As filed with the Securities and Exchange Commission on November 4, 1997
Registration No. 333-31133
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-6
For Registration Under the Securities Act
of 1933 of Securities of Unit Investment
Trusts Registered on Form N-8B-2
---------------------
<TABLE>
<S> <C>
A. EXACT NAME OF TRUST:
Schwab Trusts, Schwab Ten Trust, 1997 Series A
B. NAME OF DEPOSITORS:
Charles Schwab & Co., Inc. Reich & Tang Distributors L.P.
C. COMPLETE ADDRESS OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
Charles Schwab & Co., Inc. Reich & Tang Distributors L.P.
101 Montgomery Street 600 Fifth Avenue
San Francisco, California 94104 New York, New York 10020
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
COPY OF COMMENTS TO:
FRANCES COLE, ESQ. PETER J. DEMARCO MICHAEL R. ROSELLA, Esq.
Charles Schwab & Co., Inc. Reich & Tang Distributors L.P. Battle Fowler LLP
101 Montgomery Street 600 Fifth Avenue 75 East 55th Street
San Francisco, California 94104 New York, New York 10020 New York, New York 10022
(212) 856-6858
</TABLE>
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
An indefinite number of Units of Schwab Trusts, Schwab Ten Trust, 1997
Series A is being registered under the Securities Act of 1933 pursuant
to Section 24(f) of the Investment Company Act of 1940, as amended, and
Rule 24f-2 thereunder.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE
SECURITIES BEING REGISTERED:
Indefinite
G. AMOUNT OF FILING FEE:
No filing fee required.
H. APPROPRIATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration
Statement.
/ / Check if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
The registrant hereby amends the registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
606976.3
<PAGE>
Schwab Trusts, Schwab Ten Trust, 1997 Series A
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
Under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization And General Information
<S> <C>
1. (a) Name of trust.............................................. Front cover of Prospectus
(b) Title of securities issued................................. Front cover of Prospectus
2. Name and address of each depositor.............................. The Sponsors
3. Name and address of trustee..................................... The Trustee
4. Name and address of principal underwriters...................... Distribution of Units
5. State of organization of trust.................................. Organization
6. Execution and termination of trust agreement.................... Trust Agreement, Amendment and Termination
7. Changes of name................................................. None
8. Fiscal year..................................................... Not applicable
9. Litigation...................................................... None
II. General Description of The Trust and Securities of the Trust
10. (a) Registered or bearer securities............................ Book-Entry Units
(b) Cumulative or distributive securities...................... Interest and Principal Distributions
(c) Redemption................................................. Trustee Redemption
(d) Conversion, transfer, etc.................................. Book-Entry Units, Sponsors Repurchase, Trustee
Redemption
(e) Periodic payment plan...................................... Not Applicable
(f) Voting rights.............................................. Trust Agreement, Amendment and Termination
(g) Notice to certificateholders............................... Records, Portfolio, Substitution of Securities, Trust
Agreement, Amendment and Termination, The
Sponsors, The Trustee
(h) Consents required.......................................... Trust Agreement and Amendment, Trust Termination
(i) Other provisions........................................... Tax Status
11. Type of securities comprising units............................. Objective, Portfolio, The Securities, Substitution of
Securities
12. Certain information regarding periodic payment certificates..... Not Applicable
</TABLE>
-i-
606976.3
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
13. (a) Load, fees, expenses, etc.................................. Summary of Essential Information, Public Offering
Price, Discounts, Sponsors' Profits, Trust
Administration, Trust Expenses and Charges,
Reinvestment Plan
(b) Certain information regarding periodic payment
certificates........................................... Not Applicable
(c) Certain percentages........................................ Summary of Essential Information, Public Offering
Price, Discounts
(d) Price differences.......................................... Discounts, Distribution of Units
(e) Other loads, fees, expenses................................ None
(f) Certain profits receivable by depositors, principal
underwriters, trustee or affiliated persons............ Trust Termination
(g) Ratio of annual charges to income.......................... Not Applicable
14. Issuance of trust's securities.................................. Organization, Book-Entry Units
15. Receipt and handling of payments from purchasers................ Public Offering Price
16. Acquisition and disposition of underlying securities............ Organization, Substitution of Securities, Portfolio,
Portfolio Supervision
17. Withdrawal or redemption........................................ Summary of Essential Information, Market for Units,
Sponsors Repurchase, Trustee Redemption
18. (a) Receipt, custody and disposition of income................. Distributions
(b) Reinvestment of distributions.............................. Reinvestment Plan
(c) Reserves or special funds.................................. Distributions
(d) Schedule of distributions.................................. Not Applicable
19. Records, accounts and reports................................... Records
20. Certain miscellaneous provisions of trust agreement
(a) Amendment.................................................. Trust Agreement and Amendment, Trust Termination
(b) Termination................................................ Trust Agreement and Amendment, Trust Termination
(c) and (d) Trustee, removal and successor..................... The Trustee
(e) and (f) Depositor, removal and successor................... The Sponsors
21. Loans to security holders....................................... None
22. Limitations on liability........................................ The Sponsors, The Trustee Evaluation of the Trust
23. Bonding arrangements............................................ Part II - Item A
24. Other material provisions of trust agreement.................... None
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor....................................... The Sponsors
26. Fees received by depositor...................................... Not Applicable
27. Business of depositor........................................... The Sponsors
</TABLE>
-ii-
606976.3
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
28. Certain information as to officials and affiliated persons of
depositor.................................................... Not Applicable
29. Voting securities of depositor.................................. Not Applicable
30. Persons controlling depositor................................... None
31. Payments by depositor for certain services
rendered to trust............................................ Not Applicable
32. Payments by depositor for certain other services
rendered to trust............................................ Not Applicable
33. Remuneration of employees of depositor for certain services
rendered to trust............................................ Not Applicable
34. Remuneration of other persons for certain services
rendered to trust............................................ Not Applicable
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities by states.................... Distribution of Units
36. Suspension of sales of trust's securities....................... None
37. Revocation of authority to distribute........................... None
38. (a) Method of distribution..................................... Distribution of Units
(b) Underwriting agreements.................................... Distribution of Units
(c) Selling agreements......................................... Distribution of Units
39. (a) Organization of principal underwriters..................... The Sponsors
(b) N.A.S.D. membership of principal underwriters.............. The Sponsors
40. Certain fees received by principal underwriters................. The Sponsors
41. (a) Business of principal underwriters......................... The Sponsors
(b) Branch offices of principal underwriters................... None
(c) Salesmen of principal underwriters......................... Not Applicable
42. Ownership of trust's securities by certain persons.............. Not Applicable
43. Certain brokerage commissions received by
principal underwriters................................. Not Applicable
44. (a) Method of valuation........................................ Summary of Essential Information, Statement of
Financial Condition, Liquidity, Distributions
(b) Schedule as to offering price.............................. Summary of Essential Information
(c) Variation in offering price to certain persons............. Distribution of Units, Discounts
45. Suspension of redemption rights................................. Not Applicable
46. (a) Redemption valuation....................................... Summary of Essential Information, Market for Units,
Termination, Offering Price, Sponsors Repurchase,
Trustee Redemption
(b) Schedule as to redemption price............................ Summary of Essential Information
</TABLE>
-iii-
606976.3
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
47. Maintenance of position in underlying securities................ Market for Units, Offering Price, Sponsors Repurchase,
Trustee Redemption
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee.......................... The Trustee
49. Fees and expenses of trustee.................................... Trust Expenses and Charges
50. Trustee's lien.................................................. Trust Expenses and Charges
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's securities...................... Not Applicable
VII. Policy of Registrant
52. (a) Provisions of trust agreement with respect to selection or
elimination of underlying securities................... Portfolio Supervision, Substitution of Securities, Trust
Agreement and Amendment, Trust Termination
(b) Transactions involving elimination of underlying
securities............................................. Not Applicable
(c) Policy regarding substitution or elimination of
underlying Portfolio Supervision, Substitution of Securities, Trust
securities............................................. Agreement and Amendment, Trust Termination
(d) Fundamental policy not otherwise covered................... None
53. Tax status of trust............................................. Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during last ten years........................ Not Applicable
55. Hypothetical account for issuers of periodic payment plans...... Not Applicable
56. Certain information regarding periodic payment certificates..... Not Applicable
57. Certain information regarding periodic payment plans............ Not Applicable
58. Certain other information regarding
periodic payment plans................................. Not Applicable
59. Financial statements (Instruction 1(c) to Form S-6)............. Statement of Financial Condition
</TABLE>
-iv-
606976.3
<PAGE>
INSERT LOGO
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1997 SERIES A
The Trust is a unit investment trust designated Schwab Ten Trust, 1997 Series A
(the "Trust"). The Sponsors are Charles Schwab & Co., Inc. and Reich & Tang
Distributors L.P. The objective of the Trust is to maximize total return through
a combination of capital appreciation and current dividend income. The Sponsors
cannot give any assurance that the Trust's objective can be achieved. The Trust
seeks to achieve its objective by attempting to outperform the Dow Jones
Industrial Average ("DJIA") by investing in a portfolio of the ten common stocks
which, out of the thirty stocks comprising the DJIA, have the highest dividend
yield (the "Strategic Ten"), determined as of two business days prior to the
Initial Date of Deposit. The Strategic Ten strategy is commonly referred to as
the "dogs of the Dow." The name "Dow Jones Industrial Average" is the property
of Dow Jones & Company, Inc., which is not affiliated with the Sponsors and has
not participated in any way in the creation of the Trust or in the selection of
the stocks included in the Trust and has not reviewed or approved any
information included in this Prospectus. Dow Jones & Company, Inc. has not
granted to the Trust or the Sponsors a license to use the Dow Jones Industrial
Average. The value of the Units of the Trust will fluctuate with fluctuations in
the value of the underlying Securities in the Trust. Therefore, Unitholders who
sell their Units prior to termination of the Trust may receive more or less than
their original purchase price upon sale. No assurance can be given that
dividends will be paid or that the Units will appreciate in value. The Trust
will terminate approximately one year after the Initial Date of Deposit. The
minimum purchase is $1,000 or 100 Units for individual purchasers, and $250 or
25 Units for purchases by Individual Retirement Accounts, self-employed
retirement plans (formerly Keogh Plans), pension funds and other tax-deferred
retirement plans.
This Prospectus consists of two parts. Part A contains the Summary of Essential
Information including descriptive material relating to the Trust and the
Statement of Financial Condition of the Trust. Part B contains general
information about the Trust. Part A may not be distributed unless accompanied by
Part B. Please read and retain both parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED NOVEMBER 4, 1997
480911.8
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER 3, 1997:*
<TABLE>
<S> <C>
INITIAL DATE OF DEPOSIT: November 4, 1997 TRUSTEE: The Chase Manhattan Bank
AGGREGATE VALUE OF SECURITIES.................. $149,775 TRUSTEE'S FEE: $.86 per 100 Units outstanding
AGGREGATE VALUE OF SECURITIES ORGANIZATIONAL EXPENSES***: $1.03 per 100
PER 100 UNITS............................... $1,000.00 Units
NUMBER OF UNITS................................ 14,977 OTHER FEES AND EXPENSES: $.16 per 100 Units
FRACTIONAL UNDIVIDED INTEREST IN outstanding
TRUST SECURITIES............................ 1/14,977 SPONSORS: Charles Schwab & Co., Inc. and Reich &
PUBLIC OFFERING PRICE PER 100 UNITS Tang Distributors L.P.
Aggregate Value of Securities in AGENT FOR SPONSORS: Reich & Tang Distributors
Trust ...................................... $149,775 L.P.
Divided By 14,977 Units (times 100) Public SPONSORS' PORTFOLIO SUPERVISORY,
Offering Price per 100 Units**+............. $1,000.00 BOOKKEEPING AND ADMINISTRATIVE FEE:
SPONSORS' REPURCHASE PRICE AND Maximum of $.25 per 100 Units outstanding (see "Trust
REDEMPTION PRICE PER Expenses and Charges" in Part B).
100 UNITS++................................. $987.50 RECORD DATES: December 15 and June 15
EVALUATION TIME: 4:00 p.m. New York Time. DISTRIBUTION DATES: December 31 and June 30
MINIMUM INCOME OR PRINCIPAL ROLLOVER NOTIFICATION DATE****:
DISTRIBUTION: $1.00 per 100 Units November 27, 1998 or another date as determined by
LIQUIDATION PERIOD: Beginning seven days prior the Sponsors.
to the Mandatory Termination Date. MONTHLY DEFERRED SALES CHARGE
MINIMUM VALUE OF TRUST: The Trust may be PAYMENT DATES: The first business day of each
terminated if the value of the Trust is less than 40% month commencing February 2, 1998.
of the aggregate value of the Securities at the SEMI-ANNUAL DEFERRED SALES CHARGE
completion of the Deposit Period. PAYMENT DATES: June 30, 1998 and at the
MANDATORY TERMINATION DATE: The earlier of termination of the Trust.
December 17, 1998 or the disposition of the last
Security in the Trust.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Schwab Account/Strategic Ten
Schwab Fee-Based Accounts: Investors:
CUSIP NUMBERS: Cash: 808523120 Cash: 808523104 Cash: 808523146
Reinvestment: 808523138 Reinvestment: 808523112 Reinvestment: 808523153
</TABLE>
- ------------------
* The business day prior to the Initial Date of Deposit. The Initial Date
of Deposit is the date on which the Trust Agreement was signed and the deposit
of Securities with the Trustee made.
** A maximum Deferred Sales Charge of $12.50 per 100 Units (1.25% of the
Initial Public Offering Price) will be paid through deductions subsequent to the
Initial Date of Deposit as described under "Deferred Sales Charge". See "Public
Offering-Discounts" in Part B for a description of reduced deferred sales
charges for certain investors. (See "Public Offering Offering Price") On a
repurchase or redemption of Units before the last Deferred Sales Charge Payment
Date, any remaining Deferred Sales Charge payments will be deducted from the
proceeds. Units purchased pursuant to the Reinvestment Plan are subject to that
portion of the Deferred Sales Charge remaining at the time of reinvestment (see
"Reinvestment Plan").
A-2
480911.8
<PAGE>
*** The Trust (and therefore the Unitholders) will bear all or a portion of
its organizational costs, which include the following: the cost of preparing and
printing the registration statement, the trust indenture and the closing
documents; registering units with the SEC and the States; and the initial audit
of the Trust. See "Trust Expenses" in Part B. These figures are based upon the
assumption that the Trust will reach a size of 5,000,000 Units as estimated by
the Sponsors; organizational expenses per 100 Units will vary with the actual
size of the Trust. If the Trust does not reach this Unit level, the Estimated
Organizational Expenses per 100 Units will be higher.
**** If a Unitholder ("Rollover Unitholder") so specifies on or prior to the
Rollover Notification Date, the Rollover Unitholder's terminating distribution
will be reinvested in an available series of the Schwab Ten Trust, 1998 Series,
if offered (see "Trust Administration--Trust Termination").
+ On the Initial Date of Deposit there will be no cash in the Income or
Principal Accounts. Anyone purchasing Units after such date will have included
in the Public Offering Price a pro rata share of any cash in such Accounts.
++ This figure reflects deduction of the maximum Deferred Sales Charge of
$12.50 per 100 Units; the actual amount deducted upon redemption of Units will
depend upon the Deferred Sales Charge applicable to the redeeming Unitholder.
Any redemptions of 2,500 Units or more may, upon request by a redeeming
Unitholder, be made in kind. The Trustee will forward the distributed securities
to the Unitholder's broker-dealer account at The Depository Trust Company in
book-entry form. See "Liquidity--Trustee Redemption" in Part B.
A-3
480911.8
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses that
you will bear directly or indirectly. See "Public Offering and Trust Expenses
and Charges." Although each Series has a term of only one year, and is a unit
investment trust rather than a mutual fund, this information is presented to
permit a comparison of fees, assuming the principal amount and distributions are
rolled over each year into a new Series subject only to the Deferred Sales
Charge and trust expenses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unitholder Transaction Expenses Maximum Reduced
Deferred Sales Charge Deferred Sales Charge+
As a % of Amount As a % of Amount
Initial per Initial per
Offering Price 100 Units Offering Price 100 Units
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Deferred Sales Charge per Year ........................................ 1.25%* $12.50 1.00%** $10.00
----- ------- ----- ------
Maximum Sales Charge Imposed Per Year on Reinvested Dividends.......... 1.25%*** $12.50 1.00%*** $10.00
===== ====== ===== ======
Estimated Annual Fund Operating Expenses Amount
per Amount
As a % of 100 As a % of per
Net Assets Units Net Assets 100 Units
---------- ----- ---------- ---------
Trustee's Fee.......................................................... .086% $.86 .086% $.86
Organizational Expenses................................................ .103% 1.03 .103% 1.03
Other Operating Expenses............................................... .016% .16 .016% .16
Portfolio Supervision, Bookkeeping and Administrative Fees......... .025% .25 .025% .25
----- --- ----- ---
Total.............................................................. .230% $2.30 .230% $2.30
===== ===== ===== =====
Examples
Maximum Deferred Sales Charge Example: Cumulative Expenses Paid for Period:
---------------------------------------------
3
1 year years
------ -----
An investor would pay the following expenses on a $1,000 investment, assuming the $15 $41
Trust operating expense ratio of .230% and a 5% annual return on the investment
throughout the periods.................................................
Reduced Deferred Sales Charge Example: Cumulative Expenses Paid for Period:
---------------------------------------------
3
1 year years
------ -----
An investor would pay the following expenses on a $1,000 investment, assuming the $12 $34
Trust operating expense ratio of .230% and a 5% annual return on the investment
throughout the periods.................................................
</TABLE>
The Examples assume reinvestment of all dividends and distributions and utilizes
a 5% annual rate of return. For purposes of the Examples, the Deferred Sales
Charge imposed on reinvestment of dividends is not reflected until the year
following payment of the dividend; the cumulative expenses would be higher if
sales charges on reinvested dividends were reflected in the year of
reinvestment. The Examples should not be considered a representation of past or
future expenses or annual rate of return; the actual expenses and annual rate of
return may be more or less than those assumed for purposes of the Examples.
- ------------------
* The actual fee is a total of $12.50 per 100 Units, irrespective of
purchase or redemption price, deducted in installments over the life of the
Trust, commencing February 2, 1998. If a Holder sells or redeems Units before
all of these deductions have been made, the balance of the Deferred Sales Charge
will be deducted from the proceeds of sale or redemption. If the Unit price
exceeds $10 per Unit, the Deferred Sales Charge will be less than 1.25%; if the
Unit price is less than $10 per Unit, the Deferred Sales Charge will exceed
1.25%.
** The actual fee is a total of $10.00 per 100 Units, irrespective of
purchase or redemption price, deducted in installments over the life of the
Trust, commencing February 2, 1998. If a Holder sells or redeems Units before
all of these deductions have been made, the balance of the Deferred Sales Charge
will be deducted from the proceeds of sale or redemption. If the Unit price
exceeds $10 per Unit, the Deferred Sales Charge will be less than 1.00%; if the
Unit price is less than $10 per Unit, the Deferred Sales Charge will exceed
1.00%. See "Public Offering-Discounts" in Part B for a description of which
investors will be eligible for this reduced Deferred Sales Charge.
*** Reinvested dividends will be subject only to the Deferred Sales Charge
remaining at the time of reinvestment (see "Reinvestment Plan" in this Part A).
+ The Deferred Sales Charge is subject to a further reduction to .80% of
the Initial Offering Price or $8.00 per 100 Units under certain circumstances
(see "Public Offering-Discounts" in Part B).
A-4
480911.8
<PAGE>
OBJECTIVE. The objective of the Trust is to maximize total return through
capital appreciation and current dividend income. The Trust seeks to achieve its
objective by attempting to outperform the Dow Jones Industrial Average ("DJIA")
(which is not affiliated with the Sponsors) by creating a portfolio that follows
the investment strategy of investing in the ten (10) common stocks which, out of
the thirty stocks comprising the DJIA, have the highest dividend yield (the
"Strategic Ten"), determined as of two business days prior to the Initial Date
of Deposit. The Trust's portfolio will be comprised of these ten (10) stocks.
The Trust's assets will be allocated in approximately equal amounts among the
Strategic Ten. For the actual percentage of each stock in the portfolio, see
"Portfolio" herein. (Also, see "The Trust - Objective" and "The Trust - The
Securities" in Part B.) As used herein, the term "highest dividend yield" means
the yield for each Security calculated by annualizing the last quarterly or
semi-annual ordinary dividend distributed on that Security and dividing the
result by the market value of that Security as of two business days prior to the
Initial Date of Deposit. This rate is historical, and there is no assurance that
any dividends will be declared or paid in the future on the Securities in the
Trust. The Trust may not exceed the DJIA in any one year; however, historically,
long term cumulative returns from this strategy has outperformed the DJIA. As
used herein, the term "Securities" means the common stocks initially deposited
in the Trust and described in "Portfolio" in Part A and any additional common
stocks acquired and held by the Trust pursuant to the provisions of the
Indenture. Further, the Securities may appreciate or depreciate in value,
dependent upon the full range of economic and market influences affecting
corporate profitability, the financial condition of issuers and the price of
equity securities in general and the Securities in particular.
Therefore, there is no guarantee that the objective of the Trust will be
achieved.
PORTFOLIO. The Portfolio contains 10 issues of common stock. 100% of the issues
are represented by the Sponsor's contracts to purchase. Based upon the principal
business of each issuer and current market values, the following industries are
represented in the Portfolio: Auto Manufacturing, 10.01%; Banking and Finance,
10.00%; Chemical, 9.91%; Consumer Products, 10.02%; Manufacturing, 9.97%; Oil,
20.03%; Paper and Forest Products, 10.01%; Photography, 10.01%; and
Telecommunications, 10.04%.
PUBLIC OFFERING PRICE. The Public Offering Price per 100 Units of the Trust is
equal to the aggregate value of the underlying Securities (the price at which
they could be directly purchased by the public assuming they were available) in
the Trust divided by the number of Units outstanding times 100. The Deferred
Sales Charge of $12.50 per 100 Units (the "Deferred Sales Charge") will be
payable in installments over the life of the Trust. The price of a single Unit,
or any multiple thereof, is calculated by dividing the Public Offering Price per
100 Units by 100 and multiplying by the number of Units. Any cash held by the
Trust will be added to the Public Offering Price. For additional information
regarding the Public Offering Price, repurchase and redemption of Units and
other essential information regarding the Trust, see the "Summary of Essential
Information." The Public Offering Price per Unit may vary on a daily basis in
accordance with fluctuations in the aggregate value of the underlying
Securities. The price to be paid by each investor will be computed as of the
date the Units are purchased. (See "Public Offering" in Part B.)
DEFERRED SALES CHARGE. The Deferred Sales Charge will be deducted as follows:
for every Unitholder, a monthly charge of $.80 per 100 Units will be deducted
from the Principal Account in ten monthly installments commencing on February 2,
1998 ($8.00 total) (the "Monthly Charge"); and for Unitholders bearing the
Deferred Sales Charge of $12.50 or $10.00 per 100 Units, a semi-annual charge of
$2.25 or $1.00, respectively, per 100 Units will be deducted from distributions
from the Income Account in two semi-annual installments on June 30, 1998 and
upon termination of the Trust ($4.50 or $2.00 total) (the "Semi-Annual Charge").
See "Public Offering-Discounts" in Part B for a description of reduced deferred
sales charges for certain investors. This deferred method of payment keeps more
of the Unitholders' money invested over a longer period of time. (See "Public
Offering - Offering Price" in Part B.)
ESTIMATED NET ANNUAL DISTRIBUTIONS. The estimated net annual distributions to
Unitholders (based on the most recent annualized quarterly or semi-annual
ordinary dividend distributed with respect to the Securities and based on the
payment of the maximum Deferred Sales Charge, including a deduction of $4.50 per
100 Units from the Income Account) as of two
A-5
480911.8
<PAGE>
business days prior to the Initial Date of Deposit per 100 Units was $20.33.
This estimate will vary with changes in the Trust's fee and expenses, actual
dividends received, and with the sale of Securities. There is no assurance that
the estimated net annual dividend distributions will be realized in the future.
DISTRIBUTIONS. Dividend distributions, if any, will be made on the Distribution
Dates to all Unitholders of record on the appropriate Record Date. For the
specific dates representing the Distribution Dates and Record Dates, see
"Summary of Essential Information" in Part A. The final distribution will be
made within a reasonable period of time after the termination of the Trust. (See
"Rights of Unitholders--Distributions" in Part B.) Unitholders may elect to
automatically reinvest distributions (other than the final distribution in
connection with the termination of the Trust), into additional Units of the
Trust, which are subject to the remainder of the Deferred Sales Charge. See
"Reinvestment Plan" in Part B.
MARKET FOR UNITS. The Sponsors, although not obligated to do so, intend to
maintain a secondary market for the Units and to continuously offer to
repurchase the Units of the Trust both during and after the initial public
offering. The secondary market repurchase price will be based on the market
value of the Securities in the Trust portfolio and will be the same as the
redemption price less the remaining portion of the Deferred Sales Charge. (See
"Liquidity--Sponsors Repurchase" for a description of how the secondary market
repurchase price will be determined.) If a market is not maintained a Unitholder
will be able to redeem his Units with the Trustee (see "Liquidity--Trustee
Redemption" in Part B). As a result, the existence of a liquid trading market
for these Securities may depend on whether dealers will make a market in these
Securities. There can be no assurance of the making or the maintenance of a
market for any of the Securities contained in the portfolio of the Trust or of
the liquidity of the Securities in any markets made. In addition, the Trust may
be restricted under the Investment Company Act of 1940 from selling Securities
to the Sponsors. The price at which the Securities may be sold to meet
redemptions and the value of the Units will be adversely affected if trading
markets for the Securities are limited or absent.
TERMINATION. During the seven-day period prior to the Mandatory Termination Date
(the "Liquidation Period"), Securities will begin to be sold in connection with
the termination of the Trust and all Securities will be sold or distributed by
the Mandatory Termination Date. The Trustee may utilize the services of the
Sponsors for the sale of all or a portion of the Securities in the Trust. Any
brokerage commissions received by the Sponsors from the Trust in connection with
such sales will be in accordance with applicable law. The Sponsors will
determine the manner, timing and execution of the sales of the underlying
Securities. The Sponsors will attempt to sell the Securities as quickly as they
are able during the Liquidation Period without, in their judgment, materially
adversely affecting the market price of the Securities, but all of the
Securities will in any event be disposed of by the end of the Liquidation
Period. The Sponsors do not anticipate that the period will be longer than seven
days, and it could be as short as one day, depending on the liquidity of the
Securities being sold.
Unitholders may elect one of the three options in receiving their terminating
distributions: (1) to receive their pro rata share of the underlying Securities
in-kind, if they own at least 2,500 Units, (2) to receive cash upon the
liquidation of their pro rata share of the underlying Securities or (3) to
invest the amount of cash they would have received upon the liquidation of their
pro rata share of the underlying Securities in units of a future series of
Schwab Ten Trust (the "New Trust") (if one is offered) at a reduced deferred
sales charge (see "Rollover Option"). See "Trust Administration--Trust
Termination" in Part B for a description of how to select a termination
distribution option. Unitholders who have not chosen to receive
distributions-in-kind will be at risk to the extent that the market value of the
Securities declines prior to their being sold during the Liquidation Period; for
this reason the Sponsors will be inclined to sell the Securities in as short a
period as they can without materially adversely affecting the price of the
Securities. Because the Sponsor can start selling the Securities on December 11,
1998, Unitholders who purchase their Units after December 10, 1997, will have no
assurance of realizing mid-term capital gains (see "Tax Status" in Part B).
