   An amount equal to the market value of the Municipal Certificate, as       Amount:   determined by the Calculation Agent, plus the Early Termination           Amount.       Early Redemption   The date provided in the Note Issuer&#39;s notice of early redemption to       Date:   the Note holders, provided that such date shall be no later than 60           calendar days following the day the Calculation Agent determines           that an Early Redemption Event has occurred.            Municipal Certificate Terms            Certificate   USD 100,000,000       Payment       Amount:       Certificate   Jul. 1, 2012       Payment Date:       Municipal   A trust which holds the Deposited Municipal Bonds and issues the       Trust:   Municipal Certificate to the Note Issuer. The Municipal Certificate           represents the right to receive an amount of principal paid on the           Deposited Bonds equal to the Certificate Payment Amount.       Deposited   Municipal bonds in an aggregate principal amount no greater than       Bonds:   USD 100,000,000 which mature no later than Certificate Payment Date           and are rated AAA/Aaa at the time such bonds are deposited into the           municipal trust.       Depositor:   [Depositor]       Substitution of   The Depositor shall have the right to deposit additional municipal       Deposited   bonds into the Municipal Trust and withdraw a like principal amount       Bonds:   so long as the delivered bonds mature no later than Oct. 31, 2012           and are rated at the time of substitution AAA/Aaa.            Index Option Terms            Option Seller:   [ ]       Option Style:   European (exercisable only on the Exercise Date)       Exercise Date:   [Jan. 1, 2012], subject to adjustment in accordance with the           Following Business Day Convention, an Early Termination Event or if           the Valuation Date is postponed.       Valuation   The Valuation Date for automatic exercise of the Index Option on the       Date:   Exercise Date shall be the last Calendar day of the month prior to the           Exercise Date, provided that if such date is not an Index Business Day,           the Calculation Agent shall refer to the Index Level for the immediately           preceding Index Business Day. in determining the Index Level for such           Valuation Date; provided further that if the Calculation Agent           determines that a Market Disruption Event has occurred on such day,           such Valuation Date shall be the next succeeding end-of-month           calendar day upon which no Market Disruption Event occurs.           If a Valuation Date is postponed due to a Market Disruption Event or           otherwise (such Valuation Date, a “Postponed Valuation Date”), the           subsequent Valuation Date shall be the last calendar day of the month           after the month in which the Postponed Valuation Date occurs.           Assuming no Market Disruption Events occur, the Valuation Date is           scheduled to be Sep. 28, 2011           The Valuation Date for an Early Termination Event shall be the last           business day of the month that ends after the [30 th ] calendar day after           the Option Seller has sent its notice of early termination, provided that           if such date is not an Index Business Date, the next following Index           Business Date.       Expiration   10:00 a.m., New York time       Time:       Units:   Units (each, a “Unit”) representing interests in the [Index] (the           “Index”).       Hedge Shares:   Shares (each, a “Share”) representing interests in the [Index Tracker]           (the “Fund”).       Number of   Initially [100,000]       Units:   Upon the occurrence of a Downward Adjustment Event, the Number of           Units shall be reduced on the relevant Adjustment Date, by an amount           equal to the Adjustment Amount divided by the Index Level for the           relevant Index Business Day for a hypothetical investor that initiated a           redemption of its Hedge Shares on the Observation Date. If a           Downward Adjustment Event results in more than one Adjustment           Date, the Number of Units shall be reduced on such dates as determined           by the Calculation Agent.           Upon the occurrence of an Upward Adjustment Event, the Number of           Units shall be increased on the relevant Adjustment Date, by an amount           equal to the Adjustment Amount divided by the Index Level for the           relevant Index Business Day for a hypothetical investor that initiated a           subscription for the Hedge Shares on the Observation Date.       Option   [USD 20,000,000] in cash (20% of the initial Notional Amount)       Premium:       Notional   The product of the Index Value times the Number of Units, as       Amount:   determined by the Calculation Agent. Initially, the Notional Amount           will equal [USD 100,000,000] and will be adjusted as described in           “Option Adjustment”.       Strike Price:   Initially, [USD 80,000,000] (80% of the Notional Amount), accreting           daily at the Floating Rate plus the Spread on the basis of Act/360,           compounded monthly from the Effective Date to but not including the           Payment Date, and adjusted as described in “Option Adjustment”.       Floating Rate:   USD-LIBOR-BBA with a designated maturity of 1 month, determined           two Business Days prior to the first of each month commencing with           the Effective Date.       Spread:   [1.75] percent       Adjustment   On any Observation Date,       Ratio:   Adjustment Ratio = Notional Amount/(Notional Amount − Strike Price)           For purposes of determining the Adjustment Ratio on any Observation           Date, the Calculation Agent may use the lesser of the last estimated           Index value as provided by the Administrator of the Hedge Shares or           the last available Index value as published. Solely for purposes of           determining the Adjustment Ratio between an Observation Date and the           corresponding Adjustment Date, the Calculation Agent shall treat the           Notional Amount and the Strike Price as if each had been adjusted by           the Adjustment Amount on such Observation Date.       Initial   5.0 as of the Effective Date       Adjustment       Ratio:       Target   5.0       Adjustment       Ratio:       Maximum   6.0       Adjustment       Ratio:       Minimum   4.0       Adjustment       Ratio:       Option   If on any Observation Date the Calculation Agent determines that the       Adjustment:   then-current Adjustment Ratio exceeds the Maximum Adjustment Ratio           (a “Downward Adjustment Event”), the Strike Price and the Notional           Amount shall be reduced by the same Adjustment Amount on the           relevant Adjustment Date (a “Downward Adjustment”). The           Calculation Agent shall determine the Adjustment Amount on the           Observation Date pursuant to the following formula:           Adjustment Amount = Notional Amount on the Observation Date − ((Notional           Amount on the Observation Date − Strike Price on the           Observation Date) × Target Adjustment Ratio)           In the event that the Strike Price is reduced to or below the Minimum           Strike Price, the Index Option will terminate early pursuant to the           “Early Termination Events” section.           If on any Observation Date the Calculation Agent determines that the           then-current Adjustment Ratio is below the Minimum Adjustment Ratio           (an “Upward Adjustment Event”), the Strike Price and the Notional           Amount shall be increased by the same Adjustment Amount on the           relevant Adjustment Date (an “Upward Adjustment”). The Calculation           Agent shall determine the Adjustment Amount on the Observation Date           pursuant to the following formula:           Adjustment Amount = ((Notional Amount on the Observation Date − Strike           Price on the Observation Date) × Target Adjustment Ratio) − Notional           Amount on the Observation Date           However, under no circumstances shall the Strike Price be increased           above the Maximum Strike Price pursuant to an Upward Adjustment. If           the Strike Price is adjusted such that it equals the Maximum Strike           Price, the Adjustment Amount for purposes of calculating the Number           of Units and Notional Amount shall be the amount by which the Strike           Price is actually adjusted.       