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Short-Term Equity Participation Units (STEP Units)
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A synthetic PERCS structure using a portfolio or index rather than a single stock. The basic structure features a higher yield than the underlying instrument(s) and full participation in the value of the underlying up to the capped price. The proceeds from the sale of a cap (call) is invested in an annuity to pay the higher dividend yield. A minor tax feature defers tax on the incremental yield until maturity, typically three years. At expiration of the trust, large unit holders can elect to receive stock; otherwise, shares will be sold and proceeds distributed. Unlike PERCS, these synthetics raise no new capital for issuers. Also called Packaged Equity Trust Securities (PETS). See Trust for Income Participation from Stocks (TIPS). See also Preference Equity Redemption Cumulative Stock (PERCS) (diagrams).
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Glossary *
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