Unitholders should consult their own tax advisers in this regard.
ROLLOVER OPTION. Unitholders may elect to roll over their terminating
distributions into the next available New Trust at a reduced deferred sales
charge. Rollover Unitholders must make this election on or prior to the Rollover
Notification Date.
A-6
480911.8
<PAGE>
Upon making this election, a Unitholder's Units will be redeemed and the
proceeds will be reinvested in units of the next available New Trust. See "Trust
Administration--Trust Termination" in Part B for details to make this election.
RISK CONSIDERATIONS. An investment in Units of the Trust should be made with an
understanding of the risks inherent in an investment in any of the Securities,
including, for common stocks, the risk that the financial condition of the
issuers of the Securities may become impaired or that the general condition of
the stock market may worsen (both of which may contribute directly to a decrease
in the value of the Securities and thus in the value of the Units). Investors
should consider the greater risk of the Trust's concentration and the effect on
their investment versus a more diversified portfolio and should compare returns
available on less concentrated portfolios before making an investment decision.
The portfolio of the Trust is fixed and not "managed" by the Sponsors. Investors
should note that since the Portfolio of the Trust will be determined as of two
business days prior to the Initial Date of Deposit, any changes in the
components of the DJIA or the Strategic Ten following such determination will
not cause a change in the composition of the Portfolio. Since the Trust will not
sell Securities in response to ordinary market fluctuation, but only (except for
certain extraordinary circumstances) at the Trust's termination or to meet
redemptions, the amount realized upon the sale of the Securities may not be the
highest price attained by an individual Security during the life of the Trust.
In connection with the deposit of Additional Securities subsequent to the
Initial Date of Deposit, if cash (or a letter of credit in lieu of cash) is
deposited with instructions to purchase Securities, to the extent the price of a
Security increases or decreases between the deposit and the time the Security is
purchased, Units may represent less or more of that Security and more or less of
the other Securities in the Trust. In addition, brokerage fees incurred in
purchasing Securities with cash deposited with instructions to purchase the
Securities will be an expense of the Trust. Price fluctuations during the period
from the time of deposit to the time the Securities are purchased, and payment
of brokerage fees, will affect the value of every Unitholder's Units and the
income per Unit received by the Trust.
The Sponsors cannot give any assurance that the business and investment
objectives of the issuers of the Securities will correspond with or in any way
meet the limited term objective of the Trust. (See "Risk Considerations" in Part
B of this Prospectus.)
REINVESTMENT PLAN. Unitholders may elect to automatically reinvest their
distributions, if any (other than the final distribution in connection with the
termination of the Trust) into additional units of the Trust, subject only to
any remaining deductions of the Deferred Sales Charge. See "Reinvestment Plan"
in Part B for details on how to enroll in the Reinvestment Plan.
UNDERWRITING. Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco,
California 94104, will act as Underwriter for all of the Units of the Schwab Ten
Trust, 1997 Series A. Units of the Trust shall be distributed exclusively by the
Underwriter to its customers (see "Public Offering--Distribution of Units" in
Part B).
A-7
480911.8
<PAGE>
<TABLE>
SCHWAB TEN TRUST,
1997 SERIES A
STATEMENT OF FINANCIAL CONDITION AS OF NOVEMBER 3, 1997
<CAPTION>
ASSETS
<S> <C>
Investment in Securities--Sponsors' Contracts to Purchase
Underlying Securities Backed by Letter of Credit (cost $149,775)(Note 1).......................... $149,775
Organizational Costs (Note 2)........................................................................... 51,500
-----------
Total................................................................................................... $201,275
========
LIABILITIES AND INTEREST OF UNITHOLDERS
Accrued Liabilities (Note 2)............................................................................ $ 51,500
---------
Interest of Unitholders - Units of Fractional
Undivided Interest Outstanding (1997 Series A: 14,977 Units)..................................... 149,775
---------
Total................................................................................................... $ 201,275
=========
Net Asset Value per Unit (3)............................................................................ $ 10.00
===========
</TABLE>
- -------------------------
Notes to Statement of Financial Condition:
The preparation of financial statements in accordance with generally
accepted accounting principles requires Trust management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
(1) Schwab Ten Trust, 1997 Series A (the "Trust") is a unit investment
trust created under the laws of the State of New York and registered under the
Investment Company Act of 1940. The objective of the Trust, jointly sponsored by
Charles Schwab & Co., Inc. and Reich & Tang Distributors L.P. (the "Sponsors")
is to maximize total return through capital appreciation and current dividend
income. An irrevocable letter of credit issued by BankBoston, N.A. in an amount
of $200,000 has been deposited with the Trustee for the benefit of the Trust to
cover the purchases of Securities. Aggregate cost to the Trust of the Securities
listed in the Portfolio of Investments is determined by the Trustee on the basis
set forth under "Public Offering--Offering Price" as of 4:00 p.m. on November 3,
1997. The Trust will terminate on December 17, 1998 or can be terminated earlier
under certain circumstances as further described in the Prospectus.
(2) Organizational costs incurred by the Trust have been deferred and will
be amortized on a straight line basis over the life of the Trust. The Trust will
reimburse the Sponsors for actual organizational costs incurred.
(3) The maximum Deferred Sales Charge of $12.50 per 100 Units (1.25% of
the Initial Public Offering Price) will be paid by Monthly and Semi-Annual
Charges subsequent to the Initial Date of Deposit. If Units are redeemed prior
to the last Deferred Sales Charge payment date, the remaining amount of the
Deferred Sales Charge applicable to such Units will be payable at the time of
redemption. Based on projected total assets of $50,000,000, the estimated
maximum total Deferred Sales Charge would be $625,000. To the extent that
Unitholders pay a reduced Deferred Sales Charge or the Trust is larger or
smaller, the estimate may vary.
A-8
480911.8
<PAGE>
<TABLE>
SCHWAB TEN TRUST,
1997 SERIES A
PORTFOLIO OF INVESTMENTS
AS OF NOVEMBER 3, 1997
<CAPTION>
Market
Value of Cost of
Stocks as a Securities
Number Percentage Current Market to the
Portfolio of Ticker of the Dividend Value Per Trust
No. Shares Name of Issuer (1) Symbol Trust (2) Yield(3) Share (4)
----- -------- ------------------ ------ --------- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stocks:
1. 301 AT&T Corporation T 10.04% 2.64% $49.9375 $15,031
2. 173 Chevron Corporation CHV 10.01 2.68 86.6875 14,997
3. 248 E.I. du Pont de Nemours & Company DD 9.91 2.10 59.8750 14,849
4. 237 Eastman Kodak Company EK 10.01 2.78 63.2500 14,990
5. 241 Exxon Corporation XON 10.02 2.63 62.2500 15,002
6. 223 General Motors Corporation GM 10.01 2.97 67.2500 14,997
7. 312 International Paper Company IP 10.01 2.08 48.0625 14,996
8. 131 J.P. Morgan & Company JPM 10.00 3.08 114.3125 14,975
9. 162 Minnesota, Mining & Manufacturing Co. MMM 9.97 2.30 92.1875 14,934
10. 361 Philip Morris Companies, Inc. MO 10.02 3.85 41.5625 15,004
------ --------
Total Investment in Securities 100.00% $149,775
====== ========
</TABLE>
FOOTNOTES TO PORTFOLIO OF INVESTMENTS
(1) Contracts to purchase the Securities were entered into on November 3,
1997. All such contracts are expected to be settled on or about the First
Settlement Date of the Trust which is expected to be November 7, 1997.
(2) Based on the cost of the Securities to the Trust.
(3) Current Dividend Yield for each security was calculated by annualizing the
last quarterly or semi-annual ordinary dividend received on the security
and dividing the result by its market value as of the close of trading on
November 3, 1997.
(4) Evaluation of Securities by the Trustee was made on the basis of closing
sales prices at the Evaluation Time on November 3, 1997. The Sponsors'
Purchase Price and related Loss was $149,942 and $167, respectively.
The accompanying notes form an integral part of the Financial Statements.
A-9
480911.8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE UNITHOLDERS, SPONSORS AND TRUSTEE
SCHWAB TEN TRUST, 1997 SERIES A
We have audited the accompanying statement of Financial Condition of
Schwab Ten Trust, 1997 Series A, including the Portfolio of Investments, as of
November 3, 1997. This financial statement is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation with The Chase Manhattan Bank, Trustee, of an irrevocable letter of
credit deposited for the purchase of securities, as shown in the financial
statement as of November 3, 1997. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Schwab Ten Trust, 1997
Series A, at November 3, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
November 3, 1997
A-10
480911.8
<PAGE>
[INSERT LOGO]
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1997 SERIES A
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY
PART A
THE TRUST
ORGANIZATION. Schwab Ten Trust consists of a "unit investment trust"
designated as set forth in Part A. The Trust was created under the laws of the
State of New York pursuant to a Trust Indenture and Agreement (the "Trust
Agreement"), dated the Initial Date of Deposit, among Charles Schwab & Co., Inc.
and Reich & Tang Distributors L.P., as Sponsors, and The Chase Manhattan Bank,
as Trustee.
On the Initial Date of Deposit, the Sponsors deposited with the Trustee
common stock, including funds and delivery statements relating to contracts for
the purchase of certain such securities (collectively, the "Securities") with an
aggregate value as set forth in Part A and cash or an irrevocable letter of
credit issued by a major commercial bank in the amount required for such
purchases. Thereafter the Trustee, in exchange for the Securities so deposited,
delivered to the Sponsors certificates evidencing the ownership of all Units of
the Trust. The Sponsors have a limited right to substitute other securities in
the Trust portfolio in the event of a failed contract. See "The
Trust--Substitution of Securities." The Sponsors may also, in certain
circumstances, direct the Trustee to dispose of certain Securities if the
Sponsors believe that, because of market or credit conditions, or for certain
other reasons, retention of the Security would be detrimental to Unitholders.
See "Trust Administration--Portfolio Supervision."
As of the Initial Date of Deposit, a "Unit" represents an undivided
fractional interest in the Securities of the Trust as is set forth in the
"Summary of Essential Information." As additional Units are issued by the Trust
as a result of the deposit of Additional Securities, as described below, the
aggregate value of the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each Unit will be
decreased. To the extent that any Units are redeemed by the Trustee, the
fractional undivided interest or pro rata share in such Trust represented by
each unredeemed Unit will increase, although the actual interest in such Trust
represented by such fraction will remain unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by Unitholders, which may
include the Sponsors, or until the termination of the Trust Agreement.
DEPOSIT OF ADDITIONAL SECURITIES. With the deposit of the Securities in
the Trust on the Initial Date of Deposit, the Sponsors established a
proportionate relationship among the initial aggregate value of specified
Securities in the Trust. During the 90 days subsequent to the Initial Date of
Deposit (the "Deposit Period"), the Sponsors may deposit additional Securities
in the Trust that are substantially similar to the Securities already deposited
in the Trust ("Additional Securities"), contracts to purchase Additional
Securities or cash (or a bank letter of credit in lieu of cash) with
instructions to purchase Additional Securities, in order to create additional
Units, maintaining to the extent practicable the original proportionate
relationship of the number of shares of each Security in the Trust portfolio on
the Initial Date of Deposit. These additional
B-1
480911.8
<PAGE>
Units, which will result in an increase in the number of Units outstanding, will
each represent, to the extent practicable, an undivided interest in the same
number and type of securities of identical issuers as are represented by Units
issued on the Initial Date of Deposit. It may not be possible to maintain the
exact original proportionate relationship among the Securities deposited on the
Initial Date of Deposit because of, among other reasons, purchase requirements,
changes in prices, or unavailability of Securities. The composition of the Trust
portfolio may change slightly based on certain adjustments made to reflect the
disposition of Securities and/or the receipt of a stock dividend, a stock split
or other distribution with respect to such Securities, including Securities
received in exchange for shares or the reinvestment of the proceeds distributed
to Unitholders. Deposits of Additional Securities in the Trust subsequent to the
Deposit Period must replicate exactly the existing proportionate relationship
among the number of shares of Securities in the Trust portfolio. Substitute
Securities may be acquired under specified conditions when Securities originally
deposited in the Trust are unavailable (see "The Trust--Substitution of
Securities" below).
OBJECTIVE. The objective of the Trust is to maximize total return through
capital appreciation and current dividend income. The Trust seeks to achieve its
objective by attempting to outperform the Dow Jones Industrial Average ("DJIA")
(which is not affiliated with the Sponsors) by creating a portfolio that follows
the investment strategy of investing in the ten (10) common stocks which, out of
the thirty (30) common stocks comprising the DJIA, have the highest dividend
yield (the "Strategic Ten"), determined as of two business days prior to the
Initial Date of Deposit. The Strategic Ten strategy is commonly referred to as
the "dogs of the Dow." The Trust's portfolio will be comprised of these ten (10)
stocks. The Trust's assets will be allocated in approximately equal amounts
among the Strategic Ten. For the actual percentage of each stock in the
portfolio, see "Portfolio" in Part A. (Also see "The Trust - Objective" and "The
Trust - The Securities" in Part B.) As used herein, the term "highest dividend
yield" means the yield for each Security calculated by annualizing the last
quarterly or semi-annual ordinary dividend distributed on that Security and
dividing the result by the market value of that Security as of two business days
prior to the Initial Date of Deposit. This rate is historical, and there is no
assurance that any dividends will be declared or paid in the future on the
Securities in the Trust. As used herein, the term "Securities" means the common
stocks initially deposited in the Trust and described in "Portfolio" in Part A
and any additional common stocks acquired and held by the Trust pursuant to the
provisions of the Indenture.
Investing in stocks comprising the DJIA with the highest dividend yields
may be effective in achieving the Trust's investment objective because regular
dividends are common for established companies and dividends have accounted for
a substantial portion of the total return on thirty common stocks comprising the
DJIA. There can be no assurance that the dividend rates will be maintained.
Reduction or elimination of a dividend could adversely affect the stock price as
well. Purchasing a portfolio of these stocks as opposed to one or two stocks can
achieve a more diversified holding. There is only one investment decision
instead of ten. An investment in the Trust can be cost-efficient, avoiding the
odd-lot costs of buying small quantities of securities directly. An investment
in a number of companies with high dividends relative to their stock prices is
designed to increase the Trust's potential for higher returns. The Trust's
return will consist of a combination of capital appreciation and current
dividend income. The Trust will terminate in approximately one year, at which
time investors may choose to either receive the distributions in kind (if they
own at least 2,500 Units), in cash or reinvest in a subsequent series of the
Schwab Ten Trust (if available) at a reduced deferred sales charge. Further, the
Securities may appreciate or depreciate in value, dependent upon the full range
of economic and market influences affecting corporate profitability, the
financial condition of issuers and the prices of equity securities in general
and the Securities in particular. Investors should note that the Trust's
selection criteria were applied to the Securities two business days prior to the
Initial Date of Deposit. Since the Sponsors may deposit additional Securities in
connection with the sale of additional Units, the yields on these Securities may
change subsequent to the Initial Date of Deposit. Therefore, there is no
guarantee that the objective of the Trust will be achieved.
B-2
480911.8
<PAGE>
THE SECURITIES. Each of the Securities has been taken from the Dow Jones
Industrial Average ("DJIA"). The DJIA comprises 30 common stocks chosen by the
editors of The Wall Street Journal as representative of the broad market and of
American industry. The companies are major factors in their industries and their
stocks are widely held by individuals and institutional investors. Changes in
the components of the DJIA are made entirely by the editors of The Wall Street
Journal without consultation with the companies, the stock exchange or any
official agency. For the sake of continuity, changes are made rarely. Most
substitutions have been the result of mergers, but from time to time, changes
may be made to achieve a better representation. The components of the DJIA may
be changed at any time for any reason. Any changes in the components of the DJIA
after the date of this Prospectus will not cause a change in the identity of the
common stocks included in the Trust's portfolio, including any Additional
Securities deposited in the Trust.
The first DJIA, consisting of 12 stocks, was published in The Wall Street
Journal in 1896. The list grew to 20 stocks in 1916 and to 30 stocks on October
1, 1928. For two periods of 17 consecutive years each, there were no changes to
the list: March 1939 - July 1956 and June 1959 - August 1976. The DJIA last
changed on March 17, 1997.
Stocks Currently Comprising the DJIA
AT&T Corporation International Business Machines Corporation
Allied Signal International Paper Company
Aluminum Company of America Johnson & Johnson
American Express Company J.P. Morgan & Company, Inc.
Boeing Company McDonald's Corporation
Caterpillar Inc. Merck & Company, Inc.
Chevron Corporation Minnesota Mining & Manufacturing Company
Coca-Cola Company Phillip Morris Companies, Inc.
E.I. du Pont de Nemours & Company Proctor & Gamble Company
Eastman Kodak Company Sears, Roebuck & Company
Exxon Corporation Travelers Group Inc.
General Electric Company Union Carbide Corporation
General Motors Corporation United Technologies Corporation
Goodyear Tire & Rubber Company Wal-Mart Stores, Inc.
Hewlett-Packard Co. Walt Disney Company
The yield for each Security was calculated by annualizing the last
quarterly or semi-annual ordinary dividend distributed and dividing the result
by the market value of the Security as of two business days prior to the Initial
Date of Deposit. This formula (an objective determination) served as the basis
for the Sponsors' selection of the Strategic Ten. The companies represented in
the Trust are some of the most well-known and highly capitalized companies in
America. The Securities were selected irrespective of any research
recommendation by the Sponsors. Investing in the stocks of the DJIA may be
effective as well as conservative because regular dividends are common for
established companies and dividends have accounted for a substantial portion of
the total return on stocks of the group of stocks comprising the DJIA.
Although the Schwab Ten Trust was not available until this year, during
the last 21 years, the strategy of investing in approximately equal values of
the ten highest yielding stocks each year generally would have yielded a higher
total return than an investment in all 30 stocks which make up the DJIA. The
following table shows the hypothetical performance of investing approximately
equal amounts in the Strategic Ten at the beginning of each year and rolling
over the proceeds. The total returns do not reflect sales charges, brokerage and
transaction costs, commissions or taxes and, therefore, will be different from
actual investment results. These results represent past performance of the
Strategic Ten and should not be considered indicative of future results of the
Trust. The Trust's annual total return may not exceed the DJIA in any one year;
however, historically,
B-3
480911.8
<PAGE>
long term cumulative total returns from these strategies has outperformed the
cumulative returns of the DJIA. The Strategic Ten underperformed the DJIA in
certain years. Also, investors in the Trust may not realize as high a total
return as on a direct investment in the Strategic Ten since the Trust has sales
charges and expenses and may not be fully invested at all times. Unit prices
fluctuate with the value of the underlying stocks, and there is no assurance
that dividends on these stocks will be paid or that the Units will appreciate in
value.
The following table compares the actual performance of the DJIA and
approximately equal values of the Strategic Ten Strategy in each of the past 21
years, as of December 31 in each of these years:
COMPARISON OF TOTAL RETURNS(1)
Dow Jones
---------
Industrial
----------
Year Ended Strategic Ten(2) Average (DJIA)
---------- ------------- --------------
1976 34.80% 22.70%
1977 0.90 -12.70
1978 -0.10 2.70
1979 12.40 10.50
1980 27.20 21.50
1981 5.00 -3.40
1982 23.60 25.80
1983 38.70 25.70
1984 7.60 1.10
1985 29.50 32.80
1986 32.10 26.90
1987 6.10 6.00
1988 22.90 16.00
1989 26.50 31.70
1990 -7.60 -0.40
1991 39.30 23.90
1992 7.90 7.40
1993 27.30 16.80
1994 4.10 4.90
1995 36.70 36.40
1996 27.90 28.90
- --------------------------------
(1) Total Return represents the sum of Appreciation and Actual Dividend Yield.
(i) Appreciation for the Strategic Ten and the DJIA is calculated by
subtracting the opening market value of these Strategic Ten or DJIA stocks,
respectively, as of the first trading day on the New York Stock Exchange in
a given year from the market value of those stocks as of the last trading
day in that year, and dividing the result by the market value of the stocks
as of the first trading day in that year. (ii) Actual Dividend Yield for the
Strategic Ten is calculated by adding the total dividends received on the
stocks in the year and dividing the result by the market value of the stocks
as of the first trading day in that year. Actual Dividend Yield for the DJIA
is calculated by taking the total dividends credited to the DJIA and
dividing the result by the opening value of the DJIA as of the first trading
day in that year. Total return does not take into consideration any sales
charges, commissions, expenses or taxes.
(2) The Strategic Ten in any given year were selected by ranking the dividend
yields for each of the stocks in the DJIA as of the beginning of that year,
based upon an annualization of the last quarterly or semi-annual regular
dividend distribution (which would have been declared in the preceding year)
divided by that stock's market value on the first trading day on the New
York Stock Exchange in that year.
These results represent past performance and should not be considered
indicative of future results of the Trust. Unit prices may fluctuate with
the value of the underlying stocks, and there is no assurance that dividends
on these stock will be paid or that the Units will appreciate in value.
B-4
480911.8
<PAGE>
The contracts to purchase Securities deposited initially in the Trust are
expected to settle in three business days, in the ordinary manner for such
Securities. Settlement of the contracts for Securities is thus expected to take
place prior to the settlement of purchase of Units on the Initial Date of
Deposit.
SUBSTITUTION OF SECURITIES. In the event of a failure to deliver any
Security that has been purchased for the Trust under a contract ("Failed
Securities"), the Sponsors are authorized under the Trust Agreement to direct
the Trustee to acquire other securities ("Substitute Securities") to make up the
original corpus of the Trust.
The Substitute Securities must be purchased within 20 days after the sale
of the portfolio Security or delivery of the notice of the failed contract.
Where the Sponsors purchase Substitute Securities in order to replace Failed
Securities, (i) the purchase price may not exceed the purchase price of the
Failed Securities and (ii) the Substitute Securities must be substantially
similar to the Failed Securities. Such selection may include or be limited to
Securities previously included in the portfolio of the Trust. No assurance can
be given that the Trust will retain its present size and composition for any
length of time.
The Trustee shall notify all Unitholders of the acquisition of the
Substitute Security, within five days thereafter, and the Trustee shall, on the
next Distribution Date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the Trust of the Failed
Security exceeded the cost of the Substitute Security. In the event no
reinvestment is made, the proceeds of the sale of Securities will be distributed
to Unitholders as set forth under "Rights of Unitholders--Distributions." In
addition, if the right of substitution shall not be utilized to acquire
Substitute Securities in the event of a failed contract, the Sponsors will cause
to be refunded the sales charge attributable to such Failed Securities to all
Unitholders, and distribute the principal and dividends, if any, attributable to
such Failed Securities on the next Distribution Date. The proceeds from the sale
of a Security or the exercise of any redemption or call provision will be
distributed to Unitholders except to the extent such proceeds are applied to
meet redemptions of Units. (See "Liquidity--Trustee Redemption.")
RISK CONSIDERATIONS
FIXED PORTFOLIO. The value of the Units will fluctuate depending on all of
the factors that have an impact on the economy and the equity markets. These
factors similarly impact the ability of an issuer to distribute dividends.
Unlike a managed investment company in which there may be frequent changes in
the portfolio of securities based upon economic, financial and market analyses,
securities of a unit investment trust, such as the Trust, are not subject to
such frequent changes based upon continuous analysis. All the Securities in the
Trust are liquidated during a seven-day period at the termination of the
approximately one-year life of the Trust. Since the Trust will not sell
Securities in response to ordinary market fluctuation, but only at the Trust's
termination or upon the occurrence of certain events (See "Trust Administration
- - Portfolio Supervision") the amount realized upon the sale of the Securities
may not be the highest price attained by an individual Security during the life
of the Trust. Some of the Securities in the Trust may also be owned by other
clients of the Sponsors and their affiliates. However, because these clients may
have differing investment objectives, the Sponsors may sell certain Securities
from those accounts in instances where a sale by the Trust would be
impermissible, such as to maximize return by taking advantage of market
fluctuations. Investors should consult with their own financial advisers prior
to investing in the Trust to determine its suitability. (See "Trust
Administration--Portfolio Supervision" below.)
ADDITIONAL SECURITIES. Investors should be aware that in connection with
the creation of additional Units subsequent to the Initial Date of Deposit, the
Sponsors may deposit Additional Securities, contracts to purchase Additional
Securities or cash (or letter of credit in lieu of cash) with instructions to
purchase Additional Securities, in each instance maintaining the original
proportionate relationship, subject to adjustment under certain circumstances,
of the numbers of shares of each Security in the Trust. To the extent the price
of a Security increases or decreases between the time cash is deposited with
instructions to purchase the Security and the time the cash is used to purchase
the Security, Units may represent less or more of that Security and more or less
of the other Securities in the Trust. In addition, brokerage fees (if any)
incurred in
B-5
480911.8
<PAGE>
purchasing Securities with cash deposited with instructions to purchase the
Securities will be an expense of the Trust. Price fluctuations between the time
of deposit and the time the Securities are purchased, and payment of brokerage
fees, will affect the value of every Unitholder's Units and the Income per Unit
received by the Trust. In particular, Unitholders who purchase Units during the
initial offering period would experience a dilution of their investment as a
result of any brokerage fees paid by the Trust during subsequent deposits of
Additional Securities purchased with cash deposited. In order to minimize these
effects, the Trust will try to purchase Securities as near as possible to the
Evaluation Time or at prices as close as possible to the prices used to evaluate
Trust Units at the Evaluation Time. In addition, subsequent deposits to create
additional Units will not be fully covered by the deposit of a bank letter of
credit. In the event that the Sponsors do not deliver cash in consideration for
the additional Units delivered, the Trust may be unable to satisfy its contracts
to purchase the Additional Securities without the Trustee selling underlying
Securities. Therefore, to the extent that the subsequent deposits are not
covered by a bank letter of credit, the failure of the Sponsors to deliver cash
to the Trust, or any delays in the Trust receiving such cash, would have
significant adverse consequences for the Trust.
COMMON STOCK. Since the Trust contains common stocks of domestic issuers,
an investment in Units of the Trust should be made with an understanding of the
risks inherent in any investment in common stocks including the risk that the
financial condition of the issuers of the Securities may become impaired or that
the general condition of the stock market may worsen (both of which may
contribute directly to a decrease in the value of the Securities and thus in the
value of the Units). Additional risks include risks associated with the right to
receive payments from the issuer which is generally inferior to the rights of
creditors of, or holders of debt obligations or preferred stock issued by the
issuer. Holders of common stocks have a right to receive dividends only when,
if, and in the amounts declared by the issuer's board of directors and to
participate in amounts available for distribution by the issuer only after all
other claims on the issuer have been paid or provided for. By contrast, holders
of preferred stocks usually have the right to receive dividends at a fixed rate
when and as declared by the issuer's board of directors, normally on a
cumulative basis. Dividends on cumulative preferred stock must be paid before
any dividends are paid on common stock and any cumulative preferred stock
dividend which has been omitted is added to future dividends payable to the
holders of such cumulative preferred stock. Preferred stocks are also usually
entitled to rights on liquidation which are senior to those of common stocks.
For these reasons, preferred stocks generally entail less risk than common
stocks.
Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Further, unlike debt securities which typically have a stated
principal amount payable at maturity (which value will be subject to market
fluctuations prior thereto), common stocks have neither fixed principal amount
nor a maturity and have values which are subject to market fluctuations for as
long as the common stocks remain outstanding. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the common stocks
in the Trust thus may be expected to fluctuate over the life of the Trust to
values higher or lower than those prevailing on the Initial Date of Deposit.