Minimum   USD 25,000,000       Strike Price:       Maximum   USD 160,000,000       Strike Price:       Adjustment   For Downward Adjustments:       Dates:   The day that a hypothetical investor in the Hedge Shares would receive           proceeds with respect to redeeming Hedge Shares if it initiated such           redemption on the applicable Observation Date, as determined by the           Calculation Agent. If such proceeds would be received on more than           one date, the Adjustment Dates will be each date that such proceeds           would actually be received, with the Number of Units, Notional           Amount and Strike Price adjusted on such dates as determined by the           Calculation Agent.           For Upward Adjustments:           The day that a hypothetical investor in the Hedge Shares would deliver           proceeds with respect to subscribing for Hedge Shares if it initiated           such subscription on the applicable Observation Date, as determined by           the Calculation Agent.       Observation   Dates on which the Index Level is published, commencing with May 2,       Dates:   2005 and ending with Aug. 31, 2012       Index Business   Any day (a) as of which the Index Level is published and (b) on which a       Days:   Market Disruption Event has not occurred.       Cash   The Note Issuer shall receive on the Payment Date the following       Settlement   amount in USD:       Amount:   Max [Notional Amount f  − Strike Price f ; 0]           Where           “Notional Amount f ” means the Notional Amount as of the Valuation           Date           “Strike Price f ” means the Strike Price as of the Payment Date       Payment Date:   The fifth Business Day after the day that a hypothetical investor in the           Hedge Shares would receive proceeds with respect to redeeming Hedge           Shares if the NAV Date for such redemption were the Valuation Date,           as determined by the Calculation Agent. If such proceeds would be           received on more than one date, the Payment Dates will be the fifth           Business Day after each date that such proceeds would actually be           received, with the Cash Settlement Amount proportionately paid on           such dates as determined by the Calculation Agent.       Early   An “Early Termination Event” means the occurrence of any of the       Termination   following events, as determined by the Calculation Agent in its sole       Events:   discretion:            1. The Index Sponsor fails to comply with the index methodology              or any of the funds underlying the Index fails to comply with the              asset allocation policy, each as represented by the Index Sponsor              to the Calculation Agent, unless such failure is waived by the              Calculation Agent;            2. The Index Sponsor fails to provide the Calculation Agent with              information the Calculation Agent deems necessary to determine              compliance with the index methodology or asset allocation              policy in a timely manner;            3. The Index Sponsor announces that it will make a material              change in the formula for or method of calculating that Index or              in any other way materially modifies the Index;            4. The Index Sponsor fails to calculate and publish the Index Level              for more than 5 consecutive Business Days;            5. The Index is terminated;            6. The Index, the Index Sponsor, the Administrator (defined              below) or the Investment Manager (defined below) materially              breaches any applicable law or regulation or any regulatory or              governmental authority brings an administrative or judicial              proceeding or commences an inquiry against the Index Sponsor,              the Administrator or the Investment Manager alleging any              misconduct or wrongdoing;            7. The annualized volatility of the Index Level exceeds 15% for a              six-month rolling window;            8. There is a change in tax law, tax regulations or the interpretation              of tax law or tax regulations by any court, tribunal or regulatory              authority which could have an adverse economic impact for the              Note Issuer with respect to the Notes or its hedge (as defined              below);            9. The occurrence of a Hedging Disruption Event that is not              waived by the Note Issuer. A “Hedging Disruption Event”              means that the Note Issuer, or any affiliate, is unable, after using              commercially reasonable efforts, to hedge or would incur a              materially increased amount of tax, duty, expense or fee, as              compared to its costs and anticipated costs as of the Trade Date,              to hedge. As used in this termsheet, “hedge” means: (A)              acquire, establish, re-establish, substitute, maintain, unwind or              dispose of any transaction(s) or asset(s) the Note Issuer deems              necessary to hedge the risk of entering into and performing its              obligations with respect to the Index Option or (B) to realize,              recover or remit the proceeds of any such transaction(s) or              asset(s).           10. The administrator or investment manager of a transaction or              asset deemed necessary by the Note Issuer, or any affiliate, to              hedge (the “Administrator” and the “Investment Manager”,              respectively) ceases to act in the capacity of administrator or              investment manager and a replacement administrator or              investment manager is not appointed immediately and/or is not              acceptable to the Calculation Agent.           11. The Index Level is no longer calculated in USD;           12. Index Option Seller is unable to purchase or sell the Hedge           Shares on at least a monthly basis;           If an Early Termination Event occurs, the Option Seller will send notice           of early termination to the Note Issuer, the Index Option shall be           cancelled as of the Valuation Date and the Note Issuer shall be entitled           to an amount equal to the Cash Settlement Amount, as determined by           the Calculation Agent, less the cost to the Option Seller, or any affiliate,           of unwinding any related hedging arrangements, as determined by the           Option Seller.       Early   An amount equal to the market value of the Option as of the last       Termination   calendar day of the month immediately preceding the month in which       Amount:   the Early Termination Date occurs, as determined by the Calculation           Agent, less the cost to the Option Seller, or any affiliate, of unwinding           any related hedging arrangements, as determined by the Option Seller;           provided that if the Calculation Agent determines that a Market           Disruption Event has occurred on such day, the Calculation Agent shall           determine the Early Termination Amount with reference to the next           succeeding end-of-month calendar day upon which no Market           Disruption Event occurs..           In determining the Early Termination Amount, the Calculation Agent           may, but need not, consider any relevant information, including,           without limitation, information consisting of relevant market data in the           relevant market including, without limitation, relevant rates, prices,           yields, volatilities, spreads, correlations or other relevant market data           from internal sources (including any affiliates of the Calculation Agent)           or otherwise.           The “Early Termination Amount” shall be determined by the           Calculation Agent.       Early   The date provided in the Option Seller&#39;s notice of early termination to       Termination   the Option Buyer.       Date:       Market   Market Disruption Event means, on any day, any event that disrupts or       Disruption   impairs the ability of the Issuer, or any affiliate, to obtain values for       Event:   such day for any transaction or asset deemed necessary by the Issuer, or           any affiliate, to hedge, at which value the Issuer, or any affiliate, could           subsequently unwind or dispose of such transaction or asset.       Business Days   New York, London       Calculation   [ ], whose determinations and calculations shall be binding absent       Agent:   manifest error.                  
 
         [0021]    
       
         
               
             
               
               
             
               
             
               
               
             
           
               
                 APPENDIX B 
               
               
                   
               
               
                   
               
               
                 Zero Coupon Custodial Receipt: 
               
               
                   
               
             
             
               
                   
               
             
          
           
               
                 CUSIP: 
                 [ ]. 
               
               
                 Original Aggregate Principal 
                 $2,950,000. 
               
               
                 Amount Outstanding: 
               
               
                 Issue Date: 
                 Apr. 27, 2005. 
               
               
                 Maturity Date: 
                 Jul. 1, 2012. 
               
               
                 Initial Deposit Price: 
                 80%. 
               
               
                 Original Issue Price: 
                 80%. 
               
               
                 Adjusted Issue Price: 
                 80%. 
               
               
                 Initial Market Value: 
                 Initial Deposit Price multiplied by the Original 
               
               
                   
                 Aggregate Principal Amount Outstanding. 
               
               
                 Interest Rate per Annum: 
                 No interest will be paid on the Zero Coupon 
               
               
                   
                 Custodial Receipt. 
               
               
                 Interest Payment Dates: 
                 No interest will be paid on the Zero Coupon 
               
               
                   
                 Custodial Receipt. 
               
               
                 Redemptions: 
                 See details of Custodial Receipt Underlying 
               
               
                   
                 Bonds in Exhibit A attached hereto. 
               
               
                 Specified Private Activity Bond 
                 No. 
               
               
                 (Subject to AMT): 
               
               
                 Pre-Refunded Bonds: 
                 No. 
               
               
                 Principal Credit Source: 
                 The governmental issuer of the Custodial Receipt 
               
               
                   
                 Underlying Bonds described in Exhibit A attached 
               
               
                   
                 hereto or, if any other Principal Credit Source is 
               
               
                   
                 identified in such Exhibit A hereto, such other 
               
               
                   
                 Principal Credit Source. 
               
               
                 Principal: 
                 Principal will be paid on the Maturity Date. 
               
             
          
           
               
                 Final Interest Payment Custodial Receipt: 
               
             
          
           
               
                 CUSIP: 
                   
               
               
                 Notional Principal Amount: 
                 $50,000. 
               
               
                 Issue Date: 
                 Apr. 27, 2005. 
               
               
                 Maturity Date: 
                 Jul. 1, 2012. 
               
               
                 Initial Deposit Price: 
                 80%. 
               
               
                 Original Issue Price: 
                 80%. 
               
               
                 Adjusted Issue Price: 
                 80%. 
               
               
                 Initial Market Value: 
                 Initial Deposit Price multiplied by the Original 
               
               
                   
                 Aggregate Principal Amount Outstanding. 
               
               
                 Yield per Annum: 
                 3.1331% (331.31 bps per annum) yield. 
               
               
                 Interest Payment Date: 
                 Jul. 1, 2012. 
               
               
                 Redemptions: 
                 See details of Custodial Receipt Underlying Bonds 
               
               
                   
                 in Exhibit A attached hereto. 
               
               
                 Specified Private Activity Bond 
                 No. 
               
               
                 (Subject to AMT): 
               
               
                 Pre-Refunded Bonds: 
                 No. 
               
               
                 Principal Credit Source: 
                 The governmental issuer of the Custodial Receipt 
               
               
                   
                 Underlying Bonds described in Exhibit A attached 
               
               
                   
                 hereto or, if any other Principal Credit Source is 
               
               
                   
                 identified in such Exhibit A hereto, such other 
               
               
                   
                 Principal Credit Source. 
               
               
                 Principal: 
                 No principal will be paid on the Final Interest 
               
               
                   
                 Payment Custodial Receipt. 
               