LEGISLATION. From time to time Congress considers proposals to reduce the
rate of the dividends-received deduction which is available to certain
corporations. Enactment into law of a proposal to reduce the rate would
adversely affect the after-tax return to investors who can take advantage of the
deduction. Although recent legislation has established a reduced tax rate of 20%
for capital gains realized by individual investors who have held assets for more
than 18 months, this rate will generally not be available for Unitholders
because the term of the Trust is approximately one year. Investors are urged to
consult their own tax advisers. Further, at any time after the Initial Date of
Deposit, legislation may be enacted, with respect to the
B-6
480911.8
<PAGE>
Securities in the Trust or the issuers of the Securities. Changing approaches to
regulation, particularly with respect to the environment, or with respect to the
petroleum or tobacco industries, may have a negative impact on certain companies
represented in the Trust. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Trust
or will not impair the ability of the issuers of the Securities to achieve their
business goals.
LEGAL PROCEEDINGS AND LITIGATION. At any time after the Initial Date of
Deposit, legal proceedings may be initiated on various grounds, or legislation
may be enacted, with respect to the Securities in the Trust or to matters
involving the business of the issuer of the Securities. There can be no
assurance that future legal proceedings or legislation will not have a material
adverse impact on the Trust or will not impair the ability of the issuers of the
Securities to achieve their business and investment goals.
GENERALLY. There is no assurance that any dividends will be declared or
paid in the future on the Securities. Investors should be aware that there is no
assurance that the Trust's objective will be achieved.
PUBLIC OFFERING
OFFERING PRICE. In calculating the Public Offering Price, the aggregate
value of the Securities and any cash held to purchase Securities is divided by
the number of Units outstanding. The aggregate value of the Securities is
determined in good faith by the Trustee on each "Business Day" as defined in the
Indenture in the following manner: because the Securities are listed on a
national securities exchange, this evaluation is based on the closing sale
prices on that exchange as of the Evaluation Time (unless the Trustee deems
these prices inappropriate as a basis for valuation). If the Trustee deems these
prices inappropriate as a basis for evaluation, then the Trustee may utilize, at
the Trust's expense, an independent evaluation service or services to ascertain
the values of the Securities. The independent evaluation service shall use any
of the following methods, or a combination thereof, which it deems appropriate:
(a) on the basis of current bid prices for comparable securities, (b) by
appraising the value of the Securities on the bid side of the market or by such
other appraisal deemed appropriate by the Trustee or (c) by any combination of
the above, each as of the Evaluation Time.
The sales charge consists of a Deferred Sales Charge of $12.50 per
100 Units (1.25% of the Initial Public Offering Price). The Deferred Sales
Charge will be paid through ten monthly deductions from the Principal Account of
the Trust of $.80 commencing on February 2, 1998 and two semi-annual deductions
from distributions from the Income Account of $2.25 each on June 30, 1998 and
upon termination of the Trust. If the amount of the distribution from the Income
Account is insufficient to pay the Semi-Annual Charge, any unpaid amount shall
be further deferred and deducted from proceeds due to Unitholders upon
termination. If the amount available in the Principal Account of the Trust is
insufficient to pay the Monthly Charge, the Trustee shall sell Securities
selected by the Sponsors sufficient to pay such amounts. If the Public Offering
Price paid by an investor exceeds $10.00 per 100 Units, the Deferred Sales
Charge will be less than 1.25%; if the Public Offering Price paid by an investor
is less than $10.00 per 100 Units, the Deferred Sales Charge will exceed 1.25%.
To the extent the entire Deferred Sales Charge has not been so deducted at the
time of repurchase or redemption of the Units, any unpaid amount will be
deducted from the proceeds or in calculating an in kind distribution. However,
any remaining Deferred Sales Charge will be refunded by the Sponsors when Units
of any Schwab Ten Trust held at the time of the death (including the death of a
single joint tenant with rights of survivorship) or disability (as defined in
the Internal Revenue Code of 1986) of a Holder are repurchased or redeemed. The
Sponsors may require receipt of satisfactory proof of the death or disability
before releasing the portion of the proceeds representing the amount waived.
Units purchased pursuant to the Reinvestment Plan are subject only to any
remaining Deferred Sales Charge deductions (see "Reinvestment Plan").
DISCOUNTS. Employees (and their immediate families) of Charles Schwab &
Co., Inc., and Reich & Tang Distributors L.P. (and their affiliates) and of the
special counsel to the Sponsors may, pursuant to employee benefit arrangements,
purchase Units of the Trust at a price equal to the aggregate value of the
underlying securities in the Trust during the initial offering period, divided
by the number of Units outstanding plus a reduced Deferred Sales Charge of
$10.00 per 100 Units (1.00% of
B-7
480911.8
<PAGE>
the Initial Public Offering Price). Such arrangements result in less selling
effort and selling expenses than sales to employee groups of other companies.
Resales or transfers of Units purchased under the employee benefit arrangements
may only be made through the Sponsors' secondary market, so long as it is being
maintained.
Units may be purchased in the primary or secondary market at the Public
Offering Price plus a reduced Deferred Sales Charge of $10.00 per 100 Units by
investors who purchase Units through registered investment advisers, certified
financial planners and registered broker-dealers who have agreements with
Charles Schwab & Co., Inc. ("Schwab Financial Advisor") or by investors in any
unit investment trust with an investment strategy based upon the Strategic Ten
that have purchased their investment within a two year period prior to the date
of this Prospectus who can purchase Units of the Trust in an amount not greater
in value than the amount of said investment made during this two year period
("Strategic Ten Investors"). Such Strategic Ten Investors who purchase Units of
the Trust through a Schwab Financial Advisor, may purchase Units in the primary
or secondary market at the Public Offering Price plus a Deferred Sales Charge of
$8.00 per 100 Units (.80% of the Initial Public Offering Price), if available in
the secondary market. The reduced Deferred Sales Charge of $10.00 per 100 Units
will be paid through ten monthly deductions of $.80 commencing February 2, 1998
and the semi-annual deductions of $1.00 each on June 30, 1998 and upon the
termination of the Trust. The reduced Deferred Sales Charge of $8.00 per 100
Units will only be subject to the monthly charge described above.
DISTRIBUTION OF UNITS. During the initial offering period and thereafter
to the extent additional Units continue to be offered by means of this
Prospectus, Units will be distributed by the Sponsors at the Public Offering
Price. The initial offering period is thirty days after each deposit of
Securities in the Trust and the Sponsors may extend the initial offering period
for successive thirty-day periods.
The Sponsors intend to qualify the Units for sale in substantially all
States.
SPONSORS' PROFITS. The Sponsors will receive a combined gross underwriting
commission equal to up to $12.50 per 100 Units or 1.25% of the Initial Public
Offering Price per 100 Units (equivalent to 1.266% of the net amount invested in
the Securities). Additionally, the Sponsors may realize a profit on the deposit
of the Securities in the Trust representing the difference between the cost of
the Securities to the Sponsors and the cost of the Securities to the Trust. (See
"Portfolio of Investments.") All or a portion of the Securities initially
deposited in the Trust may have been acquired through the Sponsors.
During the initial offering period and thereafter to the extent additional
Units continue to be offered by means of this Prospectus, the Sponsors may also
realize profits or sustain losses as a result of fluctuations after the Initial
Date of Deposit in the aggregate value of the Securities and hence in the Public
Offering Price received by the Sponsors for the Units. Cash, if any, made
available to the Sponsors prior to settlement date for the purchase of Units may
be used in the Sponsors' business subject to the limitations of 17 CFR
240.15c3-3 under the Securities Exchange Act of 1934 and may be of benefit to
the Sponsors.
Both upon acquisition of Securities and termination of the Trust, the
Trustee may utilize the services of the Sponsors for the purchase or sale of all
or a portion of the Securities in the Trust. The Sponsors may receive brokerage
commissions from the Trust in connection with such purchases and sales in
accordance with applicable law.
In maintaining a market for the Units (see "Sponsors Repurchase") the
Sponsors will realize profits or sustain losses in the amount of any difference
between the price at which they buy Units and the price at which they resell
such Units.
RIGHTS OF UNITHOLDERS
BOOK-ENTRY UNITS. Ownership of Units of the Trust will not be evidenced by
certificates. All evidence of ownership of the Units will be recorded in
book-entry form at The Depository Trust Company ("DTC") through an investor's
B-8
480911.8
<PAGE>
brokerage account. Units held through DTC will be deposited by the Sponsors with
DTC in the Sponsors' DTC account and registered in the nominee name CEDE & CO.
Individual purchases of beneficial ownership interest in the Trust will be made
in book-entry form through DTC. Ownership and transfer of Units will be
evidenced and accomplished directly and indirectly only by book-entries made by
DTC and its participants. DTC will record ownership and transfer of the Units
among DTC participants and forward all notices and credit all payments received
in respect of the Units held by the DTC participants. Beneficial owners of Units
will receive written confirmation of their purchase and sale from their Schwab
Financial Advisor, or the broker-dealer or bank from whom their purchase was
made. Transfers, and the requirements therefor, will be governed by the
applicable procedures of DTC and the Unitholder's agreement with the DTC
participant in whose name the Unitholder's Units are registered on the transfer
records of DTC.
DISTRIBUTIONS. Dividends received by the Trust are credited by the Trustee
to an Income Account for the Trust. Other receipts, including the proceeds of
Securities disposed of, are credited to a Principal Account for the Trust.
Distributions to each Unitholder from the Income Account are computed as
of the close of business on each Record Date for the following Distribution Date
and consist of an amount substantially equal to such Unitholder's pro rata share
of the income credited to the Income Account, less expenses. Distributions from
the Principal Account of the Trust (other than amounts representing failed
contracts, as previously discussed) will be computed as of each Record Date, and
will be made to the Unitholders of the Trust on or shortly after the
Distribution Date. Proceeds representing principal received from the disposition
of any of the Securities between a Record Date and a Distribution Date which are
not used for redemptions of Units will be held in the Principal Account and not
distributed until the next Distribution Date. Persons who purchase Units between
a Record Date and a Distribution Date will receive their first distribution on
the second Distribution Date after such purchase.
As of each Record Date, the Trustee will deduct from the Income Account of
the Trust, and, to the extent funds are not sufficient therein, from the
Principal Account of the Trust, amounts necessary to pay the expenses of the
Trust (as determined on the basis set forth under "Trust Expenses and Charges").
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of the Trust. Amounts so withdrawn
shall not be considered a part of such Trust's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Income and Principal
Accounts such amounts as may be necessary to cover redemptions of Units.
Distributions of amounts necessary to pay the Deferred Sales Charge will be made
from the Principal Account to the extent of the Monthly Charge of $.80 per 100
Units for all Unitholders and from distributions made from the Income Account to
the extent of the Semi-Annual Charge of either $2.25 or $1.00 per 100 Units for
those Unitholders paying Deferred Sales Charges of the $12.50 and $10.00,
respectively, per 100 Units, to an account maintained by the Trustee for
purposes of satisfying investors' sales charge obligations.
The dividend distribution per 100 Units, if any, cannot be anticipated and
may be paid as Securities are redeemed, exchanged or sold, or as expenses of the
Trust fluctuate. No distribution need be made from the Income Account or the
Principal Account unless the balance therein is an amount sufficient to
distribute $1.00 per 100 Units.
RECORDS. The Trustee shall furnish Unitholders in connection with each
distribution a statement of the amount being distributed from the Income and
Principal Account, respectively, expressed in each case as a dollar amount per
100 Units. Within a reasonable time after the end of each calendar year, the
Trustee will furnish to each person who at any time during the calendar year was
a Unitholder of record, a statement showing (a) as to the Income Account:
dividends, interest and other cash amounts received, amounts paid for purchases
of Substitute Securities and redemptions of Units, if any, deductions for the
Deferred Sales Charge, applicable taxes and fees and expenses of the Trust, and
the balance remaining after such distributions and deductions, expressed both as
a total dollar amount and as a dollar amount representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year; (b)
as to the Principal Account: the Securities disposed of and the net proceeds
received therefrom, deductions for payment of disposition of any Securities and
the net
B-9
480911.8
<PAGE>
proceeds received therefrom, deductions for the Deferred Sales Charge, payments
of applicable taxes and fees and expenses of the Trust, amounts paid for
purchases of Substitute Securities and redemptions of Units, if any, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year; (c) a
list of the Securities held, a list of Securities purchased, sold or otherwise
disposed of during the calendar year and the number of Units outstanding on the
last business day of such calendar year; (d) the Redemption Price per 100 Units
based upon the last computation thereof made during such calendar year; and (e)
amounts actually distributed to Unitholders during such calendar year from the
Income and Principal Accounts, separately stated, of the Trust, expressed both
as total dollar amounts and as dollar amounts representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by Unitholders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee, including records of the names and addresses of
Unitholders, Units held, a current list of Securities in the portfolio and a
copy of the Trust Agreement.
TAX STATUS
The following is a general discussion of certain of the Federal income tax
consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Unitholders should
consult their tax advisers in determining the Federal, state, local and any
other tax consequences of the purchase, ownership and disposition of Units.
In rendering the opinion set forth below, Battle Fowler LLP has examined
the Agreement, the final form of Prospectus dated the date hereof (the
"Prospectus") and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein. In the Opinion of Battle Fowler LLP, special
counsel for the Sponsors, under existing law:
1. The Trust will be classified as a grantor trust for Federal income
tax purposes and not as a partnership or association taxable as a
corporation. Classification of the Trust as a grantor trust will cause the
Trust not to be subject to Federal income tax, and will cause the
Unitholders of the Trust to be treated for Federal income tax purposes as
the owners of a pro rata portion of the assets of the Trust. All income
received by the Trust will be treated as income of the Unitholders in the
manner set forth below.
2. The Trust is not subject to the New York Franchise Tax on Business
Corporations or the New York City General Corporation Tax. For a
Unitholder who is a New York resident, however, a pro rata portion of all
or part of the income of the Trust will be treated as income of the
Unitholder under the income tax laws of the State and City of New York.
Similar treatment may apply in other states.
3. During the 90-day period subsequent to the initial issuance date,
the Sponsors reserve the right to deposit Additional Securities that are
substantially similar to those establishing the Trust. This retained right
falls within the guidelines promulgated by the Internal Revenue Service
("IRS") and should not affect the taxable status of the Trust.
A taxable event will generally occur with respect to each Unitholder when
the Trust disposes of a Security (whether by sale, exchange or redemption) or
upon the sale, exchange or redemption of Units by such Unitholder. The price a
Unitholder pays for his Units, including sales charges, is allocated among his
pro rata portion of each Security held by the Trust (in proportion to the fair
market values thereof on the date the Unitholder purchases his Units) in order
to determine his initial cost for his pro rata portion of each Security held by
the Trust.
B-10
480911.8
<PAGE>
For Federal income tax purposes, a Unitholder's pro rata portion of
dividends paid with respect to a Security held by a Trust is taxable as ordinary
income to the extent of such corporation's current and accumulated "earnings and
profits" as provided in Section 316 of the Code. A Unitholder's pro rata portion
of dividends paid on such Security that exceed such current and accumulated
earnings and profits will first reduce a Unitholder's tax basis in such
Security, and to the extent that such dividends exceed a Unitholder's tax basis
in such Security will generally be treated as capital gain.
A Unitholder's portion of gain, if any, upon the sale, exchange or
redemption of Units or the disposition of Securities held by the Trust will
generally be considered a capital gain and will be mid-term if the Unitholder
has held his Units for more than one year but not more than 18 months. Mid-term
capital gains are generally taxed at the same rates applicable to ordinary
income, although individuals who realize mid-term capital gains may be subject
to a reduced tax rate of 28% on such gains, rather than the "regular" maximum
tax rate of 39.6%. Although recent legislation has established a reduced tax
rate of 20% for capital gains realized by individual investors who have held
assets for more than 18 months, this rate will generally not be available for
Unitholders because the term of the Trust is approximately one year. Tax rates
may increase prior to the time when Unitholders may realize gains from the sale,
exchange or redemption of the Units or Securities.
A Unitholder's portion of loss, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital loss and will be long-term if the Unitholder has held his
Units for more than one year. Capital losses are deductible to the extent of
capital gains; in addition, up to $3,000 of capital losses recognized by
non-corporate Unitholders may be deducted against ordinary income.
Under Section 67 of the Code and the accompanying Regulations, a
Unitholder who itemizes his deductions may also deduct his pro rata share of the
fees and expenses of the Trust, but only to the extent that such amounts,
together with the Unitholder's other miscellaneous deductions, exceed 2% of his
adjusted gross income. The deduction of fees and expenses may also be limited by
Section 68 of the Code, which reduces the amount of itemized deductions that are
allowed for individuals with incomes in excess of certain thresholds.
After the end of each calendar year, the Trustee will furnish to each
Unitholder an annual statement containing information relating to the dividends
received by the Trust on the Securities, the gross proceeds received by the
Trust from the disposition of any Security, and the fees and expenses paid by
the Trust. The Trustee will also furnish annual information returns to each
Unitholder and to the Internal Revenue Service.
A corporation that owns Units will generally be entitled to a 70%
dividends received deduction with respect to such Unitholder's pro rata portion
of dividends that are taxable as ordinary income to Unitholders which are
received by the Trust from a domestic corporation under Section 243 of the Code
or from a qualifying foreign corporation under Section 245 of the Code (to the
extent the dividends are taxable as ordinary income, as discussed above) in the
same manner as if such corporation directly owned the Securities paying such
dividends. However, a corporation owning Units should be aware that Sections 246
and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Units) must generally be held at least 46
days (as determined under Section 246(c) of the Code) during the 90-day period
beginning on the date that is 45 days before the date on which the stock becomes
ex-dividend. Moreover, the allowable percentage of the deduction will be reduced
from 70% if a corporate Unitholder owns certain stock (or Units) the financing
of which is directly attributable to indebtedness incurred by such corporation.
Accordingly, corporate Unitholders should consult their tax adviser in this
regard.
As discussed in the section "Termination", each Unitholder may have three
options in receiving his termination distributions, which are (i) to receive his
pro rata share of the underlying Securities in kind, (ii) to receive cash upon
liquidation of his pro rata share of the underlying Securities, or (iii) to
invest the amount of cash he would receive upon the liquidation of his pro rata
share of the underlying Securities in units of a future series of the Trust (if
one is offered). There are special tax consequences should a Unitholder choose
option (i), the exchange of the Unitholder's Units for a pro rata portion of
each
B-11
480911.8
<PAGE>
of the Securities held by the Trust plus cash. Treasury Regulations provide that
gain or loss is recognized when there is a conversion of property into property
that is materially different in kind or extent. In this instance, the Unitholder
may be considered the owner of an undivided interest in all of the Trust's
assets. By accepting the proportionate number of Securities of the Trust, in
partial exchange for his Units, the Unitholder should be treated as merely
exchanging his undivided pro rata ownership of Securities held by the Trust into
sole ownership of a proportionate share of Securities. As such, there should be
no material difference in the Unitholder's ownership, and therefore the
transaction should be tax free to the extent the Securities are received.
Alternatively, the transaction may be treated as an exchange that would qualify
for nonrecognition treatment to the extent the Unitholder is exchanging his
undivided interest in all of the Trust's Securities for his proportionate number
of shares of the underlying Securities. In either instance, the transaction
should result in a non-taxable event for the Unitholder to the extent Securities
are received. However, there is no specific authority addressing the income tax
consequences of an in-kind distribution from a grantor trust, and investors are
urged to consult their tax advisers in this regard.
Entities that generally qualify for an exemption from Federal income tax,
such as many pension trusts, are nevertheless taxed under Section 511 of the
Code on "unrelated business taxable income." Unrelated business taxable income
is income from a trade or business regularly carried on by the tax-exempt entity
that is unrelated to the entity's exempt purpose. Unrelated business taxable
income generally does not include dividend or interest income or gain from the
sale of investment property, unless such income is derived from property that is
debt-financed or is dealer property. A tax-exempt entity's dividend income from
the Trust and gain from the sale of Units in the Trust or the Trust's sale of
Securities is not expected to constitute unrelated business taxable income to
such tax-exempt entity unless the acquisition of the Unit itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Prospective tax-exempt investors are urged to consult their own tax
advisers prior to investing in the Trust.
RETIREMENT PLANS. This Trust may be well suited for purchase by Individual
Retirement Accounts ("IRAs"), Keogh plans, pension funds and other qualified
retirement plans. Generally, capital gains and income received in each of the
foregoing plans are exempt from Federal taxation. Except with respect to certain
IRAs known as Roth IRAs, distributions from such plans are generally treated as
ordinary income but may, in some cases, be eligible for special 5 or 10 year
averaging or tax-deferred rollover treatment. Five year averaging will not apply
to distributions after December 31, 1999. Ten year averaging has been preserved
in very limited circumstances. Holders of Units in IRAs, Keogh plans and other
tax-deferred retirement plans should consult their plan custodian as to the
appropriate disposition of distributions. Investors considering participation in
any such plan should review specific tax laws related thereto and should consult
their attorneys or tax advisers with respect to the establishment and
maintenance of any such plan. Such plans are offered by brokerage firms,
including Charles Schwab & Co., Inc., and other financial institutions. Fees and
charges with respect to such plans may vary.
Before investing in the Trust, the trustee or investment manager of an
employee benefit plan (e.g., a pension or profit sharing retirement plan) should
consider among other things (a) whether the investment is prudent under the
Employee Retirement Income Security Act of 1974 ("ERISA"), taking into account
the needs of the plan and all of the facts and circumstances of the investment
in the Trust; (b) whether the investment satisfies the diversification
requirement of Section 404(a)(1)(C) of ERISA; and (c) whether the assets of the
Trust are deemed "plan assets" under ERISA and the Department of Labor
regulations regarding the definition of "plan assets."
LIQUIDITY
SPONSORS REPURCHASE. The Sponsors may, under certain circumstances, as a
service to Unitholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). Factors which the Sponsors will consider
in making a determination will include the number of Units of all Trusts which
they have in inventory, their estimate of the salability and the time required
to sell such Units and general market conditions. For example, if in order to
meet redemptions of Units the Trustee must dispose of Securities, and if such
disposition cannot be made by the redemption date
B-12
480911.8
<PAGE>
(three calendar days after tender), the Sponsors may elect to purchase such
Units. Such purchase shall be made by payment to the Unitholder's brokerage
account not later than the close of business on the redemption date of an amount
equal to the Redemption Price on the date of tender less any unpaid Deferred
Sales Charge.
Unitholders who wish to dispose of their Units should inquire of the
Sponsors as to current market prices prior to making a tender for redemption.
The aggregate value of the Securities will be determined by the Trustee on a
daily basis and computed on the basis set forth under "Trustee Redemption." The
Sponsors do not guarantee the enforceability, marketability or price of any
Securities in the Portfolio or of the Units. The Sponsors may discontinue the
repurchase of redemption requests if the supply of Units exceeds demand, or for
other business reasons. The date of repurchase is deemed to be the date on which
redemption requests are received in proper form by Charles Schwab & Co., Inc.,
except for redemption requests received after 4 P.M., New York Time when Units
will be deemed to have been repurchased on the next business day. In the event a
market is not maintained for the Units, a Unitholder may be able to dispose of
Units only by tendering them to the Trustee for redemption.
Units purchased by the Sponsors in the secondary market may be reoffered
for sale by the Sponsors at a price based on the aggregate value of the
Securities in the Trust subject to the remaining Deferred Sales Charge plus a
pro rata portion of amounts, if any, in the Income and Principal Accounts. Any
Units that are purchased by the Sponsors in the secondary market also may be
redeemed by the Sponsors if they determine such redemption to be in their best
interest.
TRUSTEE REDEMPTION. At any time prior to the Evaluation Time on the
business day preceding the commencement of the Liquidation Period (approximately
one year from the Date of Deposit), Units may also be tendered to the Trustee
for redemption upon payment of any relevant tax by contacting the Charles Schwab
& Co., Inc. broker, dealer or financial institution holding such Units in street
name. In certain instances, additional documents may be required, such as a
trust instrument, certificate of corporate authority, certificate of death or
appointment as executor, administrator or guardian. At the present time there
are no specific taxes related to the redemption of Units. No redemption fee will
be charged by the Sponsors or the Trustee. Units redeemed by the Trustee will be
canceled.
Within three business days following a tender for redemption, the
Unitholder will be entitled to receive an amount for each Unit tendered equal to
the Redemption Price per Unit computed as of the Evaluation Time set forth under
"Summary of Essential Information" in Part A on the date of tender less any
unpaid Deferred Sales Charge. The "date of tender" is deemed to be the date on
which Units are received by the Trustee, except that with respect to Units
received after the close of trading on the New York Stock Exchange (4:00 p.m.
Eastern Time), the date of tender is the next day on which such Exchange is open
for trading, and such Units will be deemed to have been tendered to the Trustee
on such day for redemption at the Redemption Price computed on that day.
A Unitholder will receive his redemption proceeds in cash. Amounts paid on
redemption allocable to the Unitholder's interest in the Income Account shall be
withdrawn from the Income Account, or, if the balance therein is insufficient,
from the Principal Account. All other amounts paid on redemption shall be
withdrawn from the Principal Account. The Trustee is empowered to sell
Securities in order to make funds available for redemptions. Such sales, if
required, could result in a sale of Securities by the Trustee at a loss. To the
extent Securities are sold, the size and diversity of the Trust will be reduced.
The Securities to be sold will be selected by the Trustee in order to maintain,
to the extent practicable, the proportionate relationship among the number of
shares of each stock. Provision is made in the Indenture under which the
Sponsors may, but need not, specify minimum amounts in which blocks of
Securities are to be sold in order to obtain the best price for the Trust. While
these minimum amounts may vary from time to time in accordance with market
conditions, the Sponsors believe that the minimum amounts which would be
specified would be approximately 100 shares for readily marketable Securities.
The Redemption Price per Unit is the pro rata share of the Unit in the
Trust determined by the Trustee on the basis of (i) the cash on hand in the
Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust as
B-13
480911.8
<PAGE>
determined by the Trustee, less (a) amounts representing taxes or other
governmental charges payable out of the Trust, (b) the accrued expenses of the
Trust and (c) cash allocated for the distribution to Unitholders of record as of
a Record Date prior to the evaluation being made. The Trustee may determine the
value of the Securities in the Trust in the following manner: because the
Securities are listed on a national securities exchange, this evaluation is
based on the closing sale prices on that exchange. Unless the Trustee deems
these prices inappropriate as a basis for evaluation or if there is no such
closing purchase price, then the Trustee may utilize, at the Trust's expense, an
independent evaluation service or services to ascertain the values of the
Securities. The independent evaluation service shall use any of the following
methods, or a combination thereof, which it deems appropriate: (a) on the basis
of current bid prices for comparable securities, (b) by appraising the value of
the Securities on the bid side of the market or (c) by any combination of the
above.
Any Unitholder tendering 2,500 Units or more of the Trust for redemption
may request by written notice submitted at the time of tender from the Trustee
in lieu of a cash redemption a distribution of shares of Securities and cash in
an amount and value equal to the Redemption Price Per Unit as determined as of
the evaluation next following tender. To the extent possible, in kind
distributions ("In Kind Distributions") shall be made by the Trustee through the
distribution of each of the Securities in book-entry form to the Unitholder's
broker-dealer account at The Depository Trust Company. An In Kind Distribution
will be reduced by customary transfer and registration charges. The tendering
Unitholder will receive his pro rata number of whole shares of each of the
Securities comprising the Trust portfolio and cash from the Income and Principal
Accounts equal to the balance of the Redemption Price to which the tendering
Unitholder is entitled. A Unitholder who elects to receive In Kind Distributions
may incur brokerage or other transaction costs in converting the Securities so
distributed into cash subsequent to their receipt of the Securities from the
Trust. If funds in the Principal Account are insufficient to cover the required
cash distribution to the tendering Unitholder, the Trustee may sell Securities
in the manner described above.
The Trustee is irrevocably authorized in its discretion, if the Sponsors
do not elect to purchase a Unit tendered for redemption or if the Sponsors
tender a Unit for redemption, in lieu of redeeming such Unit, to sell such Unit
in the over-the-counter market for the account of the tendering Unitholder at
prices which will return to the Unitholder an amount in cash, net after
deducting brokerage commissions, transfer taxes and other charges, equal to or
in excess of the Redemption Price for such Unit. The Trustee will pay the net
proceeds of any such sale to the Unitholder on the day he would otherwise be
entitled to receive payment of the Redemption Price.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on that Exchange is restricted or during which
(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit. The Trustee and the Sponsors are not liable to any person
or in any way for any loss or damage which may result from any such suspension
or postponement.
A Unitholder who wishes to dispose of his Units should inquire of his
broker in order to determine if there is a current secondary market price in
excess of the Redemption Price.
TRUST ADMINISTRATION
PORTFOLIO SUPERVISION. The Trust is a unit investment trust and is not a
managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes in a portfolio of securities on the basis of
economic, financial and market analyses. The Portfolio of the Trust, however,
will not be managed and therefore the adverse financial condition of an issuer
will not necessarily require the sale of its Securities from the portfolio.
Although the portfolio of the Trust is regularly reviewed, because of the
formula employed in selecting the Strategic Ten, it is unlikely that the Trust
will sell any of the Securities other than to satisfy redemptions of Units, or
to cease buying Additional Securities in connection with the issuance of
additional Units. However, the Trust Agreement provides that the Sponsors may
direct the disposition
B-14
480911.8
<PAGE>
of Securities upon the occurrence of certain events including: (1) default in
payment of amounts due on any of the Securities; (2) institution of certain
legal proceedings; (3) default under certain documents materially and adversely
affecting future declaration or payment of amounts due or expected; (4)
determination of the Sponsors that the tax treatment of the Trust as a grantor
trust would otherwise be jeopardized; or (5) decline in price as a direct result
of serious adverse credit factors affecting the issuer of a Security which, in
the opinion of the Sponsors, would make the retention of the Security
detrimental to the Trust or the Unitholders. Furthermore, the Trust will likely
continue to hold a Security and purchase additional shares notwithstanding its
ceasing to be included among the Strategic Ten or even its deletion from the
DJIA.
In addition, the Trust Agreement provides as follows:
(a) If a default in the payment of amounts due on any Security occurs
pursuant to provision (1) above and if the Sponsors fail to give immediate
instructions to sell or hold that Security, the Trustee, within 30 days of
that failure by the Sponsors, shall sell the Security.
(b) It is the responsibility of the Sponsors to instruct the Trustee
to reject any offer made by an issuer of any of the Securities to issue
new securities in exchange and substitution for any Security pursuant to a
recapitalization or reorganization. If any exchange or substitution is
effected notwithstanding such rejection, any securities or other property
received shall be promptly sold unless the Sponsors direct that it be
retained.
(c) Any property received by the Trustee after the Initial Date of
Deposit as a distribution on any of the Securities in a form other than
cash or additional shares of the Securities shall be promptly sold unless
the Sponsors direct that it be retained by the Trustee. The proceeds of
any disposition shall be credited to the Income or Principal Account of
the Trust.
(d) The Sponsors are authorized to increase the size and number of
Units of the Trust by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with
instructions to purchase Additional Securities in exchange for the
corresponding number of additional Units from time to time subsequent to
the Initial Date of Deposit, provided that the original proportionate
relationship among the number of shares of each Security established on
the Initial Date of Deposit is maintained to the extent practicable. The
Sponsors may specify the minimum numbers in which Additional Securities
will be deposited or purchased. If a deposit is not sufficient to acquire
minimum amounts of each Security, Additional Securities may be acquired in
the order of the Security most under-represented immediately before the
deposit when compared to the original proportionate relationship. If
Securities of an issue originally deposited are unavailable at the time of
the subsequent deposit, the Sponsors may (i) deposit cash or a letter of
credit with instructions to purchase the Security when it becomes
available, or (ii) deposit (or instruct the Trustee to purchase) either
Securities of one or more other issues originally deposited or a
Substitute Security.
TRUST AGREEMENT AND AMENDMENT. The Trust Agreement may be amended by the
Trustee and the Sponsors without the consent of any of the Unitholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor governmental
agency; or (3) to make such other provisions in regard to matters arising
thereunder as shall not adversely affect the interests of the Unitholders.
The Trust Agreement may also be amended in any respect, or performance of
any of the provisions thereof may be waived, with the consent of investors
holding 66 2/3% of the Units then outstanding for the purpose of modifying the
rights of Unitholders; provided that no such amendment or waiver shall reduce
any Unitholder's interest in the Trust without his consent or reduce the
percentage of Units required to consent to any such amendment or waiver without
the consent of the holders of all Units. The Trust Agreement may not be amended,
without the consent of the holders of all Units in the Trust then outstanding,
to increase the number of Units issuable or to permit the acquisition of any
Securities in addition to or in
B-15
480911.8
<PAGE>
substitution for those initially deposited in such Trust, except in accordance
with the provisions of the Trust Agreement. The Trustee shall promptly notify
Unitholders, in writing, of the substance of any such amendment.
TRUST TERMINATION. The Trust Agreement provides that the Trust shall
terminate as of the Evaluation Time on the business day preceding the
Liquidation Period or upon the earlier maturity, redemption or other
disposition, as the case may be, of the last of the Securities held in such
Trust and in no event is it to continue beyond the Mandatory Termination Date.
If the value of the Trust shall be less than the minimum amount set forth under
"Summary of Essential Information" in Part A, the Trustee may, in its
discretion, and shall, when so directed by the Sponsors, terminate the Trust.
The Trust may also be terminated at any time with the consent of investors
holding 100% of the Units then outstanding. When directed by the Sponsors, the
Trustee shall utilize the services of the Sponsors for the sale of all or a
portion of the Securities in the Trust, and in so doing, the Sponsors will
determine the manner, timing and execution of the sales of the underlying
Securities. Any brokerage commissions received by the Sponsors from the Trust in
connection with such sales will be in accordance with applicable law. In the
event of termination, written notice thereof will be sent by the Trustee to all
Unitholders. Such notice will provide Unitholders with the following three
options by which to receive their pro rata share of the net asset value of the
Trust and requires their election of one of the three options by notifying the
Trustee by returning a properly completed election request (to be supplied to
Unitholders at least 20 days prior to the commencement of the Liquidation
Period):
1. A Unitholder who owns at least 2,500 Units and whose interest in
the Trust would entitle him to receive at least one share of each
underlying Security will have his Units redeemed on commencement of the
Liquidation Period by distribution of the Unitholder's pro rata share of
the net asset value of the Trust on such date distributed in kind to the
extent represented by whole shares of underlying Securities and the
balance in cash within three business days following the commencement of
the Liquidation Period. Unitholders subsequently selling such distributed
Securities will incur brokerage costs when disposing of such Securities.
Unitholders should consult their own tax adviser in this regard;
2. to receive in cash such Unitholder's pro rata share of the net
asset value of the Trust derived from the sale by the Sponsors as the
agents of the Trustee of the underlying Securities over the Liquidation
Period. The Unitholder's pro rata share of its net assets of the Trust
will be distributed to such Unitholder within three days of the settlement
of the trade of the last Security to be sold; and/or
3. to invest such Unitholder's pro rata share of the net assets of
the Trust derived from the sale by the Sponsors as agents of the Trustee
of the underlying Securities over the Liquidation Period, in units of a
subsequent series of the Schwab Ten Trust (the "New Series") provided one
is offered. It is expected that a special redemption and liquidation will
be made of all Units of this Trust held by a Unitholder (a "Rollover
Unitholder") who affirmatively notifies the Trustee by the Rollover
Notification Date set forth in the "Summary of Essential Information" for
the Trust in Part A. The Units of a New Series will be purchased by the
Unitholder within three business days of the settlement of the trade for
the last Security to be sold. Such purchaser will be entitled to a reduced
deferred sales charge upon the purchase of units of the New Series. It is
expected that the terms of the New Series will be substantially the same
as the terms of the Trust described in this Prospectus, and that similar
options with respect to the termination of such New Series will be
available. The availability of this option does not constitute a
solicitation of an offer to purchase Units of a New Series or any other
security. A Unitholder's election to participate in this option will be
treated as an indication of interest only. At any time prior to the
purchase by the Unitholder of units of a New Series such Unitholder may
change his investment strategy and receive, in cash, the proceeds of the
sale of the Securities. An election of this option will not prevent the
Unitholder from recognizing taxable gain or loss (except in the case of a
loss, if and to the extent the New Series is treated as substantially
identical to the Trust) as a result of the liquidation, even though no
cash will be distributed to pay any taxes. Unitholders should consult
their own tax advisers in this regard.
Unitholders who do not make any election will be deemed to have elected to
receive the termination distribution in cash (option number 2).
B-16
480911.8
<PAGE>
The Sponsors have agreed that to the extent they effect the sales of
underlying securities for the Trustee in the case of the second and third
options over the Liquidation Period such sales will be free of brokerage
commissions. The Sponsors, on behalf of the Trustee, will sell, unless prevented
by unusual and unforeseen circumstances, such as, among other reasons, a
suspension in trading of a Security, the close of a stock exchange, outbreak of
hostilities and collapse of the economy, as quickly as practicable, but all of
the Securities will in any event be disposed of by the end of the Liquidation
Period. The Redemption Price Per Unit upon the settlement of the last sale of
Securities during the Liquidation Period will be distributed to Unitholders in
redemption of such Unitholders' interest in the Trust.
Depending on the amount of proceeds to be invested in Units of the New
Series and the amount of other orders for Units in the New Series, the Sponsors
may purchase a large amount of securities for the New Series in a short period
of time. The Sponsors' buying of securities may tend to raise the market prices
of these securities. The actual market impact of the Sponsors' purchases,
however, is currently unpredictable because the actual amount of securities to
be purchased and the supply and price of those securities is unknown. A similar
problem may occur in connection with the sale of Securities during the
Liquidation Period; depending on the number of sales required, the prices of and
demand for Securities, such sales may tend to depress the market prices and thus
reduce the proceeds of such sales. The Sponsors believe that the sale of
underlying Securities over the Liquidation Period is in the best interest of a
Unitholder and may mitigate the negative market price consequences stemming from
the trading of large amounts of Securities. The Securities may be sold in fewer
than seven days if, in the Sponsors' judgment, such sales are in the best
interest of Unitholders. The Sponsors, in implementing such sales of securities
on behalf of the Trustee, will seek to maximize the sales proceeds and will act
in the best interests of the Unitholders. There can be no assurance, however,
that any adverse price consequences of heavy trading will be mitigated.
It is expected (but not required) that the Sponsors will generally follow
the following guidelines in selling the Securities: for highly liquid
Securities, the Sponsors will generally sell Securities on the first day of the
Liquidation Period; for less liquid Securities, on each of the first two days of
the Liquidation Period, the Sponsors will generally sell any amount of any
underlying Securities at a price no less than 1/2 of one point under the last
closing sale price of those Securities. On each of the following two days, the
price limit will increase to one point under the last closing sale price. After
four days, the Sponsors intend to sell at least a fraction of the remaining
underlying Securities, the numerator of which is one and the denominator of
which is the total number of days remaining (including that day) in the
Liquidation Period, without any price restrictions.
The Sponsors may for any reason, in their sole discretion, decide not to
sponsor any subsequent series of the Trust, without penalty or incurring
liability to any Unitholder. If the Sponsors so decide, the Sponsors will notify
the Trustee of that decision, and the Trustee will notify the Unitholders before
the commencement of the Liquidation Period. All Unitholders will then elect
either option 1, if eligible, or option 2.
By electing to reinvest in the New Series, the Unitholder indicates his
interest in having his terminating distribution from the Trust invested only in
the New Series created following termination of the Trust; the Sponsors expect,
however, that a similar reinvestment program will be offered with respect to all
subsequent series of the Trust, thus giving Unitholders a yearly opportunity to
elect to "rollover" their terminating distributions into a New Series. The
availability of the reinvestment privilege does not constitute a solicitation of
offers to purchase units of a New Series or any other security. A Unitholder's
election to participate in the reinvestment program will be treated as an
indication of interest only. The Sponsors intend to coordinate the date of
deposit of a future series so that the terminating trust will terminate
contemporaneously with the creation of a New Series. The Sponsors reserve the
right to modify, suspend or terminate the reinvestment privilege at any time.
THE SPONSORS. Charles Schwab & Co., Inc. ("Schwab") was established in
1971 and is one of America's largest discount brokers. The firm provides
low-cost securities brokerage and related financial services to over 3.3 million
active customer accounts and has over 200 branch offices. Schwab also offers
convenient access to financial information services and provides products and
services that help investors make investment decisions. Schwab is a wholly owned
subsidiary of The Charles Schwab Corporation. Charles R. Schwab is the founder,
Chairman, Chief Executive Officer and a director of
B-17
480911.8
<PAGE>
The Charles Schwab Corporation and, as of January 31, 1996, the beneficial owner
of approximately 20.1% of the outstanding shares of that corporation. Mr. Schwab
may be deemed to be a controlling person of Schwab.
Reich & Tang Distributors L.P. (successor to the Unit Investment Trust
Division of Bear, Stearns & Co. Inc.), a Delaware limited partnership, is
engaged in the brokerage business and is a member of the National Association of
Securities Dealers, Inc. Reich & Tang is also a registered investment advisor.
Reich & Tang maintains its principal business offices at 600 Fifth Avenue, New
York, New York 10020. Reich & Tang Asset Management L.P. ("RTAM L.P."), a
registered investment adviser having its principal place of business at 399
Boylston Street, Boston, MA 02116, is the 99% limited partner of Reich & Tang
Distributors L.P. RTAM L.P. is 99.5% owned by New England Investment Companies,
L.P. ("NEIC L.P.") and Reich & Tang Asset Management, Inc. ("RTAM Inc."), a
wholly owned subsidiary of NEIC L.P., owns the remaining .5% interest of RTAM
L.P. and is its general partner. NEIC L.P.'s general partner is New England
Investment Companies, Inc. ("NEIC"), a holding company offering a broad array of
investment styles across a wide range of asset categories through eleven
subsidiaries, divisions and affiliates offering a wide array of investment
styles and products to institutional clients. These affiliates in the aggregate
are investment advisors or managers to over 54 registered investment companies.
Reich & Tang is successor Sponsor to Bear Stearns for numerous series of unit
investment trusts, including New York Municipal Trust, Series 1 (and Subsequent
Series), Municipal Securities Trust, Series 1 (and Subsequent Series), 1st
Discount Series (and Subsequent Series), Multi-State Series 1 (and Subsequent
Series), Mortgage Securities Trust, Series 1 (and Subsequent Series), Insured
Municipal Securities Trust, Series 1 (and Subsequent Series) and 5th Discount
Series (and Subsequent Series) and Equity Securities Trust, Series 1, Signature
Series, Gabelli Communications Income Trust (and Subsequent Series).
On August 30, 1996, New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. RTAM L.P. remains a wholly-owned
subsidiary of NEIC L.P. but RTAM Inc., its sole general partner, is now an
indirect subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a
wholly-owned subsidiary of MetLife, owns 55% of the outstanding limited
partnership interest of NEIC L.P. MetLife is a mutual life insurance company
with assets of $142.2 billion at March 31, 1996. It is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force, which exceeded $1.2
trillion at March 31, 1996 for MetLife and its insurance affiliates. MetLife and
its affiliates provide insurance or other financial services to approximately 36
million people worldwide.
The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsors and their ability
to carry out their contractual obligations. The Sponsors will be under no
liability to Unitholders for taking any action, or refraining from taking any
action, in good faith pursuant to the Trust Agreement, or for errors in judgment
except in cases of their own willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations and duties.
The Sponsors may each resign at any time by delivering to the Trustee an
instrument of resignation executed by the individual Sponsor. If at any time
either of the Sponsors shall resign or fail to perform any of its duties under
the Trust Agreement or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may either (a)
appoint a successor Sponsor; (b) terminate the Trust Agreement and liquidate the
Trust; or (c) continue to act as Trustee without terminating the Trust
Agreement. Any successor Sponsor appointed by the Trustee shall be satisfactory
to the Trustee and, at the time of appointment, shall have a net worth of at
least $1,000,000.
THE TRUSTEE. The Trustee is The Chase Manhattan Bank with its principal
executive office located at 270 Park Avenue, New York, New York 10017 (800)
428-8890 and its unit investment trust office at 4 New York Plaza, New York, New
York 10004. The Trustee is subject to supervision by the Superintendent of Banks
of the State of New York, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
B-18
480911.8
<PAGE>
The Trustee shall not be liable or responsible in any way for taking any
action, or for refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment; or for any disposition of any
moneys, Securities or Units in accordance with the Trust Agreement, except in
cases of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties; provided, however, that the Trustee
shall not in any event be liable or responsible for any evaluation made by any
independent evaluation service employed by it. In addition, the Trustee shall
not be liable for any taxes or other governmental charges imposed upon or in
respect of the Securities or the Trust which it may be required to pay under
current or future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Securities pursuant to the
Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Unitholders."
The Trustee may resign by executing an instrument in writing and filing
the same with the Sponsors, and mailing a copy of a notice of resignation to all
Unitholders. In such an event the Sponsors are obligated to appoint a successor
Trustee as soon as possible. In addition, if the Trustee becomes incapable of
acting or becomes bankrupt or its affairs are taken over by public authorities,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsors. If upon resignation of the Trustee no successor has
been appointed and has accepted the appointment within thirty days after
notification, the retiring Trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
the Trustee becomes effective only when the successor Trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor Trustee. Upon execution of a written acceptance of such appointment by
such successor Trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor.
Any corporation into which the Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Trustee shall be a party, shall be the successor Trustee. The
Trustee must always be a banking corporation organized under the laws of the
United States or any State and have at all times an aggregate capital, surplus
and undivided profits of not less than $2,500,000.
EVALUATION OF THE TRUST. The value of the Securities in the Trust
portfolio is determined in good faith by the Trustee on the basis set forth
under "Public Offering--Offering Price." The Sponsors and the Unitholders may
rely on any evaluation furnished by the Trustee and shall have no responsibility
for the accuracy thereof. Determinations by the Trustee under the Trust
Agreement shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Trustee shall be under no liability
to the Sponsors or Unitholders for errors in judgment, except in cases of its
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties. The Trustee, the Sponsors and the Unitholders may
rely on any evaluation furnished to the Trustee by an independent evaluation
service and shall have no responsibility for the accuracy thereof.
TRUST EXPENSES AND CHARGES
All or a portion of the expenses incurred in creating and establishing the
Trust, including the cost of the initial preparation and execution of the Trust
Agreement, registration of the Trust and the Units under the Investment Company
Act of 1940 and the Securities Act of 1933 and State registration fees, the
initial fees and expenses of the Trustee, legal expenses and other actual
out-of-pocket expenses, will be paid by the Trust and charged to capital over
the life of the Trust. All advertising and selling expenses, as well as any
organizational expenses not paid by the Trust, will be borne by the Sponsors at
no cost to the Trust.
B-19
480911.8
<PAGE>
The Sponsors will receive for portfolio supervisory, bookkeeping and
administrative services to the Trust an Annual Fee in the amount set forth under
"Summary of Essential Information" in Part A. The Sponsors' fee may exceed the
actual cost of providing portfolio supervisory, bookkeeping and administrative
services for the Trust, but at no time will the total amount received for
portfolio supervisory, bookkeeping and administrative services rendered to all
series of the Schwab Trusts in any calendar year exceed the aggregate cost to
the Sponsors of supplying such services in such year. (See "Portfolio
Supervision.")
The Trustee will receive, for its ordinary recurring services to the
Trust, an annual fee in the amount set forth under "Summary of Essential
Information" in Part A. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Trust Agreement, see "Trust
Administration" and "Rights of Unitholders."
The Trustee's fees applicable to a Trust are payable as of each Record
Date from the Income Account of the Trust to the extent funds are available and
then from the Principal Account. Both the Sponsors' and Trustee's fees may be
increased without approval of the Unitholders by amounts not exceeding
proportionate increases in consumer prices for services as measured by the
United States Department of Labor's Consumer Price Index entitled "All Services
Less Rent."
The following additional charges are or may be incurred by the Trust: all
expenses (including counsel fees) of the Trustee incurred and advances made in
connection with its activities under the Trust Agreement, including the expenses
and costs of any action undertaken by the Trustee to protect the Trust and the
rights and interests of the Unitholders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement; indemnification of
the Trustee for any loss or liability accruing to it without gross negligence,
bad faith or willful misconduct on its part, arising out of or in connection
with its acceptance or administration of the Trust; indemnification of the
Sponsors for any losses, liabilities and expenses incurred in acting as sponsors
of the Trust without gross negligence, bad faith or willful misconduct on its
part; and all taxes and other governmental charges imposed upon the Securities
or any part of the Trust (no such taxes or charges are being levied, made or, to
the knowledge of the Sponsors, contemplated). The above expenses, including the
Trustee's fees, when paid by or owing to the Trustee are secured by a first lien
on the Trust to which such expenses are charged. In addition, the Trustee is
empowered to sell the Securities in order to make funds available to pay all
expenses.
Unless the Sponsors otherwise direct, the accounts of the Trust shall be
audited not less than annually by independent auditors selected by the Sponsors.
The expenses of the audit shall be an expense of the Trust. So long as the
Sponsors maintain a secondary market, the Sponsors will bear any audit expense
which exceeds $.50 cents per 1,000 Units. Unitholders covered by the audit
during the year may receive a copy of the audited financial statements upon
request.
REINVESTMENT PLAN
Income and principal distributions on Units (other than the final
distribution in connection with the termination of the Trust) may be reinvested
by participating in the Trust's reinvestment plan. Under the plan, the Units
acquired for participants will be either Units already held in inventory by the
Sponsors or new Units created by the Sponsors' deposit of Additional Securities
as described in "The Trust--Organization" in this Part B. Units acquired by
reinvestment will be subject to any remaining deductions of the Deferred Sales
Charge. In order to enable a Unitholder to participate in the reinvestment plan
with respect to a particular distribution on their Units, written notification
must be received by the Trustee within 10 days prior to the Record Date for such
distribution. Each subsequent distribution of income or principal on the
participant's Units will be automatically applied by the Trustee to purchase
additional Units of the Trust. The Sponsors reserve the right to demand, modify
or terminate the reinvestment plan at any time without prior notice. The
reinvestment plan for the Trust may not be available in all states.
B-20
480911.8
<PAGE>
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and certain
matters relating to federal tax law have been passed upon by Battle Fowler LLP,
75 East 55th Street, New York, New York 10022 as counsel for the Sponsors.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have acted
as counsel for the Trustee.
INDEPENDENT AUDITORS. The Statement of Financial Condition, including the
Portfolio of Investments, is included herein in reliance upon the report of
Ernst & Young LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
PERFORMANCE INFORMATION. Total returns, average annualized returns or
cumulative returns for various periods of the Strategic Ten, the related index
and this Trust may be included from time to time in advertisements, sales
literature and reports to current or prospective investors. Total return shows
changes in Unit price during the period plus any dividends and capital gains
received, divided by the public offering price as of the date of calculation.
Average annualized returns show the average return for stated periods of longer
than a year. From time to time, the Trust may compare the cost of purchasing
Trust shares to the cost of purchasing the individual securities which
constitute the Strategic Ten. In addition, the Trust may compare its deferred
sales charge to the sales charges assessed on unitholders by other unit
investment trusts. Sales material may also include an illustration of the
cumulative results of like annual investments in the Strategic Ten during an
accumulation period and like annual withdrawals during a distribution period.
Figures for actual portfolios will reflect all applicable expenses and, unless
otherwise stated, the maximum deferred sales charge. No provision is made for
any income taxes payable. Similar figures may be given for this Trust applying
the Strategic Ten investment strategy to other indexes. Returns may also be
shown on a combined basis. Trust performance may be compared to performance on a
total return basis of the Dow Jones Industrial Average, the S&P 500 Composite
Price Stock Index, or the average performance of mutual funds investing in a
diversified portfolio of U.S. stocks generally or growth stocks, or performance
data from Lipper Analytical Services, Inc. and Morningstar Publications, Inc. or
from publications such as Money, The New York Times, U.S. News and World Report,
Business Week, Forbes or Fortune. As with other performance data, performance
comparisons should not be considered representative of a Trust's relative
performance for any future period.
B-21
480911.8
<PAGE>
<TABLE>
<S> <C>
No person is authorized to give any information or to ----------------------------------------------------
make any representations not contained in Parts A and B of this INSERT LOGO
Prospectus; and any information or representation not contained ----------------------------------------------------
herein must not be relied upon as having been authorized by the
Trust, the Trustee or the Sponsors. The Trust is registered as SCHWAB TEN TRUST,
a unit investment trust under the Investment Company Act of 1997 SERIES A
1940. Such registration does not imply that the Trust or any of
its Units have been guaranteed, sponsored, recommended or (A UNIT INVESTMENT TRUST)
approved by the United States or any state or any agency or
officer thereof. PROSPECTUS
------------------ DATED: NOVEMBER 4, 1997
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any SPONSORS:
person to whom it is not lawful to make such offer in such
state. CHARLES SCHWAB & CO., INC.
101 Montgomery Street
Table of Contents San Francisco, California 94104
800-435-4000
Title Page
REICH & TANG DISTRIBUTORS L.P.
PART A 600 Fifth Avenue
Summary of Essential Information...........................A-2 New York, New York 10020
Statement of Financial Condition...........................A-8 800-237-7020
Portfolio of Investments...................................A-9
Report of Independent Auditors............................A-10
PART B TRUSTEE:
The Trust..................................................B-1
Risk Considerations........................................B-5 THE CHASE MANHATTAN BANK
Public Offering............................................B-7 4 New York Plaza
Rights of Unitholders......................................B-8 New York, New York 10004
Tax Status................................................B-10
Liquidity.................................................B-12
Trust Administration......................................B-14
Trust Expenses and Charges................................B-19
Reinvestment Plan.........................................B-20
Other Matters.............................................B-21
</TABLE>
Parts A and B of this Prospectus do not contain all of the information set
forth in the registration statement and exhibits relating thereto, filed with
the Securities and Exchange Commission, Washington, D.C., under the Securities
Act of 1933, and the Investment Company Act of 1940, and to which reference is
made.
480911.8
<PAGE>
PART II -- ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM A -- BONDING ARRANGEMENTS
The employees of Reich & Tang Distributors L.P. are covered under Brokers'
Blanket Policy, Standard Form 14, in the amount of $11,000,000 (plus
$196,000,000 excess coverage under Brokers' Blanket Policies, Standard Form 14
and Form B Consolidated).
This policy has an aggregate annual coverage of $15 million.
ITEM B -- CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Undertakings.
Signatures.