               
                 Underlying Securities 
                 No transfer of a Custodial Receipt (including 
               
               
                 Transfer Restrictions: 
                 transfers of beneficial ownership not registered on 
               
               
                   
                 the books of the Custodian and over which the 
               
               
                   
                 Custodian has no direct control) will be made 
               
               
                   
                 unless the transferor obtains from the transferee 
               
               
                   
                 holder or beneficial owner of such Custodial 
               
               
                   
                 Receipt (and presents a copy of the same to the 
               
               
                   
                 Depositor) a letter describing the nature of the 
               
               
                   
                 transferee and its holding of such Custodial 
               
               
                   
                 Receipt and also certifying to the effect that: (i) the 
               
               
                   
                 transferee is either (a) an “Accredited Investor,” 
               
               
                   
                 as that term is defined in Rule 501(a) of Regulation 
               
               
                   
                 D under the Securities Act, is purchasing for its 
               
               
                   
                 own account and for investment purposes only and 
               
               
                   
                 has such knowledge and experience in financial or 
               
               
                   
                 business matters that it is capable of evaluating the 
               
               
                   
                 merits and risk of an investment such as the 
               
               
                   
                 Custodial Receipt or (b) a “Qualified 
               
               
                   
                 Institutional Buyer,” within the meaning of Rule 
               
               
                   
                 144A under the Securities Act (“Rule 144A”), in 
               
               
                   
                 which case the Custodial Receipt is to be 
               
               
                   
                 registered with The Depository Trust Company 
               
               
                   
                 (“DTC”), New York, New York, or any other 
               
               
                   
                 securities depository and the transferee has 
               
               
                   
                 provided the required information relating to its 
               
               
                   
                 status as a “Qualified Institutional Buyer” within 
               
               
                   
                 the meaning of Rule 144A; (ii) the transferee has 
               
               
                   
                 provided the required information relating to its 
               
               
                   
                 status as a “Qualified Purchaser,” as that term is 
               
               
                   
                 defined in Section 2(a)(51) of the Investment 
               
               
                   
                 Company Act, and the Depositor reasonably 
               
               
                   
                 believes such information to be true, accurate and 
               
               
                   
                 complete; (iii) the transferee was not formed solely 
               
               
                   
                 to acquire the Custodial Receipt and is not an 
               
               
                   
                 investment company (or other entity) relying on 
               
               
                   
                 Section 3(c)(1) or Section 3(c)(7) of the 
               
               
                   
                 Investment Company Act for an exemption from 
               
               
                   
                 registration thereunder as an investment company; 
               
               
                   
                 subject in each case to such additional conditions 
               
               
                   
                 imposed on permitted investors as may be set forth 
               
               
                   
                 in a supplement hereto; (iv) the transferee, and 
               
               
                   
                 each subsequent transferee, may not sell or 
               
               
                   
                 otherwise dispose of the Custodial Receipt except 
               
               
                   
                 to a further transferee who provides or has 
               
               
                   
                 provided a written certificate to similar effect; and 
               
               
                   
                 (v) the transferee has received all information 
               
               
                   
                 regarding the Custodial Receipt necessary to make 
               
               
                   
                 an informed decision to invest in the Custodial 
               
               
                   
                 Receipt, including information requested to verify 
               
               
                   
                 other information received, and has received all the 
               
               
                   
                 information that it has requested from the seller, 
               
               
                   
                 and the transferee has been afforded a reasonable 
               
               
                   
                 time to ask questions about the tents and 
               
               
                   
                 conditions of the offering of the Custodial Receipt 
               
               
                   
                 and has received complete and satisfactory 
               
               
                   
                 answers to all such questions. The transferee, and 
               
               
                   
                 each subsequent transferee, may not sell or 
               
               
                   
                 otherwise dispose of the Custodial Receipt except 
               
               
                   
                 to a further transferee who provides or has 
               
               
                   
                 provided a written certificate to similar effect. 
               
               
                 Form of 
                 The Zero Coupon Custodial Receipt and the Final 
               
               
                 Underlying Securities: 
                 Interest Payment Custodial Receipt will initially be 
               
               
                   
                 held at DTC in book-entry form and exchangeable, 
               
               
                   
                 at the option of the registered owner thereof, to 
               
               
                   
                 physical form. 
               
               
                 Amendments Not Requiring Consent of 
                 The form of the Custodial Receipts and any 
               
               
                 Beneficial Owners of Custodial 
                 provisions of the Custody Agreement may be 
               
               
                 Receipts: 
                 amended at any time by agreement between the 
               
               
                   
                 Custodian and the Depositor without the consent of 
               
               
                   
                 any of the beneficial owners of the Custodial 
               
               
                   
                 Receipts for purposes of (i) providing for a 
               
               
                   
                 qualified securities depository to replace DTC, (ii) 
               
               
                   
                 modifying any provisions to the extent necessary 
               
               
                   
                 to maintain the tax-exempt treatment or securities 
               
               
                   
                 treatment of the Custodial Receipts, or (iii) curing 
               
               
                   
                 any formal defect, omission, inconsistency or 
               
               
                   
                 ambiguity deemed necessary or desirable by the 
               
               
                   
                 Depositor; provided that, in the case of (iii) 
               
               
                   
                 above, the Custodian shall have received an 
               
               
                   
                 opinion of counsel satisfactory to the Custodian 
               
               
                   
                 that such amendment will not adversely affect the 
               
               
                   
                 interests of any beneficial owners of the Custodial 
               
               
                   
                 Receipts. 
               
               
                 Amendments Requiring Consent of 
                 All other amendments to the form of the Custodial 
               
               
                 Beneficial Owners of Custodial 
                 Receipts or to any provisions of the Custody 
               
               
                 Receipts: 
                 Agreement may be made only with the consent of 
               
               
                   
                 100% of the beneficial owners of the affected 
               
               
                   
                 Custodial Receipts, which consent will be executed 
               
               
                   
                 by the DTC participant (as listed on either an 
               
               
                   
                 official DTC position listing or an official DTC 
               
               
                   
                 proxy that holds the Custodial Receipts on behalf 
               
               
                   
                 of the registered owner). 
               
               
                   
               
             
          
         
       
     
         [0022]    
       
         
               
             
               
               
             
           
               
                 APPENDIX C 
               
               
                   
               
               
                   
               
               
                 EXEMPLARY PERIODIC RESET CALL OPTION AGREEMENT 
               
               
                   
               
             
             
               
                   
               
             
          
           
               
                 Periodic Reset Call 
                 On the Closing Date, the Trust will enter into an option 
               
               
                 Option Agreement: 
                 transaction (the “Periodic Reset Call Option”) with the 
               
               
                   
                 Call Option Seller. The Periodic Reset Call Option will be 
               
               
                   
                 documented using ISDA documentation. 
               