Written consents of the following persons:
Battle Fowler LLP (included in Exhibit 3.1)
Ernst & Young LLP
The following exhibits:
*99.1.1 -- Reference Trust Agreement including certain
amendments to the Trust Indenture and Agreement
referred to under Exhibit 99.1.1.1 below.
*99.1.1.1 -- Form of Trust Indenture and Agreement.
99.1.3.4 -- Certificate of Formation and Agreement among
Limited Partners, as amended, of Reich & Tang
Distributors L.P. (filed as Exhibit 99.1.3.4 to
Post-Effective Amendment No. 10 to Form S-6
Registration Statement Nos. 2-98914, 33-00376,
33-00856 and 33-01869 of Municipal Securities Trust,
Series 28, 39th Discount Series, Series 29 & 40th
Discount Series and series 30 & 41st Discount Series,
respectively, on October 31, 1995 and incorporated
herein by reference).
*99.1.3.5 -- Restated Articles of Incorporation of Charles Schwab &
Co., Inc.
*99.1.3.6 -- Certificate of Amendment of Articles of Incorporation
of Charles Schwab & Co., Inc.
*99.1.3.7 -- Amended and Restated Bylaws of Charles Schwab & Co.,
Inc.
*99.3.1 -- Opinion of Battle Fowler LLP as to the legality of the
securities being registered, including their consent
to the filing thereof and to the use of their name
under the headings "Tax Status" and "Legal Opinions"
in the Prospectus, and to the filing of their opinion
regarding tax status of the Trust.
99.6.0 -- Power of Attorney of Reich & Tang Distributors
L.P., the Depositor, by its officers and a majority of
its Directors (filed as Exhibit 6.0 to Amendment No. 1
to Form S-6 Registration Statement No. 33-62627 of
Equity Securities Trust, Series 6, Signature Series,
Gabelli Entertainment and Media Trust on November 16,
1995 and incorporated herein by reference).
99.6.1 -- Powers of Attorney of Charles Schwab & Co., Inc.,
the Depositor, by its officers and a majority of its
Directors (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 333-31133 of Schwab Trusts,
Schwab Strategic Ten Trust, 1997 Series A on July 11,
1997 and incorporated herein by reference).
*99.27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Filed herewith.
606976.3
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Schwab Trusts, Schwab Ten Trust, 1997 Series A, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of New York and State of New
York on the 4th day of November, 1997.
SCHWAB TRUSTS, SCHWAB
TEN TRUST, 1997 SERIES A
(Registrant)
CHARLES SCHWAB & CO., INC.
(Depositor)
By /S/ JIM WHITE
-----------------------------
Jim White
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons,
who constitute the principal officers and a majority of the directors of Charles
Schwab & Co., Inc., the Depositor, in the capacities and on the dates indicated.
Name Title Date
DAVID POTTRUCK Chief Executive Officer and Director
STEVEN SCHEID Chief Financial Officer and Director
CHARLES R. SCHWAB Director
November 4, 1997
By /S/ JIM WHITE
--------------------
Jim White
Attorney-In-Fact*
- --------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 333-31133 on July 11, 1997.
II-2
606976.3
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Schwab Trusts, Schwab Ten Trust, 1997 Series A, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of New York and State of New
York on the 4th day of November, 1997.
SCHWAB TRUSTS, SCHWAB
TEN TRUST, 1997 SERIES A
(Registrant)
REICH & TANG DISTRIBUTORS L.P.
(Depositor)
By: Reich & Tang Asset Management, Inc.
By /s/ PETER J. DEMARCO
------------------------------------
Peter J. DeMarco
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons,
who constitute the principal officers and a majority of the directors of Reich &
Tang Asset Management, Inc., General Partner of Reich & Tang Distributors L.P.,
the Depositor, in the capacities and on the dates indicated.
Name Title Date
PETER S. VOSS President, Chief Executive
Officer and Director
G. NEAL RYLAND Executive Vice President,
Treasurer and Chief
Financial Officer
EDWARD N. WADSWORTH Clerk
November 4, 1997
RICHARD E. SMITH III Director
STEVEN W. DUFF Director
By /s/ PETER J. DEMARCO
BERNADETTE N. FINN Vice President ---------------------
Peter J. DeMarco
LORRAINE C. HYSLER Secretary Attorney-In-Fact*
RICHARD DE SANCTIS Vice President and
Treasurer
- --------
* Executed copies of Powers of Attorney were filed as Exhibit 6.0 to
Amendment No. 1 to Registration Statement No. 33-62627 on November 16, 1995.
II-3
606976.3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" in Part B of the Prospectus and to the use of our report dated
November 3, 1997, in this Registration Statement (Form S-6 No. 333-31133) of
Schwab Trusts, Schwab Ten Trust, 1997 Series A.
New York, New York
November 3, 1997 ERNST & YOUNG LLP
II-4
606976.3
SCHWAB TRUSTS,
SCHWAB TEN TRUST, 1997 SERIES A
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement (the "Agreement") dated
November 4, 1997 among Charles Schwab & Co., Inc., Reich & Tang Distributor
L.P., as Depositors and The Chase Manhattan Bank, as Trustee, sets forth certain
provisions in full and incorporates other provisions by reference to the
document entitled "Schwab Trusts, Schwab Ten Trust, 1997 Series A, and
Subsequent Series, Trust Indenture and Agreement" dated November 4, 1997 and as
amended in part by this Agreement (collectively, such documents hereinafter
called the "Indenture and Agreement"). This Agreement and the Indenture, as
incorporated by reference herein, will constitute a single instrument.
WITNESSETH THAT:
WHEREAS, this Agreement is a Reference Trust Agreement as
defined in Section 1.1 of the Indenture, and shall be amended and modified from
time to time by an Addendum as defined in Section 1.1 (1) of the Indenture, such
Addendum setting forth any Additional Securities as defined in Section 1.1 (2)
of the Indenture;
WHEREAS, the Depositor wishes to deposit Securities, and any
Additional Securities as listed on any Addendums hereto, into the Trust and
issue Units, and Additional Units as the case maybe, in respect thereof pursuant
to Sections 2.1 and 2.5 of the Indenture; and
NOW THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the Depositor and the Trustee as follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Section 1. Subject to the provisions of Part II hereof, all
the provisions contained in the Indenture are herein incorporated by reference
in their entirety and shall be deemed to be a part of this instrument as fully
and to the same extent as though said provisions had been set forth in full in
this instrument.
Section 2. This Reference Trust Agreement may be amended and
modified by Addendums, attached hereto, evidencing the purchase of Additional
Securities which have been deposited
644884.1
<PAGE>
to effect an increase over the number of Units initially specified in Part II of
this Reference Trust Agreement ("Additional Closings"). The Depositor and
Trustee hereby agree that their respective representations, agreements and
certifications contained in the Closing Memorandum dated November 4, 1997,
relating to the initial deposit of Securities continue as if such
representations, agreements and certifications were made on the date of such
Additional Closings and with respect to the deposits made therewith, except as
such representations, agreements and certifications relate to their respective
By-Laws and as to which they each represent that their has been no amendment
affecting their respective abilities to perform their respective obligations
under the Indenture.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
Section 1. The following special terms and conditions are
hereby agreed to:
(a) The Securities (including Contract Securities) listed in
the Prospectus relating to this series of Equity Securities Trust (the
"Prospectus") have been deposited in the Trust under this Agreement (see
"Portfolio" in Part A of the Prospectus which for purposes of this Indenture and
Agreement is the Schedule of Securities or Schedule A).
(b) The number of Units delivered by the Trustee in exchange
for the Securities referred to in Section 2.3 is 14,977.
(c) For the purposes of the definition of Unit in item (24) of
Section 1.1, the fractional undivided interest in and ownership of the Trust
initially is 1/14977 as of the date hereof.
(d) The term Record Date shall mean the fifteenth day of June
and December commencing on December 15, 1997.
(e) The term Distribution Date shall mean the last business
day of June and December commencing on December 31, 1997.
(f) The First Settlement Date shall mean November 7, 1997.
(g) For purposes of Section 6.1(g), the liquidation amount is
hereby specified to be 40% of the aggregate value of the Securities at the
completion of the Deposit Period.
(h) For purposes of Section 6.4, the Trustee shall be paid per
annum an amount computed according to the following
-2-
644884.1
<PAGE>
schedule, determined on the basis of the number of Units outstanding as of the
Record Date preceding the Record Date on which the compensation is to be paid,
provided, however, that with respect to the period prior to the first Record
Date, the Trustee's compensation shall be computed at $.92 per 100 Units:
rate per 100 units number of Units outstanding
$0.92 5,000,000 or less
$0.86 5,000,001 - 10,000,000
$0.80 10,000,001 - 20,000,000
$0.68 20,000,001 or more
(i) For purposes of Section 7.4, the Depositors' maximum
annual supervisory fee is hereby specified to be $.25 per 100 Units outstanding.
(j) The Termination Date shall be December 10, 1998 or the
earlier disposition of the last Security in the Trust.
(k) The fiscal year for the Trust shall end on June 30
of each year.
(l) For purposes of Section 3.15, the Trust will have a
Deferred Sales Charge as specified in and as permitted by the Prospectus.
IN WITNESS WHEREOF, the parties hereto have caused this
Reference Trust Agreement to be duly executed on the date first above written.
[Signatures on separate pages]
-3-
644884.1
<PAGE>
CHARLES SCHWAB & CO, INC.
Depositor
By: /s/ James C. White
----------------------------
Authorized Signator
STATE OF CALIFORNIA )
: ss:
COUNTY OF SAN FRANCISCO )
On this 3rd day of November, 1997, before me personally
appeared James C. White, to me known, who being by me duly sworn, said that he
is an Authorized Signator of Charles Schwab & Co., Inc. the Depositor, one of
the corporations described in and which executed the foregoing instrument, and
that he signed his name thereto by authority of the Board of Directors of said
corporation.
/s/ Elizabeth K. Antonini
-------------------------
Notary Public
<PAGE>
REICH & TANG DISTRIBUTORS L.P.
Depositor
By: Reich & Tang Asset Management, Inc.,
as General Partner of Depositor
By: /s/ Peter J. DeMarco
-------------------------------
Authorized Signator
STATE OF NEW YORK )
: ss:
COUNTY OF NEW YORK )
On this 3rd day of November, 1997, before me personally
appeared Peter J. DeMarco, to me known, who being by me duly sworn, said that he
is an Authorized Signator of Reich & Tang Asset Management, Inc. as General
Partner of the Depositor, one of the corporations described in and which
executed the foregoing instrument, and that he signed his name thereto by
authority of the Board of Directors of said corporation.
/s/ Teresa Scilla
------------------------------
Notary Public
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ Thomas Porrazzo
----------------------------
Vice President
(SEAL)
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 3rd day of November, 1997, before me personally
appeared Thomas Porrazzo, to me known, who being by me duly sworn, said that he
is an Authorized Signator of The Chase Manhattan Bank, one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation and that he signed his name thereto by like authority.
/s/ Ann LoBrutto
------------------------------
Notary Public
SCHWAB TRUSTS,
SCHWAB TEN TRUST, 1997 SERIES A
for all series formed on or subsequent to the effective
date specified below
----------
TRUST INDENTURE AND AGREEMENT
Among
CHARLES SCHWAB & CO., INC.
and
REICH & TANG DISTRIBUTORS L.P.
As Depositors
and
THE CHASE MANHATTAN BANK
As Trustee
----------
Dated: November 4, 1997
641739.4
<PAGE>
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1997 SERIES A
and Subsequent Series
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION.............................................................................................1
ARTICLE 1 DEFINITIONS; CERTIFICATES..........................................................2
Section 1.1. Definitions................................................................................2
ARTICLE 2 DEPOSIT OF SECURITIES; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES..................................................5
Section 2.1. Deposit of Securities......................................................................5
Section 2.2. Declaration of Trust.......................................................................6
Section 2.3. Issue of Units.............................................................................6
Section 2.4. Certain Contracts Satisfactory.............................................................6
Section 2.5. Deposit of Additional Securities...........................................................6
ARTICLE 3 ADMINISTRATION OF TRUST...........................................................10
Section 3.1. Initial Cost..............................................................................10
Section 3.2. Income Account............................................................................11
Section 3.3. Principal Account.........................................................................11
Section 3.4. Reserve Account...........................................................................12
Section 3.5. Payments and Distributions................................................................12
Section 3.6. Distribution Statements...................................................................16
Section 3.7. Substitute Securities.....................................................................17
Section 3.8. Sale of Securities........................................................................18
Section 3.9. Counsel...................................................................................19
Section 3.10. Notice and Sale by Trustee...............................................................19
Section 3.11. Reorganization and Similar Events........................................................19
Section 3.12. Notice of Actions........................................................................20
Section 3.13. Notice of Change in Principal Account....................................................20
Section 3.14. Extraordinary Distributions..............................................................21
Section 3.15. Deferred Sales Charge....................................................................21
ARTICLE 4 EVALUATION OF SECURITIES...........................................................22
Section 4.1. Evaluation of Securities..................................................................22
Section 4.2. Tax Reports...............................................................................23
Section 4.3. Liability of Trustee with respect to
Evaluations...............................................................................23
</TABLE>
641739.4
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5 TRUST EVALUATION, REDEMPTION, PURCHASE,
TRANSFER,INTERCHANGE OR REPLACEMENT OF
CERTIFICATES.......................................................................24
Section 5.1. Trust Evaluation...................................................................24
Section 5.2. Redemptions by Trustee; Purchases by
Depositors.........................................................................25
Section 5.3. Depositor Redemptions..............................................................28
Section 5.4. Units to be Held Only Through the Depository
Trust Company or a Successor Clearing Agency.......................................29
ARTICLE 6 TRUSTEE; REMOVAL OF ...............................................................30
Section 6.1 General Definition of Trustee's Liabilities,
Rights and Duties; Removal of Depositors...........................................30
Section 6.2. Books, Records and Reports.........................................................34
Section 6.3. Indenture and List of Securities on File...........................................35
Section 6.4. Compensation.......................................................................35
Section 6.5. Removal and Resignation of the Trustee;
Successor..........................................................................36
Section 6.6. Qualifications of Trustee..........................................................38
ARTICLE 7 DEPOSITORS.........................................................................38
Section 7.1. Succession.........................................................................8
Section 7.2. Resignation of a Depositor.........................................................38
Section 7.3. Liability of Depositors and Indemnification........................................39
Section 7.4. Compensation.......................................................................40
Section 7.5. Joint Position of Depositors; Power of
Attorney...........................................................................40
ARTICLE 8 RIGHTS OF UNITHOLDERS..............................................................41
Section 8.1. Beneficiaries of Trust.............................................................41
Section 8.2. Rights, Terms and Conditions.......................................................42
ARTICLE 9 ADDITIONAL COVENANTS; MISCELLANEOUS
PROVISIONS.........................................................................42
Section 9.1. Amendments.........................................................................42
Section 9.2. Termination........................................................................43
Section 9.3. Construction.......................................................................46
Section 9.4. Registration of Units..............................................................46
Section 9.5. Written Notice.....................................................................46
Section 9.6. Severability.......................................................................47
Section 9.7. Dissolution of Depositors Not to Terminate.........................................47
</TABLE>
641739.4
-ii-
<PAGE>
SCHWAB TRUSTS,
SCHWAB TEN TRUST, 1997 SERIES A
AND
SUBSEQUENT SERIES
TRUST INDENTURE AND AGREEMENT
DATED NOVEMBER 4, 1997
This Trust Indenture and Agreement ("Indenture") dated
November 4, 1997, among Charles Schwab & Co., Inc., Reich & Tang Distributors
L.P., as Depositors and The Chase Manhattan Bank, as Trustee.
WITNESSETH THAT
In consideration of the premises and of the mutual agreements
herein contained, the Depositors and the Trustee agree as follows:
INTRODUCTION
The Depositors concurrently with the execution and delivery
hereof are establishing Schwab Trusts, Schwab Ten Trust, 1997 Series A (and
subsequent Series), wherein certain securities consisting of common stock and
contracts and funds for the purchase of such securities (collectively, the
"Securities") will be deposited by the Depositors, to be held by the Trustee in
trust for the use and benefit of the registered holders of certificates of
ownership (the "Unitholders") to be issued as hereinafter provided. The parties
hereto are entering into this Indenture for the purpose of establishing certain
of the terms, covenants and conditions of Schwab Trusts, Schwab Ten Trust, 1997
Series A and of each additional series of such Trust which may be established
from time to time hereafter. For Schwab Trusts, Schwab Ten Trust, 1997 Series A
and each subsequent series of the Schwab Trusts (sometimes referred to herein as
the "Trust") (as to which this Indenture is to be applicable) the parties hereto
shall execute a separate Reference Trust Agreement incorporating by reference
this Indenture and effecting any amendment, supplement or variation from or to
such incorporation by reference with respect to the related series and
specifying for that series (1) the Securities deposited in trust and the number
of Units delivered by the Trustee in exchange for the Securities pursuant to
Section 2.3; (2) the initial fractional undivided interest represented by each
Unit; (3) the first and subsequent Record Dates; (4) the first and subsequent
Distribution Dates;
641739.4
<PAGE>
(5) the First Settlement Date; (6) the liquidation amount for purposes of
Section 6.1(g); (7) the Trustee's fee; (8) the Depositors' fee; (9) the
Termination Date; and (10) any other change or addition contemplated or
permitted by this Indenture.
ARTICLE 1
DEFINITIONS; CERTIFICATES
Section 1.1. Definitions: Whenever used in this
Indenture the following words and phrases, unless the context
clearly indicates otherwise, shall have the following meanings:
(1) "Addendum to the Reference Trust Agreement" shall mean the
addendum which evidences the Additional Securities deposited into the Trust and
the number of Additional Units created.
(2) "Additional Securities" shall mean such Securities as are
listed in Supplementary Schedules to Addendums to the Reference Trust Agreement
and which have been deposited to effect an increase over the number of Units
initially specified in the Reference Trust Agreement.
(3) "Additional Units" shall mean such Units as are issued in
respect of Additional Securities.
(4) "Business Day" shall mean any day other than a Saturday,
Sunday, or other day on which the New York Stock Exchange is closed for trading,
a legal holiday in the City of New York, or a day on which banking institutions
are authorized by law to close.
(5) "Contract Securities" shall mean Securities which are to
be acquired by the Trust pursuant to contracts entered into by the Depositors,
including (i) Securities listed in Schedule A to the Reference Trust Agreement
and (ii) Securities which the Depositors have contracted to purchase for the
Trust
pursuant to Sections 2.6 and 3.7.
(6) "Depositors" shall mean Charles Schwab & Co., Inc.
("Schwab") or its successors in interest and Reich & Tang Distributors L.P.
("Reich & Tang") or its successors in interest, or any successor depositor or
depositors appointed as herein provided.
641739.4
-2-
<PAGE>
(7) "Distribution Date" shall have the meaning assigned to it
in Part II of the Reference Trust Agreement.
(8) "DTC" shall mean Depository Trust Company, or its
successors.
(9) "Failed Security" shall have the meaning assigned to it in
Section 3.7 hereof.
(10) "First Settlement Date" shall mean the date specified in
Part II of the Reference Trust Agreement.
(11) "Indenture" shall mean this Trust Indenture and Agreement
as originally executed or, if amended as herein provided, as so amended.
(12) "Original Issue" shall mean an issue of Securities
deposited pursuant to Section 2.1 or any Substitute Securities purchased to
replace any Original Issue which have become Failed Securities.
(13) "Original Proportionate Relationship" shall mean the
proportionate relationship among the number of shares of each Security
established on the deposit made pursuant to Section 2.1. The Original
Proportionate Relationship shall be adjusted, if appropriate, to reflect (1) the
deposit of Substitute Securities and (2) the occurrence of any stock dividend,
stock splits, redemptions, or similar events.
(14) "Plan Units" shall mean fractional Units offered by the
Depositors pursuant to the reinvestment plans described in the final prospectus
of the Trust filed within the appropriate registration forms under the
Securities Act of 1933, and for which Plan Units the Trustee is acting as
Trustee.
(15) "Prospectus" shall mean the prospectus included in the
registration statement, as amended, on Form S-6 under the Securities Act of
1933, as amended, relating to the Trust on file with the Securities and Exchange
Commission at the time such registration statement, as amended, becomes
effective, except that if the prospectus filed pursuant to Rule 497(b) under the
Securities Act of 1933, as amended, differs from the prospectus on file at the
time such registration statement, as amended, becomes effective, the term
Prospectus shall refer to the Rule 497(b) prospectus from and after the time it
is mailed or otherwise delivered to the Securities and Exchange Commission for
filing.
641739.4
-3-
<PAGE>
(16) "Record Date" shall have the meaning assigned to it in
Part II of the Reference Trust Agreement.
(17) "Redemption Form" shall mean the form provided by the
Trustee at the request of holders of Plan Units for the purposes of redeeming
such Units, as such form may be reasonably acceptable to the Depositors and the
Trustee from time to time.
(18) "Reference Trust Agreement" shall mean the indenture for
the particular series of Equity Securities Trust into which the terms of this
Indenture are incorporated.
(19) "Securities" shall mean such common stock, preferred
stock, ADRs and contracts and funds for the purchase of such securities as are
(i) deposited in irrevocable trust and listed in the Schedule to the Reference
Trust Agreement and (ii) received in exchange or substitution for any Securities
pursuant to Section 3.7 hereof, as may from time to time be acquired and
continue to be held as a part of the Trust to which such Reference Trust
Agreement relates.
(20) "Substitute Security" shall mean a Security purchased by
the Trustee pursuant to Section 3.7 hereof.
(21) "Termination Date" shall have the meaning assigned to it
in Part II of the Reference Trust Agreement.
(22) "Trust" shall mean the Trust created by this Indenture,
which shall consist of the Securities held pursuant and subject to this
Indenture together with all dividends thereon, received but undistributed, any
undistributed cash realized from the sale, redemption, liquidation thereof, such
amounts as may be on deposit in the Reserve Accounts hereinafter established and
all other property and rights to which Unitholders may be entitled under the
provisions of this Indenture.
(23) "Trustee" shall mean The Chase Manhattan Bank, or its
successor or any successor Trustee appointed as herein provided.
(24) "Unit" shall mean the fractional undivided interest in
and ownership of the Trust initially specified in Part II of the Reference Trust
Agreement, the denominator of which shall be decreased by the number of any such
Units redeemed as provided in Section 5.2 and increased by any additional Units
which are specified in a Supplemental Schedule to an Addendum to the Reference
Trust Agreement or a Deposit Certificate.
641739.4
-4-
<PAGE>
(25) "Unitholder" shall mean the registered holder of units of
beneficial interest as recorded in book-entry form at DTC, his legal
representatives and heirs and the successors of any corporation, partnership or
legal entity which is a registered holder of any Unit, and as such shall be
deemed a beneficiary of the trust created by the Indenture to the extent of his
pro rata share thereof.
(26) The words "herein," "hereby," "herewith," "hereof,"
"hereinafter," "hereunder," "hereinabove," "hereafter," "heretofore" and similar
words or phrases of reference and association shall refer to this Indenture in
its entirety.
(27) Words importing singular number shall include the plural
number in each case and vice versa, and words importing person shall include
corporations and associations, as well as natural persons.
ARTICLE 2
DEPOSIT OF SECURITIES; DECLARATION OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES
Section 2.1. Deposit of Securities: The Depositors,
concurrently with the execution and delivery of a Reference Trust Agreement,
have deposited with the Trustee in trust the Securities listed in Schedule A to
the Reference Trust Agreement in bearer form or registered in the name of the
Trustee, or its nominee, or duly endorsed in blank or accompanied by all
necessary instruments of assignment and transfer in proper form to be held,
managed and applied by the Trustee as herein provided. In the event that the
purchase of Securities represented by contracts shall not be consummated in
accordance with said contracts, the Trustee shall credit to the Principal
Account pursuant to Section 3.3 hereof the cash or cash equivalents (including
such portion of any letter of credit applicable to such contracts) deposited by
the Depositors, for the purpose of such purchase. Such monies, unless invested
in substitute Securities in accordance with Section 3.7 hereof, shall be
distributed to Unitholders pursuant to Section 3.5 hereof on the Distribution
Date following the failure of consummation of such purchase. The Depositors
shall deliver the Securities listed on said Schedule or Schedules to the Trustee
which were not actually delivered concurrently with the execution and delivery
of the Reference Trust Agreement within 90 days after said execution and
delivery or, if Section 3.7 applies, within such shorter period as is specified
in Section 3.7.
641739.4
-5-
<PAGE>
The Trustee is irrevocably authorized hereto to effect
registration of transfer of the Securities in fully registered form in the name
of the Trustee or its nominee.
Section 2.2. Declaration of Trust: The Trustee declares that
it holds and will hold the Trust as Trustee in trust upon the terms herein set
forth for the use and benefit of all present and future Unitholders.
Section 2.3. Issue of Units: The Trustee hereby acknowledges
receipt of the deposit referred to in Section 2.1, and simultaneously with the
receipt of said deposit, pursuant to the Depositors' direction, has registered
on the registration books of the Trust the ownership by the Depositors of such
Units or, if requested by the Depositors, the ownership by DTC of all of such
Units and will cause such Units to be credited at DTC to the account of the
Depositors or, pursuant to the Depositors' direction and as hereafter provided,
the account of the issuer of the letter of credit referred to in Section 2.01.
The Depositors shall not sell, pledge, hypothecate or otherwise transfer such
Units, prior to the effectiveness of the registration statement covering the
Units filed with the Securities and Exchange Commission under the Securities Act
of 1933, except that the Depositors may place the Units as security for any
letter of credit provided in connection with the deposit of contracts described
in Section 2.1.
The number of Units may be increased through a split of the
Units or decreased through a reverse split thereof, as directed by the
Depositors, on any day on which the Depositors are the only Unitholders, which
revised number of Units shall be recorded by the Trustee on its books.
Section 2.4. Certain Contracts Satisfactory: The Depositors
approve as satisfactory in form and substance the contracts to be assumed by the
Trustee with regard to any Securities listed in Schedule A to the Reference
Trust Agreement and authorizes the Trustee on behalf of the Trust to assume such
contracts and otherwise to carry out the terms and provisions thereof or to take
other appropriate action in order to complete the deposit of the Securities
covered thereby into the Trust.
Section 2.5. Deposit of Additional Securities.
(a) Subject to the requirements set forth below in this
Section, the Depositor may, on any Business Day (the "Trade Date"), subscribe
for Additional Units as follows:
641739.4
-6-
<PAGE>
(1) Prior to the Evaluation Time on the Trade Date,
the Depositor shall provide notice (the "Subscription
Notice") to the Trustee, by telecopy or by written
communication, of the Depositor's intention to
subscribe for Additional Units. The Subscription
Notice shall identify the Additional Securities to be
acquired (unless such Additional Securities are a
precise replication of the then existing portfolio)
and shall either (i) specify the quantity of
Additional Securities to be deposited by the
Depositor on the settlement date for such
subscription or (ii) instruct the Trustee to purchase
Additional Securities with an aggregate value as
specified in the Subscription Notice.
(2) Promptly following the Evaluation Time on such
Business Day, the Depositor shall verify with the
Trustee, by telecopy, the number of Additional Units
to be created.
(3) Not later than the time on the settlement date
for such subscription when the Trustee is to deliver
the Additional Units created thereby (which time
shall not be later than the time by which the Trustee
is required to settle any contracts for the purchase
of Additional Securities entered into by the Trustee
pursuant to the instruction of the Depositor referred
to in subparagraph (1) above), the Depositor shall
deposit with the Trustee (i) any Additional
Securities specified in the Subscription Notice (or
contracts to purchase such Additional Securities
together with cash or a letter of credit in the
amount necessary to settle such contracts) or (ii)
cash or a letter of credit in the amount equal to the
aggregate value of the Additional Securities to be
purchased by the Trustee, as specified in the
Subscription Notice, together with, in each case,
Cash as defined below. "Cash" means, as to the
Principal Account, cash or other property (other than
Securities) on hand in the Principal Account or
receivable and to be credited to the Principal
Account as of the Evaluation Time on the Business Day
preceding the Trade Date (other than amounts to be
distributed solely to persons other than persons
receiving the distribution from the Principal Account
as holders
641739.4
-7-
<PAGE>
of Additional Units created by the deposit), and, as
to the Income Account, cash or other property (other
than Securities) received by the Trust as of the
Evaluation Time on the Business Day preceding the
Trade Date or receivable by the Trust in respect of
dividends or other distributions declared but not
received as of the Evaluation Time on the Business
Day preceding the Trade Date, reduced by the amount
of any cash or other property received or receivable
on any Security allocable (in accordance with the
Trustee's calculation of the monthly distribution
from the Income Account pursuant to Section 3.5) to a
distribution made or to be made in respect of a
Record Date occurring prior to the Trade Date. Each
deposit made during the 90 days following the deposit
made pursuant to Section 2.1 hereof shall replicate,
to the extent practicable, as specified in
subparagraph (b), the Original Proportionate
Relationship. Each deposit made after the 90 days
following the deposit made pursuant to Section 2.1
hereof (except for deposits made to replace Failed
Securities if such deposits occur within 20 days from
the date of a failure occurring within such initial
90 day period) shall maintain exactly the
proportionate relationship existing among the
Securities as of the expiration of such 90 day
period. Each such deposit shall exactly replicate
Cash.
(4) On the settlement date for a subscription, the
Trustee shall, in exchange for the Securities and
cash or letter of credit described above, issue and
deliver to or on the order of the Depositor the
number of Units verified by the Depositor with the
Trustee. No Unit to be issued pursuant to this
paragraph shall be issued or delivered unless and
until Securities, cash or a letter of credit is
received in exchange therefor and no person shall
have any claim to any Unit not so issued and
delivered or any interest in the Trust in respect
thereof.
(5) Each deposit of Additional Securities, shall
be listed in a Supplementary Schedule to an
Addendum to the Reference Trust Agreement stating
the date of such deposit and the number of
Additional Units being issued therefor. The
641739.4
-8-
<PAGE>
Trustee shall acknowledge in such Addendum the
receipt of the Deposit and the number of Additional
Units issued in respect thereof. The Additional
Securities shall be held, administered and applied by
the Trustee in the same manner as herein provided for
the Securities.
(6) The acceptance of Additional Units by the
Depositor in accordance with the provisions of
paragraph (a) of this Section shall be deemed a
certification by the Depositor that the deposit or
purchase of Additional Securities associated
therewith complies with the conditions of this
Section 2.06.
(7) Notwithstanding the preceding, in the event that
the Sponsors' Subscription Notice shall instruct the
Trustee to purchase Additional Securities in an
amount which, when added to the purchase amount of
all other unsettled contracts entered into by the
Trustee, exceeds 25% of the value of the Securities
then held (taking into account the value of contracts
to purchase Securities only to the extent that there
has been deposited with the Trustee cash or an
irrevocable letter of credit in an amount sufficient
to settle their purchase), the Sponsors shall deposit
with the Trustee concurrently with the Subscription
Notice such that, when added to 25% of the value of
the Securities then held (determined as above) the
aggregate value shall be not less than the purchase
amount of the securities to be purchased pursuant to
such Subscription Notice.
(b) Additional Securities deposited during the 90 days
following the deposit made pursuant to Section 2.1 hereof shall maintain as
closely as practicable the Original Proportionate Relationship, except as
provided in this Section. Additional Securities may be deposited or purchased in
round lots; if the amount of the deposit is insufficient to acquire round lots
of each Security to be acquired, the Additional Securities shall be deposited or
purchased in the order of the Security in the Trust most under represented
immediately before the deposit with respect to the Original Proportionate
Relationship. Instructions to purchase Additional Securities under this Section,
shall be in writing and shall direct the Trustee to purchase, or enter into
contracts to purchase, Additional Securities; such instructions shall also
specify the name, CUSIP number, if any, and aggregate
641739.4
-9-
<PAGE>
amount of each such Additional Security. If, at the time of a subsequent deposit
under this Section, Securities of an Original Issue are unavailable, cannot be
purchased at reasonable prices or their purchase is prohibited or restricted by
applicable law, regulation or policies, in lieu of the portion of the deposit
that would otherwise be represented by those Securities, the Depositors may (A)
deposit (or instruct the Trustee to purchase) Securities of another Original
Issue or replacement securities, or (B) deposit cash or a letter of credit with
instructions to acquire the Securities of such original issue when they become
available.
(c) The Trustee shall have no responsibility for the selection
of Securities deposited hereunder or for maintaining the composition of the
Trust portfolio or for any loss or depreciation resulting from the Depositors'
failure to settle any subscription for Units. The Trustee shall be indemnified
against any loss or liability arising from purchases contracted for pursuant to
this Section in accordance with Section 6.4.
ARTICLE 3
ADMINISTRATION OF TRUST
Section 3.1. Initial Cost: The cost of the initial
preparation, printing and execution of [the Certificates and] this Indenture,
the Registration Statement and other documents relating to the Trust, Federal
and State registration fees and costs, the initial fees and expenses of the
Trustee and evaluator, legal and auditing expenses and other out-of-pocket
expenses (excluding expenses incurred in the preparation and printing of
preliminary prospectuses and prospectuses, expenses incurred in the preparation
and printing of brochures and other advertising materials and any other selling
expenses), to the extent not borne by the Depositors, shall be paid by the
Trust. To the extent the funds in the Income and Principal Accounts of the Trust
shall be insufficient to pay the expenses borne by the Trust specified in this
Section 3.1, the Trustee shall advance out of its own funds and cause to be
deposited and credited to the Income Account such amount as may be required to
permit payment of such expenses. The Trustee shall be reimbursed for such
advance on each Record Date from funds on hand in the Income Account or, to the
extent funds are not available in such Account, from the Principal Account, in
the amount deemed to have accrued as of such Record Date as provided in the
following sentence (less prior payments on account of such advances, if any),
and the provisions of Section 6.4 with respect to the
641739.4
-10-
<PAGE>
reimbursement of disbursements for Trust expenses, including, without
limitation, the lien in favor of the Trustee therefor, shall apply to the
payment of expenses made pursuant to this Section. For purposes of the preceding
sentence and the addition provided in clause (a)(4) of Section 5.1, the expenses
borne by the Trust pursuant to this Section shall be deemed to accrue at a daily
rate over the time period specified for their amortization by the Depositors
pursuant to Section 5.1 provided, however, that nothing herein shall be deemed
to prevent, and the Trustee shall be entitled to, full reimbursement for any
advances made pursuant to this Section no later than the termination of the
Trust. For purposes of this Section 3.1, the Trustee shall rely on the written
estimates of such expenses provided by the Depositors pursuant to Section 5.1.
Section 3.2. Income Account: The Trustee shall collect the
dividends or other like cash distributions on the Securities in the Trust as
such are paid, and credit such amounts, as collected, to a separate account to
be known as the "Income Account."
Section 3.3. Principal Account: (a) The Securities and all
cash, other than amounts credited to the Income Account, received by the Trustee
in respect of the Securities shall be credited to a separate account to be known
as the "Principal Account".
(b) Moneys and/or irrevocable letters of credit required to
purchase Contract Securities or deposited to secure such purchases are hereby
declared to be held specially by the Trustee for such purchases and shall not be
deemed to be part of the Principal Account until (i) the Depositors fail to
timely purchase Contract Securities and have not given the Failed Contract
Notice (as defined in Section 3.7) at which time the moneys and/or letters of
credit attributable to the Contract Securities not purchased by the Depositors
shall be credited to the Principal Account; or (ii) the Depositors have given
the Trustee the Failed Contract Notice at which time the moneys and/or letters
of credit attributable to failed contracts referred to in such Notice shall be
credited to the Principal Account; provided, however, that if the Depositors
also notify the Trustee in the Failed Contract Notice that it has purchased or
entered into a contract to purchase Securities (as defined in Section 3.14), the
Trustee shall not credit such moneys and/or letters of credit to the Principal
Account unless the Substitute Securities shall also have failed or are not
delivered by the Depositors within two business days after the settlement date
of such Substitute Securities, in which event the Trustee shall
641739.4
-11-
<PAGE>
forthwith credit such moneys and/or letters of credit to the Principal Account.
To the extent of moneys, and/or moneys drawn under a letter of credit, deposited
by the Depositors and then held by the Trustee, the Trustee shall credit to the
Principal Account, and to the extent such moneys are insufficient the Depositors
shall deposit in the Principal Account, the difference, if any, between the
purchase price of the failed Contract Securities and the purchase price of the
Substitute Securities, together with any sales charge and accrued dividends
applicable to such difference and distribute such moneys to Unitholders pursuant
to Section 3.5. Cash held or receivable from the Depositors pursuant to Section
2.5 in respect of contracts for purchase of Additional Securities entered into
by the Trustee shall be credited to the Principal Account upon the Trustee's
entering into such contracts.
Section 3.4. Reserve Account: From time to time the Trustee
shall withdraw from the cash on deposit in the Income Account or the Principal
Account such amounts as it, in its sole discretion, shall deem requisite to
establish a reserve for any applicable taxes or other governmental charges that
may be payable out of or by the Trust. Such amounts so withdrawn shall be
credited to a separate account which shall be known as the "Reserve Account".
The Trustee shall not be required to distribute to the Unitholders any of the
amounts in the Reserve Account; provided, however, that if it shall, in its sole
discretion, determine that such amounts are no longer necessary for payment of
any applicable taxes or other governmental charges, then it shall promptly
deposit such amounts in the appropriate account from which withdrawn or, if the
Trust has been terminated or is in the process of termination, the Trustee shall
distribute to each Unitholder such holder's interest in the Reserve Account in
accordance with Section 9.2.
Section 3.5. Payments and Distributions: Distributions to each
Unitholder from the Income Account are computed as of the close of business on
each Record Date for the following Distribution Date. Distributions from the
Principal Account of the Trust (other than amounts representing failed
contracts, as discussed in Section 3.3.(b) will be computed as of each Record
Date, and will be made to the Unitholders of the Trust on or shortly after the
next Distribution Date. Proceeds representing principal received from the
disposition of any of the Securities between a Record Date and a Distribution
Date which are not used for redemptions of Units will be held in the Principal
Account and not distributed until the second succeeding Distribution Date. If a
Unitholder is participating in a Reinvestment Plan, distributions to such
Unitholder shall be
641739.4
-12-
<PAGE>
applied by the Trustee to purchase Units from the Depositors at the applicable
reinvestment price on the Distribution Date. Persons who purchase Units between
a Record Date and a Distribution Date will receive their first distribution on
the second Distribution Date after such purchase.
As of each Record Date the Trustee shall:
(a) deduct from the Income Account of the Trust, and, to the
extent funds are not sufficient therein, from the Principal Account of the
Trust, amounts necessary to pay any unpaid expenses of the Trust, including
registration charges, Blue Sky fees, printing costs, attorneys' fees, auditing
costs and other miscellaneous out-of-pocket expenses, as certified by the
Depositors, incurred in keeping the registration of the Units and the Trust on a
current basis pursuant to Section 9.4, provided, however, that no portion of
such amount shall be deducted or paid unless the payment thereof from the Trust
is at that time lawful;
(b) deduct from the Income Account or, to the extent funds are
not available in such Account, from the Principal Account, and pay to itself
individually the amounts that it is at the time entitled to receive pursuant to
Section 6.4, Section 3.1 or otherwise pursuant to the provisions hereof;
(c) deduct from the Income Account, or, to the extent funds
are not available in such Account, from the Principal Account, and pay an amount
equal to the unpaid fees and expenses, if any, of counsel pursuant to Section
3.9 as certified to it by the Depositors; and
(d) deduct from the Income Account, or, to the extent funds
are not available in such Account, from the Principal Account the estimated
amount that the Depositors are then entitled to receive pursuant to Section 7.4
and hold such amount without interest until such time as it is payable to the
Depositors as set forth below.
On or before the first Distribution Date after the conclusion
of each calendar year, the Trustee shall, upon certification in satisfactory
form to the Trustee, upon which the Trustee may rely, distribute to the
Depositors from the amount so held pursuant to the immediately preceding
paragraph the amounts that the Depositors are at the time entitled to receive
pursuant to Section 7.4 on account of services theretofore performed and
expenses theretofore incurred.
641739.4
-13-
<PAGE>
The Trustee also may withdraw from said accounts such amounts,
if any, as it deems necessary to establish a reserve for any applicable taxes or
other governmental charges that may be payable out of the Trust. Amounts so
withdrawn shall not be considered a part of such Trust's assets until such time
as the Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Income and Principal
Accounts such amounts as may be necessary to cover redemptions of Units by the
Trustee.
The Principal Account shall be reimbursed for any amount
withdrawn from the Principal Account under this Indenture in order to satisfy
obligations which, pursuant to the terms hereof, are first to be paid out of the
Income Account to the extent funds are available therein, when sufficient funds
are not available in the Income Account after giving effect to the payment from
the Income Account of all amounts otherwise required to be deducted therefor at
that time when sufficient funds are next available in the Income Account after
giving effect to the payment from the Income Account of all amounts otherwise
required to be deducted therefrom at that time.
On each Distribution Date or within a reasonable period of
time thereafter, the Trustee shall distribute by mail to each Unitholder of
record at the close of business on the preceding Record Date, at the post office
address appearing on the registration books of the Trustee (or, if a Clearing
Agency is the registered Unitholder, the Trustee shall make distributions to
such Clearing Agency in accordance with its applicable procedures), such
holder's pro rata share of the balance in the Income Account calculated as set
forth in the next paragraph, plus such holder's pro rata share of the
distributable cash balance of the Principal Account, as of the preceding Record
Date; provided, however, that funds credited to the Principal Account in the
event of the failure of consummation of a contract to purchase Securities
pursuant to Section 2.1 hereof, funds representing the proceeds of the sale of
Securities pursuant to Section 3.8 hereof, and funds representing the proceeds
of the sale of Securities under Section 5.2, 6.4 or this Section 3.5 in excess
of the aggregate of (i) the amounts needed for the purposes of said Sections and
(ii) such amount as the Depositors have informed the Trustee is to be used to
purchase securities pursuant to Section 3.7 hereof, shall not be distributed
until the following Distribution Date or at such earlier date as shall be
determined by the Trustee. The Trustee shall not be required to make a
distribution from the Principal or Income Account unless the cash balance on
deposit therein available for distribution shall be sufficient to distribute at
least $1.00 per
641739.4
-14-
<PAGE>
Unit in the case of Units initially offered at approximately $1,000, or a
proportionately lower amount in the case of Units initially offered at less than
$1,000 (e.g., .001 per Unit in the case of Units initially offered at
approximately $1.00).
The Trustee shall compute the amount of the Distribution from
the Income Account (i) by subtracting from the cash balance of the Income
Account computed as of the close of business on such Record Date (a) any unpaid
fees and expenses then deductible pursuant to the foregoing provisions of
Section 3.5 and (b) the Trustee's estimate of other expenses chargeable to the
Income Account pursuant to the Indenture which have accrued as of such Record
Date, or are otherwise properly attributable to the period to which such Income
Distribution relates and (ii) by dividing the result of such calculation by the
number of Units outstanding on the applicable Record Date.
The amounts to be so distributed to each Unitholder of the
Trust of record as of each Record Date shall be that pro rata share of the cash
balance as of such Record Date of the Income and Principal Accounts of the
Trust, computed as set forth above, as shall be represented by a notation of the
Units owned by such Unitholder on the registration or other record books of the
Trustee.
In the computation of each such share, fractions of less than
one cent shall be omitted. After any such distribution provided for above, any
cash balance remaining in the Income Account or the Principal Account shall be
held in the same manner as other amounts subsequently deposited in each of such
Accounts, respectively.
For the purpose of distribution as herein provided, the
holders of record on the registration books of the Trustee at the close of
business on each Record Date shall be conclusively entitled to such
distribution, and no liability shall attach to the Trustee by reason of payment
to any such registered Unitholder of record. Nothing herein shall be construed
to prevent the payment of amounts from the Income Account and the Principal
Account to individual Unitholders by means of one check, draft or other proper
instrument, provided that the appropriate statement of such distribution shall
be furnished therein as provided in Section 3.6 hereof.
The Trustee shall withhold from a Unitholder's income
distribution any portion of the Deferred Sales Charge deductible therefrom
pursuant to Section 3.15.
641739.4
-15-
<PAGE>
Section 3.6. Distribution Statements: With each distribution
from the Income or Principal Accounts the Trustee shall set forth, either in the
instrument by means of which payment of such distribution is made or in any
accompanying statement the amount being distributed from each such account
expressed as a dollar amount per Unit.
Within a reasonable period of time after the last business day
of each calendar year, the Trustee shall furnish to each person who at any time
during such calendar year was a Unitholder a statement setting forth, with
respect to such calendar year:
(A) as to the Income Account:
(1) the amount of dividends received on the
Securities,
(2) the amounts paid from the Income Account for
redemptions pursuant to Section 5.2,
(3) the deductions for applicable taxes and fees and
expenses of the Trustee and counsel pursuant to Section 3.8, accrued
organization expenses, the annual audit fees referred to in Section
6.2, and the annual fees of the Depositors for portfolio supervisory
services pursuant to Section 7.4,
(4) the amount distributed from the Income Account,
identifying separately amounts distributed as dividends and as other
income,
(5) any other amount credited to or deducted from the
Income Account, and
(6) the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such calendar
year;
(B) as to the Principal Account:
(1) The number of shares of each issue of Securities
sold or liquidated, and the aggregate net proceeds received with
respect to each issue, excluding any portion thereof credited to the
Income Account,
641739.4
-16-
<PAGE>
(2) the amounts paid from the Principal Account for
redemption pursuant to Section 5.2,
(3) the deductions for payment of applicable taxes
and fees and expenses of the Trustee and counsel pursuant to Section
3.8, accrued organizational expenses, Deferred Sales Charge, the annual
audit fees referred to in Section 6.2, and the annual fee of the
Depositors for portfolio supervisory services pursuant to Section 7.4,
and
(4) the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar
amount per Unit outstanding on the last business day of such calendar
year; and
(C) the following information:
(1) a list of Securities held in the Trust as of the
last business day of such calendar year,
(2) the number of Units outstanding on the last
business day of such calendar year,
(3) the Net Asset Value per Unit based on the last
Trust Evaluation made during such calendar year, and
(4) the amounts actually distributed to Unitholders
during such calendar year from the Income and Principal Accounts,
separately stated, expressed both as total dollar amounts and as dollar
amounts per Unit outstanding on the Record Dates for such
distributions.
Section 3.7. Substitute Securities: In the event that any
Contract Security or Security to be purchased pursuant to a contract entered
into by the Trustee in accordance with Section 2.5 is not delivered due to any
occurrence, act or event beyond the control of the Depositors and of the Trustee
(such a Contract Security being herein called a "Failed Security"), the
Depositors may instruct the Trustee to purchase Substitute Securities which have
been selected by the Depositors having a cost not in excess of the cost of the
Failed Securities. To be eligible for inclusion in the Trust, the Substitute
Securities which the Depositors select must: (a) be of the same type as that
replaced (e.g., both will be common stock or preferred stock); (b) in the
Depositors' judgment, be substantially similar to the Failed Security, as the
case may be, as respects the investment characteristics which led the Depositors
to select the Failed Security for inclusion in the Trust; and (c) be purchased
prior
641739.4
-17-
<PAGE>
to, simultaneously with, or no more than twenty days after delivery of written
notice to the Trustee or Depositors, as appropriate, of the failed contract (the
"Failed Contract Notice").
Any Substitute Securities received by the Trustee shall be
deposited hereunder and shall be subject to the terms and conditions of this
Indenture to the same extent as other Securities deposited hereunder. No such
deposit of Substitute Securities shall be made after the earlier of (i) 90 days
after the date of execution and delivery of the applicable Reference Trust
Agreement or (ii) the first Distribution Date to occur after the date of
execution and delivery of the applicable Reference Trust Agreement.
Whenever a Substitute Security is acquired by the Trust
pursuant to the provisions of this Section 3.7, the Trustee shall, within five
days thereafter, mail to all Unitholders notices of such acquisition, including
an identification of the Failed Security and the Substitute Security acquired.
The purchase price of a Substitute Security shall be paid out of the funds in
the principal account attributable to the Failed Security which it replaces. The
Trustee shall not be liable or responsible in any way for depreciation or loss
incurred by reason of any purchase made pursuant to any such instructions from
the Depositors and in the absence of such instructions the Trustee shall have no
duty to purchase any Substitute Securities under this Indenture. The Depositors
shall not be liable for any failure to instruct the Trustee to purchase any
Substitute Security or for errors of judgment in selecting any Substitute
Security.
Section 3.8. Sale of Securities: In order to maintain the
sound investment character of the Trust, the Depositors may direct the Trustee
to sell or liquidate Securities at such price and time and in such manner as
shall be determined by the Depositors, provided that the Depositors have
determined that any one or more of the following conditions exist:
(1) default in payment of amounts due on any of the
Securities;
(2) institution of legal proceedings in law or equity seeking to
restrain or enjoin the payment of amounts due or declaration or payment of
regular dividends;
641739.4
-18-
<PAGE>
(3) default under certain documents materially and adversely
affecting future declaration or payment of amounts due or expected;
(4) determination of the Depositors that the tax treatment of the
Trust as a grantor trust would otherwise be jeopardized; or
(5) decline in price that is a direct result of serious adverse
credit factors affecting the issuer of a Security which, in the opinion of the
Depositors, would make the retention of the security detrimental to the Trust or
the Unitholders.
Upon receipt of such direction from the Depositors, upon which
the Trustee shall rely, the Trustee shall proceed to sell the specified Security
in accordance with such direction. The Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
made pursuant to any such direction or by reason of the failure of the
Depositors to give any such direction, and in the absence of such direction the
Trustee shall have no duty to sell any Securities under this Section 3.8.
Section 3.9. Counsel: The Depositors may employ from time to
time as it may deem necessary a firm of attorneys for any legal services that
may be required in connection with the disposition of Securities pursuant to
Section 3.8. The fees and expenses of such counsel shall be paid by the Trustee
from the Interest and Principal Accounts as provided for in Section 3.5(c)
hereof.
Section 3.10. Notice and Sale by Trustee: If at any time there
has been a failure by the issuer to pay a dividend that is due and payable, the
Trustee shall notify the Depositors thereof. If within thirty days after such
notification the Trustee has not received any instruction from the Depositors to
sell or to hold or to take any other action in connection with such Securities,
the Trustee shall sell such Securities forthwith, and the Trustee shall not be
liable or responsible in any way for depreciation or loss incurred by reason of
such sale or by reason of any action or inaction in accordance with such written
instructions of the Depositors. The Trustee shall promptly notify the Depositors
of such action in writing and shall set forth therein the Securities sold and
the proceeds received therefrom.
Section 3.11. Reorganization and Similar Events: In
the event that an offer by the issuer of any of the Securities or
641739.4
-19-
<PAGE>
any other party shall be made to issue new Securities, the Trustee shall reject
such offer. However, should any exchange or substitution be effected
notwithstanding such rejection or without an initial offer, any Securities, cash
and/or property received in exchange shall be deposited hereunder and shall be
promptly sold, if securities or property, by the Trustee pursuant to the
Depositors' direction, unless the Depositors advise the Trustee to retain such
securities or property. The cash received in such exchange and cash proceeds of
any such sales shall be distributed to Unitholders on the next Distribution Date
in the manner set forth in Section 3.5 regarding distributions from the
Principal Account. This section shall apply, but its application shall not be
limited, to public tender offers, mergers, acquisitions, reorganizations and
recapitalization. Whenever new securities or property is received and retained
by a Trust pursuant to this Section 3.11, the Trustee shall, within five days
thereafter, mail to all Unitholders of such Trust notices of such acquisition
unless legal counsel for such Trust determines that such notice is not required
by the Investment Company Act of 1940, as amended. Neither the Depositors nor
the Trustee shall be liable to any person for action or failure to take action
pursuant to the terms of this Section 3.11.
Section 3.12. Notice of Actions: In the event that the Trustee
shall have been notified at any time of any action to be taken or proposed to be
taken by holders of any Securities held by the Trust (including, but not limited
to, the making of any demand, direction, request, giving of any notice, consent
or waiver or the voting with respect to election of directors or any amendment
or supplement to any corporate resolution, agreement or other instrument under
or pursuant to which such Securities have been issued) the Trustee shall
promptly notify the Depositors and shall thereupon take such action or refrain
from taking any action as the Depositors shall in writing direct; provided,
however, that if the Depositors shall not within five business days of the
giving of such notice to the Depositors direct the Trustee to take or refrain
from taking any action, the Trustee shall take such action as it, in its sole
discretion, shall deem advisable. Neither the Depositors nor the Trustee shall
be liable to any person for any action or failure to take action with respect to
this section.
Section 3.13. Notice of Change in Principal Account: The
Trustee shall give prompt written notice to the Depositors of all amounts
credited to or withdrawn from the Principal Account pursuant to any provisions
of this Article III, and the balance of such account after giving effect to such
credit or withdrawal.
641739.4
-20-
<PAGE>
Section 3.14. Extraordinary Distributions: Any property
received by the Trustee after the initial date of Deposit in a form other than
cash or additional shares of the Securities listed on Schedule A including, but
not limited to, securities received as a result of a spin-off or of a Substitute
Security, which shall be retained by the Trust, shall be dealt with in the
manner described in Section 3.11 and shall be retained or disposed by the
Trustee according to those provisions, provided, however, that no property shall
be retained which the Trustee determines shall adversely affect its duties
hereunder. The proceeds of any disposition shall be credited to the Income or
Principal Account of the Trust, as the Depositors may direct.
The Trust is intended to be treated as a fixed investment
(i.e., grantor) trust for income tax purposes, and its powers shall be limited
in accordance with the restrictions imposed on such trusts by Treas. Reg.
Section 301.7701-4.