               
                 Effective Date: 
                 Apr. 27, 2005. 
               
               
                 Periodic Reset Call Option Style: 
                 European (exercisable only on the Expiration Date). 
               
               
                 Expiration Date: 
                 Oct. 31, 2012, subject to adjustment in accordance with 
               
               
                   
                 the Following Business Day Convention, an Early 
               
               
                   
                 Termination Event or if the Valuation Date is postponed. 
               
               
                 Expiration Time: 
                 10:00 a.m., New York time. 
               
               
                 Call Option Seller: 
                 [Call Option Seller] 
               
               
                 Call Option Guarantor: 
                 The obligations of the Call Option Seller under the Periodic 
               
               
                   
                 Reset Call Option Agreement will be unconditionally and 
               
               
                   
                 irrevocably guaranteed by [Call Option Guarantor] pursuant 
               
               
                   
                 to a guarantee issued in favor of the Trust. 
               
               
                 Notional Amount: 
                 The product of (a) the Index Level and (b) the Number of 
               
               
                   
                 Units, each as determined by the Calculation Agent plus (i) 
               
               
                   
                 the Upward Adjustment Amount on each day between and 
               
               
                   
                 including the Upward Adjustment Date and the Relevant 
               
               
                   
                 Index Business Day or (ii) the Downward Adjustment 
               
               
                   
                 Amount on each day between and including the Relevant 
               
               
                   
                 Index Business Day and the Downward Adjustment Date, 
               
               
                   
                 as applicable. On the Effective Date, the Notional Amount 
               
               
                   
                 will equal $3,000,000 and is subject to adjustment as set 
               
               
                   
                 forth in “-Adjustment” herein. 
               
               
                   
                 “Relevant Index Business Day” means the Index Business 
               
               
                   
                 Day on which a hypothetical investor who initiated a 
               
               
                   
                 subscription or redemption of its Hedge Shares on the 
               
               
                   
                 Observation Date would receive or lose its exposure to the 
               
               
                   
                 Funds, as applicable. 
               
               
                   
                 “Index Level” means the published level of the Index on 
               
               
                   
                 an Index Business Day with the initial Index Level being 
               
               
                   
                 the published level of the Index on Apr. 29, 2005 (or, if 
               
               
                   
                 such day is not an Index Business Day, the next following 
               
               
                   
                 Index Business Day) (the “Initial Index Level”). 
               
               
                 Strike Price: 
                 Initially $2,400,000 (originally 80% of the Notional 
               
               
                   
                 Amount), accreting daily at the Call Option Strike 
               
               
                   
                 Accretion Rate, compounded monthly from the Effective 
               
               
                   
                 Date to, but not including, the Call Option Settlement Date, 
               
               
                   
                 subject to adjustment as set forth in “-Adjustment” herein. 
               
               
                 Amounts Payable by 
                 Under the Periodic Reset Call Option Agreement, on each 
               
               
                 Call Option Seller: 
                 Call Option Settlement Date the Call Option Seller is 
               
               
                   
                 obligated to pay to the Trust the related Call Option 
               
               
                   
                 Settlement Amount, if any, for such date. 
               
               
                 Call Option Premium: 
                 Under the Periodic Reset Call Option Agreement, the Trust 
               
               
                   
                 is obligated to pay to the Call Option Seller USD 600,000 
               
               
                   
                 (originally 20% of the Notional Amount) (the “Call Option 
               
               
                   
                 Premium”) on the Effective Date. 
               
               
                 Valuation Date: 
                 The Valuation Date for automatic exercise of the Periodic 
               
               
                   
                 Reset Call Option on the Expiration Date shall be the last 
               
               
                   
                 calendar day of the month prior to the Expiration Date (the 
               
               
                   
                 “Valuation Date”); provided that if the Index Level is not 
               
               
                   
                 published as of such date, the Calculation Agent shall refer 
               
               
                   
                 to the Index Level for the immediately preceding Business 
               
               
                   
                 Day as of which the Index Level is published in 
               
               
                   
                 determining the Index Level for such Valuation Date. If the 
               
               
                   
                 scheduled Valuation Date is not an Index Business Day due 
               
               
                   
                 to a Market Disruption Event, the Valuation Date shall be 
               
               
                   
                 postponed until the last Index Business Day of the 
               
               
                   
                 succeeding month; provided that if there are no Index 
               
               
                   
                 Business Days in the succeeding month, an Early 
               
               
                   
                 Termination Event shall occur. 
               
               
                   
                 Assuming no Market Disruption Event occurs, the 
               
               
                   
                 Valuation Date is scheduled to be Sep. 28, 2012. 
               
               
                   
                 “Index Business Day” means any day (a) as of which the 
               
               
                   
                 Index Level is published and (b) on which a Market 
               
               
                   
                 Disruption Event has not occurred. 
               
               
                   
                 “Market Disruption Event” means on any day, any event 
               
               
                   
                 that disrupts or impairs the ability of the Calculation Agent, 
               
               
                   
                 or any affiliate, to obtain values for such day for any 
               
               
                   
                 transaction or asset deemed necessary by the Call Option 
               
               
                   
                 Seller, or any affiliate, to Hedge, at which value the Call 
               
               
                   
                 Option Seller, or any affiliate, could subsequently unwind 
               
               
                   
                 or dispose of such transaction or asset. 
               
               
                 Calculation Agent: 
                 [Calculation Agent] 
               
               
                 Index: 
                 The Dow Jones Hedge Fund Balanced Portfolio Index, each 
               
               
                   
                 interest therein represented by units (each, a “Unit”). A 
               
               
                   
                 description of the Index is attached as Annex A hereto. 
               