Section 3.15. Deferred Sales Charge: If the Reference Trust
Agreement and Prospectus for a Trust specify a Deferred Sales Charge, the
Trustee shall, on the dates specified in and as permitted by the prospectus,
withdraw from the Income Account, the Principal Account and/or distributions to
be made therefrom, as such accounts or distributions are designated in the
Prospectus as the source of the payments of the Deferred Sales Charge, an amount
per Unit specified in the Prospectus and credit such amount to a special,
non-Trust account maintained at the Trustee out of which the Deferred Sales
Charge will be distributed to the Depositors. If the balances in the Income and
Principal Accounts are insufficient to make any withdrawal designated to be made
therefrom, the Trustee shall, as directed by the Depositors, either advance
funds in an amount equal to the proposed withdrawal and be entitled to
reimbursement of such advance upon the deposit of additional monies in the
Income Account or the Principal Account, sell Securities and credit the proceeds
thereof to such special Depositors' account or credit Securities in kind to such
special Depositors' Account provided, however, that the Trustee shall not be
required to advance an aggregate amount in excess of $15,000 pursuant to this
Section. Such directions shall identify the Securities, if any, to be sold or
distributed in kind and shall contain, if the Trustee is directed by the
Depositors to sell a Security, instructions as to execution of such sales. If a
Unitholder redeems Units prior to full payment of the Deferred Sales Charge, the
Trustee shall, if so provided in the Reference Trust Agreement and Prospectus,
on the Redemption Date, withhold from the Redemption Price payment to such
Unitholder an amount equal to the unpaid portion of the
641739.4
-21-
<PAGE>
Deferred Sales Charge and distribute such amount to such special Depositors'
Account or, if the Depositors shall purchase such Unit pursuant to the terms of
Section 5.02 hereof, the Depositors shall pay the Redemption Price for such Unit
less the unpaid portion of the Deferred Sales Charge. If the Prospectus provides
for a waiver or refund of any portion of the Deferred Sales Charge under
specified circumstances (such as, for example, in connection with a redemption
or sale of Units following the death or disability of the Unitholder), the
Trustee shall deduct and pay to the Sponsors the full amount of the Deferred
Sales Charge chargeable upon the redemption in the absence of such waiver or
refund and the Sponsors shall pay to the affected Unitholder the amount of such
waiver or refund; the Trustee shall have no responsibility to the affected
Unitholder with respect to the amount to be so refunded. The Depositors may at
any time instruct the Trustee to distribute to the Depositors cash or Securities
previously credited to the special Depositors' Account.
ARTICLE 4
EVALUATION OF SECURITIES
Section 4.1. Evaluation of Securities: The Trustee shall
determine separately and promptly furnish to the Depositors upon request the
value of each issue of the Securities in the Trust (determined as set forth
below) as of the Evaluation Time on each of the days on which the Trustee shall
make the Trust Evaluation required by Section 5.1. The value of each issue of
Securities shall be determined in good faith by the Trustee in accordance with
the following procedures: If the Securities are listed on one or more national
securities exchanges, such valuation shall be based on the closing purchase
price on such exchange which is the principal market thereof, deemed to be the
New York Stock Exchange if the Securities are listed thereon (unless the Trustee
deems such price inappropriate as a basis for valuation). If the Securities are
not so listed, or, if so listed and the principal market therefor is other than
such exchange or there is no closing purchase price on such exchange, such
valuation shall be based on the closing purchase price in the over-the-counter
market (unless the Trustee deems such price inappropriate as a basis for
valuation) or if there is no such closing purchase price, then the Trustee may
utilize, at the Trust's expense, an independent evaluation service or services
to ascertain the values of the Securities. The independent evaluation service
shall use any of the following methods, or a combination thereof, which it deems
appropriate: (a) on the
641739.4
-22-
<PAGE>
basis of current bid prices of such Securities as obtained from investment
dealers or brokers (including the Depositors) who customarily deal in securities
comparable to those held by the Trust, or (b) if bid prices are not available
for any of such Securities, on the basis of bid prices for comparable
securities, or (c) by appraisal of the value of the Securities on the bid side
of the market or by such other appraisal as is deemed appropriate, or (d) by any
combination of the above. The Trustee shall be permitted to rely on these
evaluations when determining the Unit Price. The Trustee shall have no
responsibility or liability for the valuations supplied to it by the independent
evaluation service. The Trustee shall also make an evaluation of the Securities
deposited in the Trust as of the time said Securities are deposited under this
Indenture pursuant to Section 2.1. Such evaluation shall be made on the same
basis as set forth above and shall be included in the Schedules attached to the
Reference Trust Agreement.
Section 4.2. Tax Reports: For the purpose of permitting
Unitholders to satisfy any reporting requirements of applicable Federal or State
tax law, the Trustee shall transmit to any Unitholder upon written request any
determinations made by the Trustee pursuant to Section 4.1.
Section 4.3. Liability of Trustee with respect to Evaluations:
The Depositors and the Unitholders may rely on any evaluation furnished by the
Trustee and shall have no responsibility for the accuracy thereof. The
determinations made by the Trustee hereunder shall be made in good faith upon
the basis of, and shall have no liability for errors in, the information
reasonably available to it. The Trustee shall be under no liability to the
Depositors or the Unitholders for errors in judgment or any action taken in good
faith, provided, however, that this provision shall not protect the Trustee
against any liability to which it would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder.
641739.4
-23-
<PAGE>
ARTICLE 5
TRUST EVALUATION, REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF CERTIFICATES
Section 5.1. Trust Evaluation: The Trustee shall make an
evaluation of the Trust as of the close of trading on the New York Stock
Exchange (sometimes referred to herein as the "Evaluation Time") (1) on the last
Business Day of each of the months of June and December, (2) on the day on which
any unit of the Trust is tendered for redemption (unless tender is made after
the Evaluation Time on such day, in which case Tender shall be deemed to have
been made on the next day subsequent thereto on which the New York Stock
Exchange is open for trading), and (3) on any other day desired by the Trustee
or requested by the Depositors. Such evaluations shall take into account and
itemize separately (a)(1) the cash on hand in the Trust (other than monies on
deposit in the Reserve Account, funds deposited on the date hereof by the
Depositors for the purchase of Securities and not theretofore credited to the
Principal Account pursuant to Section 3.3 and funds in the Principal Account
with respect to which contracts for the purchase of the Substitute Securities
have been entered into pursuant to Section 3.7 hereof), including dividends
receivable on stocks trading ex dividend, (a)(2) the value of each issue of the
Securities in the Trust as determined by the Trustee pursuant to Section 4.1,
(a)(3) all other assets of the Trust and (a)(4) amounts representing
organizational expenses paid less amounts representing accrued organizational
expenses of the Trust. For each such evaluation there shall be deducted from the
sum of the above (b)(1) amounts representing any applicable taxes or other
governmental charges payable out of the Trust and for which no deductions shall
have previously been made for the purpose of addition to the Reserve Account,
(b)(2) amounts representing accrued fees of the Trustee and expenses of the
Trust including but not limited to unpaid fees of the Trustee and expenses of
the Trust (including legal and auditing expenses), accrued fees and expenses of
the Depositors and their successors, if any, and (b)(3) cash held for
distribution to Unitholders of record as of a date on or prior to the evaluation
then being made. The value of the pro rata share of each unit of the Trust
determined on the basis of any such evaluation shall be referred to herein as
the "Unit Value."
Until the Depositors have informed the Trustee that there will
be no further deposits of Additional Securities pursuant to Section 2.6, the
Depositors shall provide the Trustee with written estimates of (i) the total
organizational expenses to be borne by the Trust pursuant to Section 3.1, (ii)
the total
641739.4
-24-
<PAGE>
number of Units to be issued in connection with the initial deposit and all
anticipated deposits of Additional Securities and (iii) the period or periods
over which such expenses are to be amortized, separately stated with respect to
each such amortization period. For purposes of calculating the Trust Evaluation
and Unit Value, the Trustee shall treat all such anticipated expenses as having
been paid and all liabilities therefor as having been incurred, and all Units as
having been issued, in each case on the date of the Trust Agreement, and, in
connection with each such calculation, shall take into account a pro rata
portion of such expense and liability based on the actual number of Units issued
as of the date of such calculation. In the event the Trustee is informed by the
Depositors of a revision in its estimate of total expenses, total Units or
period of amortization, and upon the conclusion of the deposit of Additional
Securities or initial offering period, the Trustee shall base calculations made
thereafter on such revised estimates or actual expenses or period of
amortization, respectively, but such adjustment shall not affect calculations
made prior thereto and no adjustment shall be made in respect thereof.
The sum of (a)(1) and (a)(3) reduced by the sum of (b)(1) and
(b)(2) and (b)(3) shall be referred to herein as the "Unit Cash Value".
The Trustee shall promptly advise the Depositors of each
determination of Unit Value made by it as above provided, and, in addition, upon
each valuation by the Trustee under Section 4.1 other than those involved in
such calculations of Unit Value, the Trustee shall promptly furnish to the
Depositors, for purposes of assisting them in maintaining a market in the Units,
with such information regarding the Principal, Income and Reserve Accounts as
the Depositors may reasonably request.
Section 5.2. Redemptions by Trustee; Purchases by Depositors:
Any Certificate tendered for redemption by a Unitholder or his duly authorized
attorney to the Trustee at its corporate trust office, or any Plan Unit tendered
to the Trustee for redemption by the registered holder thereof pursuant to the
Redemption Form, shall be redeemed by the Trustee on the third business day
following the day on which tender for redemption is made (such third business
day being herein called the "Redemption Date"). Subject to payment by such
Unitholder of any tax or other governmental charges which may be imposed
thereon, such redemption is to be made by payment on the Redemption Date of cash
equivalent to the Net Asset Value per Unit or Plan Unit determined by the
Trustee as of the Evaluation Time on the date of tender, multiplied by the
number of Units being tendered for
641739.4
-25-
<PAGE>
redemption (herein called the "Redemption Price"). Units received for redemption
by the Trustee on any day after the Evaluation Time will be held by the Trustee
until the next day on which the New York Stock Exchange is open for trading and
will be deemed to have been tendered on such day for redemption at the
Redemption Price computed on that day.
The Trustee may in its discretion, and shall when so directed
by the Depositors in writing, suspend the right of redemption or postpone the
date of payment of the Redemption Price for more than three business days
following the day on which tender for redemption is made:
(1) for any period during which the New York Stock Exchange is
closed other than customary weekend and holiday closings or during
which trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a
result of which disposal by the Trust of the Securities is not
reasonably practicable or it is not reasonably practicable fairly to
determine in accordance herewith the value of the Securities; or
(3) for such other periods as the Securities and Exchange
Commission may by order permit,
and the Trustee shall not be liable to any person or in any way for any loss or
damage which may result from any such suspension or postponement.
Not later than the close of business on the day of tender of a
Unit for redemption by a Unitholder other than the Depositors, the Trustee shall
notify the Depositors of such tender. The Depositors shall have the right to
purchase such Unit or Plan Unit tendered by such Redemption Form by notifying
the Trustee of their election to make such purchase as soon as practicable
thereafter, but in no event subsequent to the close of business on the business
day on which such Unit was tendered for redemption. Such purchase shall be made
by payment for such Unit or Plan Unit by the Depositors to the Unitholder or
Plan Unit holder not later than the close of business on the Redemption Date of
an amount equal to the Redemption Price which would otherwise be payable by the
Trustee to such Unitholder or Plan Unit holder.
Any Unit or Plan Unit so purchased by the Depositors
may, at the option of the Depositors, be tendered to the Trustee
641739.4
-26-
<PAGE>
for redemption at the corporate trust office of the Trustee in the manner
provided in the first paragraph of this Section 5.2.
If the Depositors do not elect to purchase any Unit or Plan
Unit tendered to the Trustee for redemption, or if a Unit or Plan Unit is being
tendered by the Depositors for redemption, that portion of the Redemption Price
which represents dividends shall be withdrawn from the Income Account to the
extent funds are available. The balance paid on any redemption, including
accrued dividends, if any, shall be withdrawn from the Principal Account to the
extent that funds are available for such purpose. If such available balance
shall be insufficient, the Trustee shall sell such Securities from among those
designated on the current list for such purpose as provided below and in the
manner, in its discretion, as it shall deem advisable or necessary in order to
fund the Principal Account for purposes of such redemption. Sales of Securities
by the Trustee shall be made in such manner as the Trustee shall determine,
subject to any minimum face amount limitations on sale which shall have been
specified by the Depositors and agreed to by the Trustee. In the event that
funds are withdrawn from the Principal Account or Securities are sold for
payment of any portion of the Redemption Price representing accrued dividends,
the Principal Account shall be reimbursed when sufficient funds are next
available in the Income Account for such funds so applied.
The Depositors shall maintain with the Trustee a current list
of Securities designated to be sold for the purpose of redemption of Units or
Plan Units tendered for redemption and not purchased by the Depositors, and for
payment of expenses hereunder, provided that if the Depositors shall for any
reason fail to maintain such a list, the Trustee, in its sole discretion, may
designate a current list of Securities for such purposes. The net proceeds of
any sales of Securities from such list representing principal shall be credited
to the Principal Account and the proceeds of such sales representing accrued
interest shall be credited to the Income Account.
Neither the Trustee nor the Depositors shall be liable or
responsible in any way for depreciation or loss incurred by reason of any sale
of Securities made pursuant to this Section 5.2.
Units redeemed pursuant to this Section 5.2 shall be canceled
by the Trustee and the Units or Plan Units tendered by Redemption Forms shall be
terminated by such redemptions.
641739.4
-27-
<PAGE>
If the related prospectus for the Trust so provides, a
Unitholder who tenders for redemption Units in an aggregate amount of at least
the amount specified in the prospectus may request, at the time of tender, to
receive an In Kind Distribution in lieu of cash. Such In Kind Distribution shall
consist of (i) such Unitholder's pro rata portion of each of the Securities, to
the extent of whole shares, and (ii) cash equal to such Unitholder's pro rata
portion of the Income and Principal Accounts follows: (x) a pro rata portion of
the net proceeds of sale of the Securities representing any fractional shares
included in such Unitholder's pro rata share of the Securities and (y) such
other cash as may properly be included in such Unitholder's pro rata share of
the sum of the cash balances of the Income and Principal Accounts in an amount
equal to the Redemption Price on the date of tender less amounts specified in
clauses (i) and (ii)(x) of this sentence. The Trustee shall distribute the
Unitholder's Securities to the account of the Unitholder's bank or broker dealer
at the DTC. An In Kind Distribution shall be reduced by customary transfer and
registration charges incurred by the Trustee.
Notwithstanding the foregoing provisions of this Section 5.2,
the Trustee is hereby irrevocably authorized in its discretion, in the event
that the Depositors do not elect to purchase any Certificate or Plan Unit
tendered to the Trustee for redemption (other than Units as to which a valid
request for In Kind Redemption has been made), or in the event that a Unit or
Plan Unit is being tendered by the Depositors for redemption, in lieu of
redeeming Units or Plan Units tendered for redemption, to sell such Units or
Plan Units in the over-the-counter market or by private sale for the account of
tendering Unit or Plan Unit holders at prices which will return to the Unit or
Plan Unit holders amounts in cash, net after deducting brokerage commissions,
transfer taxes and other charges, equal to or in excess of the Redemption Prices
which such Unit or Plan Unit holders would otherwise be entitled to receive on
redemption pursuant to this Section 5.2. The Trustee shall pay to the Unit or
Plan Unit holders the net proceeds of any such sale on the day they would
otherwise be entitled to receive payment of the Redemption Price hereunder.
Section 5.3. Depositor Redemptions: Units tendered for
redemption by the Depositors on any Business Day shall be deemed to have been
tendered before the Evaluation Time on such Business Day provided that the
tendering Depositor advises the Trustee in writing (which may be electronic
transmission) of such tender before the later of 5:00 p.m. New York City time
and the Trustee's close of business on such Business day. By such
641739.4
-28-
<PAGE>
advice, the Depositor will be deemed to certify that all Units so tendered were
either(a) tendered to the Depositors or to a retail dealer between the
Evaluation Time on the preceding Business Day and the Evaluation Time on such
Business Day or (b) acquired previously but which the Depositor determined to
redeem prior to the Evaluation Time on such Business Day. On or before payment
of the Redemption Price, the Depositor shall assign or deliver to the Trustee
such documents which the Trustee shall reasonably require to effect the
redemption of those Units.
Section 5.4. Units to be Held Only Through the Depository
Trust Company or a Successor Clearing Agency: No Unit may be registered in the
name of any person other than DTC or its nominee (or such other clearing agency
registered as such pursuant to Section 17A of the nominee thereof) (DTC and any
such successor clearing agency are herein referred to as the "Clearing Agency")
unless the Clearing Agency advises the Trustee that it is no longer willing or
able properly to discharge its responsibilities with respect to the Units and
the Trustee is unable to locate a qualified successor clearing agency, in which
case the Trustee shall notify the Clearing Agency and instruct it to provide the
Trustee with the name and address of all persons who are the beneficial owners
of Units as registered on the books of the Clearing Agency (the "Owners"). So
long as a Clearing Agency is the registered holder of the Units, it shall be the
registered holder of the Units for all purposes under this Indenture and the
Owners shall hold their interest in the Units pursuant to such Clearing Agency's
applicable procedures. The Trustee shall be entitled to deal with any Clearing
Agency for all purposes of this Indenture (including the payment of
distributions on the Units and giving of instructions or directions by or to the
Owners) as the sole Unitholder of the Units and shall have no obligations to the
Owners. The rights of the Owners shall be exercised only through the Clearing
Agency and shall be limited to those established by law, the applicable
procedures of the Clearing Agency and the agreements between the Owners and the
Clearing Agency and its participants. None of the Depositors nor the Trustee
shall have any liability in respect of any transfers of Units effected by any
Clearing Agency. All provisions of this Indenture relating to the ownership and
transfer of Units shall be construed to effectuate the provisions of this
Section.
641739.4
-29-
<PAGE>
ARTICLE 6
TRUSTEE; REMOVAL OF DEPOSITORS
Section 6.1. General Definition of Trustee's
Liabilities, Rights and Duties; Removal of Depositors: In
addition to and notwithstanding the other duties, rights,
privileges and liabilities of the Trustee otherwise set forth
herein, the liabilities of the Trustee are further defined as
follows:
(a) All moneys deposited with or received by the Trustee
hereunder shall be held by the Trustee without interest in trust as part of the
Trust or the Reserve Account until required to be disbursed in accordance with
the provisions of this Indenture and such moneys will be segregated by separate
recordation on the trust ledgers of the Trustee so long as such practice
preserves a valid preference under applicable law, or if such preference is not
so preserved the Trustee shall handle such moneys in such other manner as shall
constitute the segregation and holding thereof in trust within the meaning of
the Investment Company Act of 1940.
(b) The Trustee shall be under no liability for any action
taken in good faith on any appraisal, paper, order, list, demand, request,
consent, affidavit, notice, opinion, direction, evaluation, endorsement,
assignment, resolution, draft or other document, whether or not of the same
kind, prima facie properly executed, or for the disposition of moneys,
Securities or Units pursuant to this Indenture, or in respect of any evaluation
which the Trustee is required to make or is required or permitted to have made
by others under this Indenture or otherwise except by reason of its gross
negligence, lack of good faith or willful misconduct, provided that the Trustee
shall not in any event be liable or responsible for any evaluation made by any
independent evaluation service employed by it pursuant to Section 4.1. The Trust
shall pay and hold the Trustee harmless from and against any loss, liability or
expense incurred in acting as Trustee of the Trust other than by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder, including the costs and expenses of the defense against any claim or
liability in the premises. The Trustee may construe any of the provisions of
this Indenture, insofar as the same may appear to be ambiguous or inconsistent
with any other provisions hereof, and any construction of any such provisions
hereof by the Trustee in good faith shall be binding upon the parties hereto.
The Trustee shall in no event be deemed to have
641739.4
-30-
<PAGE>
assumed or incurred any liability, duty or obligation to any Unitholder or the
Depositors, other than as expressly provided for herein.
(c) The Trustee shall not be responsible for or in respect of
the recitals herein, the validity or sufficiency of this Indenture or for the
due execution hereof by the Depositors, or for the form, character, genuineness,
sufficiency, value or validity of any letter of credit held hereunder or any
Securities (except that the Trustee shall be responsible for the exercise of due
care in determining the genuineness of Securities delivered to it pursuant to
contracts for the purchase of such Securities) or for or in respect of the
validity or sufficiency of the Units or of the due execution thereof by the
Depositors, and the Trustee shall in no event assume or incur any liability,
duty or obligation to any Unitholder or the Depositors other than as expressly
provided for herein. The Trustee shall not be responsible for or in respect of
the validity of any signature by or on behalf of the Depositors.
(d) The Trustee shall not be under any obligation to appear
in, prosecute or defend any action, which in its opinion may involve it in
expense or liability, unless as often as required, it shall be furnished with
reasonable security and indemnity against such expense or liability as it may
require, and any pecuniary cost of the Trustee from such actions shall be
deductible from and a charge against the Income and Principal Accounts. The
Trustee shall in its discretion undertake such action as it may deem necessary
at any and all times to protect the Trust and the rights and interests of the
Unitholders pursuant to the terms of this Indenture, provided, however, that the
expenses and costs of such actions, undertakings or proceedings shall be
reimbursable to the Trustee from the Income and Principal Accounts, and the
payment of such costs and expenses shall be secured by a lien on the Trust prior
to the interests of the Unitholders.
(e) The Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of any such
agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected with reasonable care; provided,
however, that if the Trustee chooses to employ DTC in connection with the
storage and handling of, and the furnishing of administrative services in
connection with the Securities, the Trustee will be answerable for any default
or misconduct of DTC and its employees and agents as fully and to the same
extent as if such default or misconduct had been committed or occasioned by the
Trustee. The
641739.4
-31-
<PAGE>
Trustee shall be fully protected in respect of any action under this Agreement
taken, or suffered, in good faith by the Trustee, in accordance with the opinion
of its counsel, which may be counsel to the Depositors acceptable to the
Trustee. The fees and expenses charged by such agents, attorneys, accountants or
auditors shall constitute an expense of the Trustee reimbursable from the Income
and Principal Accounts as set forth in Section 3.5 hereof.
(f) Other than as provided in Article 7 hereunder, if at any
time there is only one Depositor acting hereunder and said Depositor shall
resign or fail to undertake or perform or become incapable of undertaking or
performing any of the duties which by the terms of this Indenture are required
by it to be undertaken or performed and no express provision is made for action
to be taken by the Trustee in such event, or said Depositor shall be adjudged
bankrupt or insolvent, or a receiver of such Depositor or of its property shall
be appointed, or any public officer shall take charge or control of such
Depositor or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then in any such case, the Trustee may, in its sole
discretion, do any one or more of the following: (1) appoint a successor
Depositor who shall act hereunder in all respects in place of the Depositor, who
shall be compensated semi-annually, at rates deemed by the Trustee to be
reasonable under the circumstances, by deduction from the Income Account or from
the Principal Account, but no such deduction shall be made exceeding such
reasonable amount as the Securities and Exchange Commission may prescribe in
accordance with Section 26(a)(2)(C) of the Investment Company Act of 1940; or
(2) terminate this Indenture and the Trust created hereby and liquidate the
Trust, all in the manner provided in Section 9.2. or (3) continue to act as
Trustee hereunder without terminating this Indenture, acting in its own absolute
discretion without appointing any successor Depositor and assuming such of the
duties and responsibilities of the Depositor hereunder as the Trustee
determines, in its absolute discretion, are necessary or desirable for the
administration and preservation of the Trust and receiving additional
compensation at rates determined as provided in clause (1). If the Trustee
continues so to act, it is authorized to employ one or more agents to perform
portfolio supervisory services and such other of the services of the Depositors
hereunder as the Trustee determines, in its sole discretion, to be necessary or
desirable. The fees and expenses of such agent or agents shall be charged to the
Trust in accordance with Section 6.4. All provisions of this Indenture relating
to the liability and indemnification of the Trustee, including, without
limitation, subparagraph (e) of this Section, shall apply to any
641739.4
-32-
<PAGE>
responsibility assumed or action taken by the Trustee pursuant to
this subparagraph.
(g) If the value of the Trust as shown by any evaluation by
the Trustee pursuant to Section 5.1 hereof shall be less than the liquidation
amount specified in Part II of the Reference Trust Agreement, the Trustee may in
its discretion, and shall, when so directed by the Depositors, terminate this
Indenture and the Trust created hereby and liquidate the Trust, all in the
manner provided in Section 9.2.
(h) In no event shall the Trustee be liable for any taxes or
other governmental charges imposed upon or in respect of the Securities or upon
the dividends thereon or upon it as Trustee hereunder or upon or in respect of
the Trust which it may be required to pay under any present or future law of the
United States of America or any other taxing authority having jurisdiction in
the premises. For all such taxes and charges and for any expenses, including
counsel fees, which the Trustee may sustain or incur with respect to such taxes
or charges, the Trustee shall be reimbursed and indemnified out of the Income
and Principal Accounts of the Trust, and the payment of such amounts so paid by
the Trustee shall be secured by a lien on the Trust prior to the interests of
the Unitholders.
(i) The Trustee, except by reason of its gross negligence,
lack of good faith, reckless disregard of its obligations hereunder or willful
misconduct, shall not be liable for any action taken or suffered to be taken by
it in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture.
(j) Notwithstanding anything in this Indenture to the
contrary, the Trustee is authorized and empowered to enter into any safekeeping
arrangement or arrangements it deems necessary or appropriate for holding the
Securities then owned by the Trust and the Trustee is authorized and empowered
in its sole right to amend, supplement or terminate any safekeeping arrangement
or arrangements made under this provision. In addition, the Trustee is
authorized and empowered, at the request and discretion of the Depositors, to
execute and file on behalf of the Trust any and all documents, in connection
with consents to service of process, required to be filed under the securities
laws of the various States in order to permit the sale of Units of the Trust in
such States by the Depositors.
(k) The Trustee in its individual or any other capacity may
become owner or pledgee or, or be an underwriter or
641739.4
-33-
<PAGE>
dealer in respect of, stock, bonds or other obligations issued by the same
issuer (or an affiliate of such issuer) or any obligor of any Securities at any
time held as part of the Trust and may deal in any manner with the same or with
the issuer (or an affiliate of the issuer) with the same rights and powers as if
it were not the Trustee hereunder.
(l) The Trust may include a letter or letters of credit for
the purchase of Contract Securities issued by the Trustee in its individual
capacity for the account of the Depositors, and the Trustee may otherwise deal
with the Depositors with the same rights and powers as if it were not the
Trustee hereunder.
Section 6.2. Books, Records and Reports: The Trustee shall
keep proper books of record and account of all the transactions under this
Indenture at its unit investment trust office including a record of the name and
address of, and the Units issued by the Trust and held by, every Unitholder, and
such books and records shall be open to inspection by any Unitholder at all
reasonable times during the usual business hours, and such books and records
shall be made available to the Depositors upon the request of the Depositors
including, but not limited to, a record of the name and address of every
Unitholder.
Unless the Depositors otherwise direct, the Trustee shall
cause audited statements as to the assets and income of the Trust to be prepared
on an annual basis by independent public accountants selected by the Depositors,
provided, however, that if the Depositors are then making a market for units of
the Trust, the Depositors shall bear the cost of such audit to the extent that
it exceeds $.50/unit of approximately $1000 initial value (or such proportionate
amount in the case of units of greater or lesser initial value). Such audited
statement will be made available to Unitholders upon request.
To the extent permitted under the Investment Company Act of
1940 as evidenced by an opinion of counsel to the Depositors, reasonably
acceptable to the Trustee, the Trustee shall pay, or reimburse to the Depositors
or others, the costs of the preparation of documents and information with
respect to the Trust required by law or regulation in connection with the
maintenance of a secondary market in units of the Trust. Such costs may include
but are not limited to accounting and legal fees, blue sky registration and
filing fees, printing expenses and other reasonable expenses related to
documents required under Federal and state securities laws.
641739.4
-34-
<PAGE>
The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or federal statute or
rule or regulation thereunder.
Section 6.3. Indenture and List of Securities on File: The
Trustee shall keep a certified copy or duplicate original of this Indenture on
file at its unit investment trust office available for inspection at all
reasonable times during the usual business hours by any Unitholder and the
Trustee shall keep and so make available for inspection a current list of the
Securities.