               
                   
                 “Index Publisher” means Dow Jones Hedge Fund Indexes, 
               
               
                   
                 Inc. 
               
               
                   
                 “Index Platform Provider” means [Index Platform 
               
               
                   
                 Provider]. 
               
               
                   
                 “Funds” means each of the six investable portfolio funds 
               
               
                   
                 underlying the Dow Jones Hedge Fund Balanced Portfolio 
               
               
                   
                 Index. 
               
               
                   
                 “Hedge Shares” mean shares (each, a “Share”) 
               
               
                   
                 representing interests in all of the Funds. 
               
               
                   
                 “Number of Units” means, initially, 1000 divided by the 
               
               
                   
                 Initial Index Level. 
               
               
                   
                 Upon the occurrence of a Downward Adjustment Event, the 
               
               
                   
                 Number of Units shall be reduced on the Relevant Index 
               
               
                   
                 Business Day, by an amount equal to the Downward 
               
               
                   
                 Adjustment Amount divided by the Index Level for the 
               
               
                   
                 Relevant Index Business Day. If a Downward Adjustment 
               
               
                   
                 Event results in more than one Relevant Index Business 
               
               
                   
                 Day, the Number of Units shall be reduced on such dates as 
               
               
                   
                 determined by the Calculation Agent. 
               
               
                   
                 Upon the occurrence of an Upward Adjustment Event, the 
               
               
                   
                 Number of Units shall be increased on the Relevant Index 
               
               
                   
                 Business Day, by an amount equal to the Upward 
               
               
                   
                 Adjustment Amount divided by the Index Level for the 
               
               
                   
                 Relevant Index Business Day. 
               
               
                 Call Option Strike Accretion 
                 The Base Rate plus the Spread multiplied by the Day Count 
               
               
                 Rate: 
                 Fraction. 
               
               
                 Base Rate: 
                 USD - LIBOR - BBA 
               
               
                 Designed Maturity: 
                 One Month. 
               
               
                 Spread: 
                 1.75%. 
               
               
                 Day Count Fraction: 
                 Actual/360. 
               
               
                 Reset Dates: 
                 Two Business Days prior to the first day of each month 
               
               
                   
                 commencing on the Effective Date. 
               
               
                 Business Day: 
                 Any day, other than a Saturday or Sunday, that is neither a 
               
               
                   
                 legal holiday nor a day on which banking institutions and 
               
               
                   
                 trust companies in New York City or London are 
               
               
                   
                 authorized or obligated by law or executive order to close. 
               
               
                 Call Option Settlement 
                 As of any Call Option Settlement Date, the greater of (a) 
               
               
                 Amount(s): 
                 the Notional Amount as of the Valuation Date minus the 
               
               
                   
                 Strike Price as of the Call Option Settlement Date and (b) 
               
               
                   
                 zero; provided that in the event there is more than one Call 
               
               
                   
                 Option Settlement Date, the Call Option Settlement 
               
               
                   
                 Amount, if any, will be proportionately paid on each such 
               
               
                   
                 Call Option Settlement Date. 
               
               
                 Call Option Settlement Date(s): 
                 Each fifth Business Day after the day that a hypothetical 
               
               
                   
                 investor in the Hedge Shares would receive proceeds with 
               
               
                   
                 respect to redeeming Hedge Shares if the Index Business 
               
               
                   
                 Day for such redemption were the Valuation Date, as 
               
               
                   
                 determined by the Calculation Agent. If such proceeds 
               
               
                   
                 would be received on more than one date, the Call Option 
               
               
                   
                 Settlement Dates will be the fifth Business Day after each 
               
               
                   
                 date that such proceeds would actually be received. 
               
               
                 Adjustment: 
                 If on any Observation Date: 
               
               
                   
                 (a) the Calculation Agent determines that the then-current 
               
               
                   
                 Adjustment Ratio exceeds the Maximum Adjustment Ratio 
               
               
                   
                 (such occurrence, a “Downward Adjustment Event”), the 
               
               
                   
                 Strike Price and the Notional Amount will be reduced by 
               
               
                   
                 the Downward Adjustment Amount on the related 
               
               
                   
                 Downward Adjustment Date (a “Downward 
               
               
                   
                 Adjustment”); or 
               
               
                   
                 (b) the Calculation Agent determines that the then-current 
               
               
                   
                 Adjustment Ratio is below the Minimum Adjustment Ratio 
               
               
                   
                 (such occurrence, an “Upward Adjustment Event”), the 
               
               
                   
                 Strike Price and the Notional Amount will be increased by 
               
               
                   
                 the Upward Adjustment Amount on the related Upward 
               
               
                   
                 Adjustment Date (an “Upward Adjustment”). 
               
               
                   
                 As used herein. 
               
               
                   
                 “Adjustment Amount” means any Upward Adjustment 
               
               
                   
                 Amount or Downward Adjustment Amount, as applicable. 
               
               
                   
                 “Adjustment Ratio” means the Notional Amount divided 
               
               
                   
                 by the difference between the Notional Amount and the 
               
               
                   
                 Strike Price. As of the Effective Date, the Adjustment 
               
               
                   
                 Ratio will equal 5.00. To determine the Adjustment Ratio, 
               
               
                   
                 the Calculation Agent will use the Index Level as of the 
               
               
                   
                 Observation Date. In the event that the Adjustment Ratio 
               
               
                   
                 must be calculated during the period between an 
               
               
                   
                 Observation Date and the corresponding Adjustment Date, 
               
               
                   
                 the Calculation Agent will treat each of the Notional 
               
               
                   
                 Amount and the Strike Price as though the Adjustment 
               
               
                   
                 Amount had been applied as of such Observation Date. 
               
               
                   
                 “Downward Adjustment Amount” means, with respect to 
               
               
                   
                 any Downward Adjustment, the (i) Notional Amount as of 
               
               
                   
                 the Observation Date related to such Downward 
               
               
                   
                 Adjustment minus (ii)(a) the difference between the 
               
               
                   
                 Notional Amount and the Strike Price, each as of the 
               
               
                   
                 Observation Date related to such Downward Adjustment, 
               
               
                   
                 multiplied by (b) the Target Adjustment Ratio; provided 
               
               
                   
                 that if the Downward Adjustment Amount decreases the 
               
               
                   
                 Strike Price to an amount below the Minimum Strike Price, 
               
               
                   
                 such event will constitute an Early Termination Event. 
               
               
                   
                 “Downward Adjustment Date” means, with respect to a 
               
               
                   
                 redemption of the Hedge Shares on the related Observation 
               
               
                   
                 Date, the day on which a hypothetical investor in such 
               
               
                   
                 Hedge Shares would receive proceeds with respect to such 
               
               
                   
                 redemption, as determined by the Calculation Agent. In the 
               
               
                   
                 event such proceeds would be received on more than one 
               
               
                   
                 date, the Downward Adjustment Date will be each date 
               
               
                   
                 such proceeds would actually be received. 
               
               
                   
                 “Maximum Adjustment Ratio” means 6.00. 
               
               
                   
                 “Maximum Strike Price” means $4,800,000. 
               
               
                   
                 “Minimum Adjustment Ratio” means 4.00. 
               
               
                   
                 “Minimum Strike Price” means $750,000. 
               
               
                   
                 “Observation Date” means a day on which the Index 
               
               
                   
                 Level is published commencing with May 2, 2005 and 
               
               
                   
                 ending with Aug. 31, 2012. 
               
               
                   
                 “Target Adjustment Ratio” means 5.00. 
               
               
                   
                 “Upward Adjustment Amount” means, with respect to 
               
               
                   
                 any Upward Adjustment, the difference between (i) the 
               
               
                   
                 product of (a) the difference between the Notional Amount 
               
               
                   
                 and the Strike Price, each as of the Observation Date related 
               
               
                   
                 to such Upward Adjustment and (b) the Target Adjustment 
               
               
                   
                 Ratio and (ii) the Notional Amount as of the Observation 
               
               
                   
                 Date related to such Upward Adjustment; provided that if 
               
               
                   
                 the Upward Adjustment Amount increases the Strike Price 
               
               
                   
                 to an amount greater than the Maximum Strike Price, the 
               
               
                   
                 Adjustment Amount will equal the difference of the 
               
               
                   
                 Maximum Strike Price and the Strike Price before such 
               
               
                   
                 adjustment. 
               
               
                   
                 “Upward Adjustment Date” means, with respect to a 
               
               
                   
                 subscription for Hedge Shares on the related Observation 
               
               
                   
                 Date, the day that a hypothetical investor in the Hedge 
               
               
                   
                 Shares would deliver proceeds with respect to such 
               
               
                   
                 subscription, as determined by the Calculation Agent. 
               
               
                 Events of Default and 
                 The Event of Default specified in clause (c) under the 
               
               
                 Termination Events: 
                 heading “The Periodic Reset Call Option Agreement - 
               
               
                   
                 Events of Default” and only the Termination Event 
               
               
                   
                 specified in clause (c) under the heading “The Periodic 
               
               
                   
                 Reset Call Option Agreement - Termination Events” 
               
               
                   
                 applies with respect to the Periodic Reset Call Option 
               
               
                   
                 Agreement. See “The Periodic Reset Call Option 
               
               
                   
                 Agreement” in the Private Placement Memorandum. 
               
               
                 Additional Termination Events: 
                 The following constitute Additional Termination Events 
               
               
                   
                 under the Periodic Reset Call Option Agreement: 
               
               
                   
                 (i) The Index Publisher or the Index Platform Provider 
               
               
                   
                 fails to provide the Calculation Agent with the 
               
               
                   
                 information the Calculation Agent deems necessary to 
               
               
                   
                 determine compliance with the index methodology or 
               
               
                   
                 asset allocation policy in a timely manner; 
               
               
                   
                 (ii) The Index Publisher or the Index Platform Provider 
               
               
                   
                 (a) fails to comply with the Index methodology as 
               
               
                   
                 stipulated on the Effective Date or (b) announces that it 
               
               
                   
                 will make, or does make, a material change in the formula 
               
               
                   
                 for or the method of calculating the Index or in any other 
               
               
                   
                 way materially modifies the Index or the Hedge Shares or 
               
               
                   
                 permanently cancels the Index; 
               
               
                   
                 (iii) The Index Publisher or the Index Platform Provider 
               
               
                   
                 fails to calculate and publish the Index Level for more 
               
               
                   
                 than 5 consecutive Business Days; 
               
               
                   
                 (iv) The Index is terminated; 
               
               
                   
                 (v) The Index, the Index Publisher, the Index Platform 
               
               
                   
                 Provider, the Administrator or the Investment Manager 
               
               
                   
                 (as defined herein) materially breaches any applicable law 
               
               
                   
                 or regulation or any regulatory or governmental authority 
               
               
                   
                 brings an administrative or judicial proceeding or 
               
               
                   
                 commences an inquiry against the Index Publisher, the 
               
               
                   
                 Administrator or the Investment Manager alleging any 
               
               
                   
                 misconduct or wrongdoing; 
               
               
                   
                 (vi) The annualized Volatility of the Index Level 
               
               
                   
                 exceeds 15% for a six-month rolling window. 
               
               
                   
                 “Volatility” for a given time window, means, as of any 
               
               
                   
                 date of determination and with respect to the Index, the 
               
               
                   
                 annualized standard deviation of the monthly percentage 
               
               
                   
                 changes in the level of the Index for the particular time 
               
               
                   
                 window preceding such date of determination, expressed 
               
               
                   
                 as a percentage, as determined by the Calculation Agent; 
               
               
                   
                 (vii) There is a change in tax law, tax regulations, 
               
               
                   
                 practice or the interpretation of tax law or tax regulations 
               
               
                   
                 or practice by any court, tribunal or regulatory authority 
               
               
                   
                 which could have an adverse economic impact for the 
               
               
                   
                 Trust with respect to the Notes or the Call Option Seller&#39;s 
               
               
                   
                 Hedge (as defined below); 
               
               
                   
                 (viii) The occurrence of a Hedging Disruption Event that 
               
               
                   
                 is not waived by the Call Option Seller. A “Hedging 
               
               
                   
                 Disruption Event” means that the Call Option Seller, or 
               
               
                   
                 any affiliate, is unable, after using commercially 
               
               
                   
                 reasonable efforts, to Hedge or would incur a materially 
               
               
                   
                 increased amount of tax, duty, expense or fee, as 
               
               
                   
                 compared to its costs and anticipated costs as of the 
               
               
                   
                 Effective Date, to hedge. As used herein, “Hedge” 
               
               
                   
                 means: (A) acquire, establish, re-establish, substitute, 
               
               
                   
                 maintain, unwind or dispose of any transaction(s) or 
               
               
                   
                 asset(s) the Call Option Seller deems necessary to hedge 
               
               
                   
                 the risk of entering into and performing its obligations 
               
               
                   
                 with respect to the Periodic Reset Call Option or (B) to 
               
               
                   
                 realize, recover or remit the proceeds of any such 
               
               
                   
                 transaction(s) or asset(s). 
               
               
                   
                 (ix) The Administrator or the Investment Manager 
               
               
                   
                 ceases to act in the capacity of administrator or 
               
               
                   
                 investment manager and a replacement administrator or 
               
               
                   
                 investment manager is not appointed immediately and/or 
               
               
                   
                 is not acceptable to the Calculation Agent. 
               
               
                   
                 (x) The Index Level is no longer calculated in US 
               
               
                   
                 Dollars; 
               
               
                   
                 (xi) The occurrence of an Early Redemption Event 
               
               
                   
                 under the Trust Agreement that results in the early 
               
               
                   
                 redemption of the Certificates; 
               
               
                   
                 (xii) The Downward Adjustment Amount decreases the 
               
               
                   
                 Strike Price to an amount below the Minimum Strike 
               
               
                   
                 Price; 
               
               
                   
                 (xiii) A termination of the License Agreement or the 
               
               
                   
                 Sublicense Agreement; 
               
               
                   
                 (xiv) A Market Disruption Event occurs on the scheduled 
               
               
                   
                 Valuation Date and there are no Index Business Days in 
               
               
                   
                 the succeeding month; 
               
               
                   
                 (xv) There is a change in or adoption of any law due to 
               
               
                   
                 the promulgation of, or any change in interpretation by 
               
               
                   
                 any court, tribunal or regulatory authority of any law 
               
               
                   
                 which causes it to become unlawful for the Call Option 
               
               
                   
                 Seller, the Call Option Guarantor or any of their affiliates 
               
               
                   
                 to perform any obligations hereunder or otherwise has 
               
               
                   
                 material adverse consequences for the Call Option Seller, 
               
               
                   
                 the Call Option Guarantor or any of their affiliates; or 
               
               
                   
                 (xvi) The Index Publisher is no longer Dow Jones Hedge 
               
               
                   
                 Fund Indexes, Inc. or the Index Platform Provider is no 
               
               
                   
                 longer Lyra Capital LLC. 
               
               
                   
                 As used herein: 
               
               
                   
                 “Administrator” means an administrator of a transaction 
               
               
                   
                 or asset deemed necessary by the Issuer, or any affiliate, to 
               
               
                   
                 Hedge. 
               
               
                   
                 “Investment Manager” means an investment manager of a 
               
               
                   
                 transaction or asset deemed necessary by the Issuer, or any 
               
               
                   
                 affiliate, to Hedge. 
               
               
                 Early Termination Amount: 
                 An amount equal to the market value of the Periodic Reset 
               
               
                   
                 Call Option as of the last Business Day of the month 
               
               
                   
                 immediately preceding the month in which the Early 
               
               
                   
                 Termination Date occurs, as determined by the Calculation 
               
               
                   
                 Agent, less the cost and total losses to the Call Option 
               
               
                   
                 Seller, or any affiliate, of unwinding any related Hedge 
               
               
                   
                 positions, as determined by the Call Option Seller; provided 
               
               
                   
                 that if the Calculation Agent determines that a Market 
               
               
                   
                 Disruption Event has occurred on such day, the Calculation 
               
               
                   
                 Agent shall determine the Early Termination Amount with 
               
               
                   
                 reference to the next succeeding end-of-month Business 
               
               
                   
                 Day upon which no Market Disruption Event occurs; 
               
               
                   
                 provided, further, that if a Market Disruption Event occurs 
               
               
                   
                 on each of the six succeeding end-of-month Business Days, 
               
               
                   
                 then the Calculation Agent shall make a good faith estimate 
               
               
                   
                 of the market value of the Periodic Reset Call Option as of 
               
               
                   
                 such sixth end-of-month Business Day. 
               
               
                   
                 In determining the Early Termination Amount, the 
               
               
                   
                 Calculation Agent may, but is not required to, consider the 
               
               
                   
                 following: (i) relevant market data in the relevant market 
               
               
                   
                 including, without limitation, relevant rates, prices, yields, 
               
               
                   
                 volatilities, spread or correlations, (ii) relevant market data 
               
               
                   
                 from internal sources, including any affiliates of the 
               
               
                   
                 Calculation Agent, and (iii) any other information deemed 
               
               
                   
                 relevant by the Calculation Agent. 
               
               
                   
                 “Early Termination Date” means the date provided in the 
               
               
                   
                 Call Option Seller&#39;s notice of early termination to the Trust. 
               
               
                   
                 The Early Termination Amount, if any, will be paid by the 
               
               
                   
                 Call Option Seller to the Trust.