Section 6.4. Compensation: For services performed under this
Indenture the Trustee shall be paid at the rate per annum set forth in Part II
of the Reference Trust Agreement which shall be computed on the basis of the
greatest number of Units of the Trust outstanding at any time during the period
with respect to which such compensation is being computed. The Trustee may from
time to time adjust its compensation as set forth above provided that the total
adjustment upward does not, at the time of such adjustment, exceed the
percentage of the total increase, after the date hereof, in consumer prices for
services as measured by the United States Department of Labor Consumer Price
Index entitled "All Services Less Rent," or, if such index shall cease to be
published, then as measured by the available index most nearly comparable to
such index. The consent or concurrence of any Unitholder hereunder shall not be
required for any such adjustment or increase, however, the consent of the
Depositors shall be required. Such compensation shall be charged by the Trustee
against the Income and Principal Accounts at the time provided in Section 3.5
provided, however, that such compensation shall be deemed to provide only for
the usual normal and recurring functions undertaken as Trustee pursuant to this
Indenture.
The Trustee shall charge the Income and Principal Accounts at
such times as shall be convenient in its administration of the Trust any and all
expenses, including the fees of counsel which may be retained by the Trustee in
connection with its activities hereunder, and disbursements incurred hereunder
and any extraordinary services performed by the Trustee hereunder. The Trustee
shall be indemnified and held harmless against any loss or liability accruing to
it without gross negligence, bad faith or willful misconduct on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses (including counsel fees) of defending
itself against any claim of liability in the premises. If the cash balances in
the Income
641739.4
-35-
<PAGE>
and Principal Accounts shall be insufficient to provide for amounts payable
pursuant to this Section 6.4, the Trustee shall have the power to sell (1)
Securities from the current list of Securities designated to be sold pursuant to
Section 5.2 hereof, or (2) if no such Securities have been so designated, such
Securities as the Trustee may see fit to sell in its own discretion, and to
apply the proceeds of any such sale in payment of the amounts payable pursuant
to this Section 6.4. The Trustee shall not be liable or responsible in any way
for depreciation or loss incurred by reason of any sale of Securities made
pursuant to this Section 6.4. Any moneys payable to the Trustee pursuant to this
section shall be secured by a prior lien on the Trust.
Section 6.5. Removal and Resignation of the Trustee;
Successor: The following provisions shall provide for the
removal and resignation of the Trustee and the appointment of any
successor Trustee:
(a) any resignation or removal of the Trustee and appointment
of a successor pursuant to this section shall not become effective until
acceptance of appointment by the successor Trustee as provided in subsection (b)
hereof;
(b) the Trustee or any trustee hereafter appointed may resign
and be discharged of the trust created by this Indenture by executing an
instrument in writing resigning as such Trustee, filing the same with the
Depositors and mailing a copy of a notice of resignation to all Unitholders then
on record not less than sixty days before the date specified in such instrument
when, subject to Section 6.5(d), such resignation is to take effect. Upon
receiving such notice of resignation, the Depositors shall use their best
efforts to promptly appoint a successor Trustee as hereinafter provided, by
written instrument, in duplicate, one copy of which shall be delivered to the
resigning Trustee and one copy to the successor Trustee. In case at any time the
Trustee shall become incapable of acting or shall be deemed incapable of acting
by the written consent of holders owning beneficially 66 2/3% of the outstanding
Units comprising a particular series, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purposes of rehabilitation, conservation, or
liquidation, then in any such case the Depositors may remove the Trustee and
appoint a successor Trustee by written instrument, in duplicate, one copy of
which shall be delivered to the Trustee so removed and one copy to the successor
Trustee; provided that notice of such
641739.4
-36-
<PAGE>
removal and appointment of a successor shall be given to each Unitholder then of
record;
(c) any successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositors and the retiring Trustee an instrument
accepting such appointment hereunder, and such successor Trustee without any
further act, deed or conveyance shall become vested with all the rights, powers,
duties and obligations of its predecessor hereunder with like effect as if
originally named Trustee herein and shall be bound by all the terms and
conditions of this Indenture provided, however, that no successor trustee shall
be under any liability hereunder for occurrences or omissions prior to the
execution of such instrument. Upon the request of such successor Trustee, the
Depositors and the retiring Trustee shall, upon payment of any amounts due the
retiring Trustee or provision therefor to the satisfaction of such retiring
Trustee, execute and deliver an instrument acknowledged by it transferring to
such successor trustee all the rights and powers of the retiring Trustee; and
the retiring Trustee shall transfer, deliver and pay over to the successor
Trustee all Securities and moneys at the time held by it hereunder, together
with all necessary instruments of transfer and assignment or other documents
properly executed necessary to effect such transfer and such of the records or
copies thereof maintained by the retiring Trustee in the administration hereof
as may be requested by the successor Trustee, and shall thereupon be discharged
from all duties and responsibilities under this Indenture. The retiring Trustee
shall, nevertheless, retain a lien upon all Securities and moneys at the time
held by it hereunder to secure any amounts then due the retiring Trustee
hereunder;
(d) in case at any time the Trustee shall resign and no
successor Trustee shall have been appointed and have accepted appointment within
thirty days after notice of resignation has been received by the Depositors, the
retiring Trustee may forthwith apply to a court of competent jurisdiction for
the appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
Trustee; and
(e) any corporation into which any Trustee hereunder may be
merged or with which it may consolidate, or any corporation resulting from any
merger or consolidation to which any Trustee hereunder shall be a party, shall
be the successor Trustee under this Indenture without the execution or filing of
any paper, instrument or further act to be done on the part of the parties
hereto, anything herein, or in any agreement relating
641739.4
-37-
<PAGE>
to such merger or consolidation, by which any such Trustee may seek to retain
certain powers, rights and privileges theretofore obtaining for any period of
time following such merger or consolidation, to the contrary notwithstanding.
Section 6.6. Qualifications of Trustee: The Trustee, or any
successor thereof, shall be a corporation organized and doing business under the
laws of the United States or any state thereof, which is authorized under such
laws to exercise corporate trust powers and having at all times an aggregate
capital, surplus, and undivided profits of not less than $2,500,000.
ARTICLE 7
DEPOSITORS
Section 7.1. Succession: The covenants, provisions and
agreements herein contained shall in every case be binding upon any successor to
the business of the Depositors. In the event of the death, resignation or
withdrawal of any partner of Reich & Tang or of any successor Depositor which
may be a partnership, the deceased, resigning or withdrawing partner shall be
relieved of all further liability hereunder if at the time of such death,
resignation or withdrawal such Depositor maintains a net worth (determined in
accordance with generally accepted accounting principles) of at least
$1,000,000. In the event of an assignment by a Depositor to a successor
corporation or partnership as permitted by the next following sentence, such
Depositors and, if such Depositor is a partnership, its partners, shall be
relieved of all further liability under this Indenture. The Depositors may
transfer all or substantially all of their assets to a corporation or
partnership which carries on the business of that Depositor, if at the time of
such transfer such successor duly assumes all the obligations of said Depositor
under this Indenture and if at such time such successor maintains a net worth of
at least $1,000,000 (determined in accordance with generally accepted accounting
principles).
Section 7.2. Resignation of a Depositor: If at any time any
Depositor desires to resign its position as Depositors hereunder, it may resign
by delivering to the Trustee an instrument of resignation executed by such
Depositor. Such resignation shall become effective upon the expiration of thirty
days from the date on which such instrument is delivered to the Trustee. Upon
effective resignation hereunder, the resigning Depositor shall be discharged and
shall no longer be liable in
641739.4
-38-
<PAGE>
any manner hereunder except as to acts or omissions occurring prior to such
resignation and any successor Depositor appointed by the Trustee pursuant to
Section 6.1(f) shall thereupon perform all duties and be entitled to all rights
under this Indenture. The successor Depositor shall not be under any liability
hereunder for occurrences or omissions prior to the execution of such
instrument.
Section 7.3. Liability of Depositors and Indemnification: (a)
No Depositor shall be under any liability to any other Depositor, the Trust or
the Unitholders for any action or for refraining from the taking of any action
in good faith pursuant to this Indenture, or for errors in judgment or for
depreciation or loss incurred by reason of the purchase or sale of any
Securities, provided, however, that this provision shall not protect the
Depositors against any liability to which it would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties hereunder. The Depositors may rely in good faith on any paper, order,
notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment,
draft or any other document of any kind prima facie properly executed and
submitted to it by the Trustee, the Trustee's counsel or any other person for
any matters arising hereunder. The Depositors shall in no event be deemed to
have assumed or incurred any liability, duty, or obligation to any Unitholder or
the Trustee other than as expressly provided for herein.
(b) The Trust shall pay and hold the Depositors harmless from
and against any loss, liability or expense incurred in acting as Depositors of
the Trust other than by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of their reckless
disregard of their obligations and duties hereunder, including the costs and
expenses of the defense against any claim or liability in the premises. The
Depositors shall not be under any obligation to appear in, prosecute or defend
any legal action which in their opinion may involve them in any expense or
liability, provided, however, that the Depositors may in their discretion
undertake any such action which they may deem necessary or desirable in respect
of this Indenture and the rights and duties of the parties hereto and the
interests of the Unitholders hereunder and, in such event, the legal expenses
and costs of any such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust and shall be paid directly by the
Trustee out of the Income and Principal Accounts as provided by Section 3.5.
641739.4
-39-
<PAGE>
(c) None of the provisions of this Indenture shall be deemed
to protect or purport to protect the Depositors against any liability to the
Trust or to the Unitholders to which the Depositors would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties, or by reason of the Depositors' reckless disregard
of their obligations and duties under this Indenture.
(d) Notwithstanding the discharge of a Depositor of the Trust,
such Depositor shall continue to be fully liable in accordance with the
provisions hereof in respect of action taken or refrained from under the
Agreement by the Depositors before the date of such discharge or by the
undischarged Depositors before or after the date of such discharge, as fully and
to the same extent as if no discharge has occurred.
Section 7.4. Compensation: The Depositors shall receive at the
times set forth in Section 3.5 as compensation for performing portfolio
supervisory services, such amount and for such periods as specified in Part II
of the Reference Trust Agreement. The computation of such compensation shall be
made on the basis of the largest number of units outstanding at any time during
the period for which such compensation is being computed. At no time, however,
will the total amount received by the Depositors for services rendered to all
series of the Schwab Trusts in any calendar year exceed the aggregate cost to
them of supplying such services in such year. Such rate may be increased by the
Trustee from time to time, without the consent or approval of any Unitholder or
the Depositors, by amounts not exceeding the proportionate increase during the
period from the date of such Reference Trust Agreement to the date of any such
increase, in consumer prices as published either under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor or, if such Index is no longer published, a similar index.
In the event that any amount of the compensation paid to the
Depositors pursuant to Section 3.5 is found to be an improper charge against the
Trust, the Depositors shall reimburse the Trust in such amount. An improper
charge shall be established if a final judgment or order for reimbursement of
the Trust shall be rendered against the Depositors and such judgment or order
shall not be effectively stayed or a final settlement is established in which
the Depositors agree to reimburse the Trust for amounts paid to the Depositors
pursuant to this Section 7.4.
Section 7.5. Joint Position of Depositors; Power of
Attorney: (a) The Depositors shall be jointly and severally
641739.4
-40-
<PAGE>
liable for the obligations imposed upon and undertaken by the Depositors
hereunder. At all times prior to the termination of the Trust and while more
than one Depositor shall be acting hereunder, there shall be maintained on file
with the Trustee a power of attorney (which, initially, constitutes part of the
Closing Memorandum delivered by the Trustee and the Depositor in connection with
the deposit made pursuant to Section 2.1) executed in favor of one Depositor by
the other Depositor constituting and appointing the non-executing Depositor the
trust and lawful agent and attorney-in-fact of the executing Depositor to
execute and deliver for and on behalf of the executing Depositor any and all
notices, opinions, certificates, lists, demands, directions, instruments or
other documents provided or permitted to be executed or delivered by the
Depositors hereunder or to take any other action in respect hereof. Such power
of attorney shall continue in effect as to the executing Depositor until written
notice of revocation thereof has been given by such executing Depositor to the
Trustee and the non-executing Depositor. Prior to receipt of such notice of
revocation, the Trustee shall be entitled to rely conclusively upon such power
of attorney as authorizing the non-executing Depositor to give any notice,
opinion, certificate, list, demand, direction, instrument or other document
provided for or permitted hereunder or to take any other action in respect
hereof on behalf of the executing Depositor as to which such power of attorney
is in effect.
(b) In the event that the power of attorney referred to in
paragraph (a) shall be revoked by written notice given by an executing Depositor
and it shall not be replaced within one Business Day by another power of
attorney conforming with the requirements of said paragraph, the Depositors
shall be deemed to have been unable to reach agreement with respect to an action
to be taken jointly by them hereunder and thereupon the Depositor which has
revoked the power of attorney executed by it shall be discharged hereunder upon
the expiration of such one-day period and thereupon the other Depositor shall
act hereunder without the necessity of any other or further action on the part
of the Depositors or of the Trustee.
ARTICLE 8
RIGHTS OF UNITHOLDERS
Section 8.1. Beneficiaries of Trust: By the purchase and
acceptance or other lawful delivery and acceptance of any Unit the Unitholder
shall be deemed to be a beneficiary of the Trust created by this Indenture and
vested with all right, title
641739.4
-41-
<PAGE>
and interest in the Trust to the extent of the Unit or Units, subject to the
terms and conditions of this Indenture.
Section 8.2. Rights, Terms and Conditions: In addition to the
other rights and powers set forth in the other provisions and conditions of this
Indenture the Unitholders shall have the following rights and powers and shall
be subject to the following terms and conditions:
(a) A Unitholder may at any time prior to the Evaluation Time
on the date the Trust is terminated tender his Unit or Units to the Trustee for
redemption in accordance with Section 5.2.
(b) The death or incapacity of any Unitholder shall not
operate to terminate this Indenture or the Trust, nor entitle his legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court of competent jurisdiction for a partition or winding up
of the Trust, nor otherwise affect the rights, obligations and liabilities of
the parties hereto or any of them. Each Unitholder expressly waives any right he
may have under any rule of law, or the provisions of any statute, or otherwise,
to require the Trustee at any time to account, in any manner other than as
expressly provided in this Indenture, in respect of the Securities or moneys
from time to time received, held and applied by the Trustee hereunder.
(c) No Unitholder shall have any right to vote or in any
manner otherwise control the operation and management of the Trust, or the
obligations of the parties hereto, nor shall anything herein set forth, be
construed so as to constitute the Unitholders from time to time as partners; nor
shall any Unitholder ever be under any liability to any third persons by reason
of any action taken by the parties to this Indenture for any other cause
whatsoever.
ARTICLE 9
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 9.1. Amendments: This Indenture may be amended from
time to time by the parties hereto or their respective successors, without the
consent of any of the Unitholders (a) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision contained herein; (b) to change any provision required
by Securities and Exchange
641739.4
-42-
<PAGE>
Commission or any successor governmental agency to be changed; or (c) to make
such other provision in regard to matters or questions arising hereunder as
shall not adversely affect the interests of the Unitholders; provided, however,
that the parties hereto may not amend this Indenture so as to (1) increase the
number of Units above the number set forth in Part II of the Reference Trust
Agreement or such lesser amount as may be outstanding at any time during the
term of this Indenture, except as the result of the deposit of Additional
Securities as herein provided, or (2) except in the manner permitted by the
Indenture as in effect on the date of the first deposit of Securities under a
particular Indenture, permit the deposit or acquisition hereunder of securities
either in addition to or in replacement of any of the Securities.
This Indenture may also be amended from time to time by the
Depositors and the Trustee (or the performance of any of the provisions or this
Agreement may be waived) with the expressed written consent of Unitholders
evidencing 66-2/3% of the Units at the time outstanding under the Indenture for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Unitholders; provided, however, that no such amendment or waiver shall
(i) reduce the interest in the Trust represented by such Units without the
consent of the Unitholder, (ii) reduce the aforesaid percentage of Units, the
holders of which are required to consent to any such amendment, without the
consent of the holders of all Units then outstanding or (iii) affect the duties,
obligations and responsibilities of the Trustee without its consent.
Promptly after the execution of any such amendment the Trustee
shall furnish written notification to all then out standing Unitholders of the
substance of such amendment.
Section 9.2. Termination: This Indenture and the Trust created
hereby shall terminate as of the Evaluation on the Termination Date or upon the
date of the earlier maturity, redemption, sale or other disposition as the case
may be of the last Security held hereunder; provided that in no event shall the
Trust continue beyond the end of the Mandatory Termination Date specified in the
Prospectus for the Trust.
Written notice of any termination, specifying the time or
times at which the Unitholders may surrender their Units for cancellation shall
be given by the Trustee to each Unitholder at his address appearing on the
registration books of the Trustee.
641739.4
-43-
<PAGE>
In the event of any termination of the Trust prior to the
Termination Date, the Trustee shall proceed to liquidate the Securities then
held and make the payments and distributions provided for hereinafter in this
Section 9.2 except that in such event, the distribution to each Unitholder shall
be made in cash and shall be such Unitholder's pro rata interest in the balance
of the Principal and Income Account after the deductions herein provided.
In the event that the Trust terminates on the Termination
Date, the Trustee shall, not less than 20 days prior to the Termination Date,
send a written notice to each Unitholder of record owning, as of such date,
2,500 Units and whose interest in the Trust would entitle him to receive at
least one share of each Security. Such notice shall allow such Unitholder to
elect to redeem his Units at the net asset value on the Termination Date and to
receive, in partial payment of the Redemption Price per Unit, an in-kind
distribution of such Unitholder's pro rata share of the Securities, to the
extent of whole shares. The Trustee will honor duly executed requests for such
in-kind distribution received by the close of business on the Termination Date.
Unitholders who do not effectively request an in-kind distribution shall receive
their distribution upon termination in cash. Redemption of the Units of
Unitholders electing such in-kind distribution shall be made on the third
business day following the first business day after the Termination Date and
shall consist of (1) such Unitholder's pro rata share of Securities (valued as
of the Termination Date) to the extent of whole shares and (2) cash equal to the
balance of such Unitholder's Redemption Price.
On the Termination Date, this Indenture and the Trust created
hereby shall terminate. In connection with such Termination, the Trustee shall
segregate such number of shares of Securities as shall be necessary to satisfy
in-kind distributions to Unitholders electing such distribution.
The balance of the Securities shall be sold over a period
described in the Prospectus of the Trust. The Depositors shall direct the
Trustee to sell the Securities in such manner as the Depositors determine will
produce the best price for the Trust. If so directed, the Trustee shall use the
services of the Depositors to effect such sales.
Within a reasonable period of time after such termination and
liquidation of Securities, the Trustee shall:
641739.4
-44-
<PAGE>
(a) deduct from the Income Account or, to the extent that
funds are not available in such account, from the Principal Account and pay to
itself individually an amount equal to the sum of
(1) its accrued compensation for its ordinary
recurring services,
(2) any compensation due it for its extraordinary
services, and
(3) any other costs, expenses, advances or indemnities as
provided herein.
(b) deduct from the Income Account or, to the extent that
funds are not available in such account, from the Principal Account and pay
accrued and unpaid fees of counsel pursuant to Section 3.8;
(c) deduct from the Income Account or the Principal Account
any amounts which may be required to be deposited in the Reserve Account to
provide for payment of any applicable taxes or other governmental charges and
any other amounts which may be required to meet expenses incurred under this
Indenture;
(d) make a final distribution from the Trust of such
Unitholder's pro rata share of the cash balances of the Income and Principal
Accounts and, on the conditions set forth in Section 3.04 hereof, the balance of
the Reserve Account, if any;
(e) together with such distribution to each Unitholder as
provided for in (d), furnish to each such Unitholder a final distribution
statement as of the date of the computation of the amount distributable to
Unitholders, setting forth the data and information in substantially the form
and manner provided for in Section 3.6 hereof; and
(f) distribute to each Unitholder receiving the distribution
provided in paragraph (d) any dividends, which on the Termination Date were
declared, but not received, net of any and all expenses not previously deducted,
within a reasonable time of their receipt.
The amounts to be so distributed to each Unitholder shall be
that pro rata share of the balance of the total Income and Principal Accounts as
shall be represented by the Units held of record by such Unitholder.
641739.4
-45-
<PAGE>
The Trustee shall be under no liability with respect to moneys
held by it in the Income, Reserve and Principal Accounts upon termination except
to hold the same in trust without interest until disposed of in accordance with
the terms of this Indenture.
Upon the Depositors' request, the Trustee will include in the
written notice to be sent to Unitholders referred to in the fourth paragraph of
this section a form of election whereby Unitholders electing a cash distribution
may express interest in investing such cash distribution in units of another
series of the Schwab Trusts (the "New Series"). The Trustee will inform the
Depositors of all Unitholders who, within the time period specified in such
notice, express such interest. The Depositors will provide to such Unitholders
any applicable sales material with respect to the New Series and a form,
acceptable to the Trustee, whereby a Unitholder may appoint the Trustee the
Unitholder's agent to apply the Unitholder's cash distribution for the purchase
of a unit or units of the New Series. Such form will specify, among other
things, the time by which it must be returned to the Trustee in order to be
effective and the manner in which such purchase shall be made. This paragraph
shall not obligate the Depositors to create any New Series or to provide any
such investment election.
Section 9.3. Construction: This Indenture is executed and
delivered in the State of New York, and all local laws or rules of construction
of such State shall govern the rights of the parties hereto and the Unitholders
and the interpretation of the provisions hereof.
Section 9.4. Registration of Units: The Depositors agree and
undertake to register the Units with the Securities and Exchange Commission or
other applicable governmental agency pursuant to applicable Federal or State
statutes, if such registration shall be required, and to do all things that may
be necessary or required to comply with this provision during the term of the
Trust created hereunder, and the Trustee shall incur no liability or be under
any obligation or expense in connection therewith.
Section 9.5. Written Notice: Any notice, demand, direction or
instruction to be given to the Depositors hereunder shall be in writing and
shall be duly given if mailed or delivered to the Depositors as follows: Charles
Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California 94104,
Reich & Tang Distributors L.P., 600 Fifth Avenue, New York, New York 10020 or at
such other address as shall be specified by the
641739.4
-46-
<PAGE>
Depositors to the Trustee in writing. Any notice, demand, direction or
instruction to be given to the Trustee shall be in writing and shall be duly
given if mailed or delivered to the Trustee at 4 New York Plaza, New York, New
York 10004, or such other address as shall be specified to the Depositors by the
Trustee in writing. Any notice to be given to the Unitholders shall be duly
given if mailed or delivered to each Unitholder at the address of such holder
appearing on the registration books of the Trustee.
Section 9.6. Severability: If any one or more of the
covenants, agreements, provisions or terms of this Indenture shall be held
contrary to any express provision of law or contrary to policy or express law,
though not expressly prohibited, or against public policy, or shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Units or the
rights of the holders thereof.
Section 9.7. Dissolution of Depositors Not to
Terminate: The dissolution of one or all of the Depositors from
or for any cause whatsoever shall not operate to terminate this
Indenture or the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first above written.
[Signatures and acknowledgments on separate pages.]
641739.4
-47-
<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By:
-------------------------------
Vice President
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this day of November, 1997, before me personally appeared ,
to me known, who being by me duly sworn, said that he is an Authorized Signator
of The Chase Manhattan Bank, one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation and that he
signed his name thereto by like authority.
---------------------------------
Notary Public
641739.4
<PAGE>
REICH & TANG DISTRIBUTORS L.P.
Depositors
By: Reich & Tang Asset Management, Inc.,
as General Partner of Depositors
By:
------------------------------
Authorized Signator
STATE OF NEW YORK )
: ss:
COUNTY OF NEW YORK )
On this day of November, 1997, before me personally
appeared , to me known, who being by me duly sworn, said that he
is an Authorized Signator of Reich & Tang Asset Management, Inc. as General
Partner of the Depositors, one of the corporations described in and which
executed the foregoing instrument, and that he signed his name thereto by
authority of the Board of Directors of said corporation.
-------------------------
Notary Public
641739.4
<PAGE>
CHARLES SCHWAB & CO, INC.
Depositor
By:
---------------------------
Authorized Signator
STATE OF CALIFORNIA )
: ss:
COUNTY OF SAN FRANCISCO )
On this day of November, 1997, before me personally
appeared , to me known, who being by me duly sworn, said that he
is an Authorized Signator of Charles Schwab & Co., Inc. the Depositor, one of
the corporations described in and which executed the foregoing instrument, and
that he signed his name thereto by authority of the Board of Directors of said
corporation.
------------------------------
Notary Public
641739.4
RESTATED ARTICLES OF INCORPORATION
OF
CHARLES SCHWAB & CO., INC.
1. The name of the corporation is Charles Schwab & Co., Inc.
2. The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
3. This corporation shall be governed by all of the provisions of the
new law, as that term is defined in section 2300 of the California Corporations
Code, not otherwise applicable to it under Chapter 23 of the Code.
4. (a) The corporation is authorized to issue two classes of shares to
be designated "preferred" and "common" and herein referred to as "preferred
shares" or "preferred stock" and "common shares" or "common stock,"
respectively. The total number of preferred shares authorized is three million
(3,000,000) shares, and the total number of common shares authorized is seven
million (7,000,000) shares. Each share of preferred stock shall have a par value
of ten cents ($0.10); and each share of common stock shall have a par value of
ten cents ($0.10).
(b) The preferred shares authorized by these Articles of
Incorporation may be issued from time to time in one or more series. The board
of directors of the corporation is hereby authorized to fix the number of
shares, and determine the designation, of each series of preferred shares and
may determine or alter the rights, preferences, privileges and restrictions
granted to or imposed on any wholly unissued series of preferred shares,
including, without limitation, the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and liquidation preferences. As to any
series the number of which is fixed by the board of directors as authorized
herein, the board of directors may, within any limit and restriction stated in
the resolution or resolutions of the board of directors originally fixing the
number of shares constituting any series, increase or decrease (but not below
the number of shares of such series then outstanding), the number of shares of
any such series subsequent to the issue of shares of that series. In case the
number of shares of any series shall be so decreased, the shares constituting
the decrease shall resume the status which they had prior to the adoption of
<PAGE>
Charles Schwab & Co., Inc.
Restated Articles of Incorporation Page two
- --------------------------------------------------------------------------------
the resolution originally fixing the number of shares of that
series.
5. No dividends shall be declared or paid which shall impair
the capital of the corporation nor shall any distribution of assets be made to
any shareholder unless the value of the assets of the corporation remaining
after such payment or distribution is at least equal to the aggregate of its
debts and liabilities, including capital.
6. The corporation is authorized to redeem or convert to a
fixed income security all or any part of the outstanding shares of voting stock
of the corporation owned by any person required to be approved by the Board of
Directors of The New York Stock Exchange, Inc., as a member, allied member or
approved person who fails or ceases to be so approved as may be necessary to
reduce such person's ownership of voting stock in the corporation below that
level which enables such person to exercise controlling influence over the
management or policies of the corporation. The corporation shall have the option
to determine whether such person's shares shall be redeemed or converted to a
fixed income security. For purposes of redemption or conversion to a fixed
income security the shares of voting stock shall be valued at their fair market
value. If the corporation and the shareholder cannot agree on the fair market
value of shares to be redeemed and/or the terms and conditions of the fixed
income security into which the shares of voting stock are to be converted, the
matter shall be submitted to arbitration and the decision of the arbitrator
shall be final and binding on the corporation and the shareholder.
Dated: March 2, 1981.
I declare that the foregoing form of Restated Articles of
Incorporation is the form that has been approved by the board of directors of
this corporation.
/s/ BARBARA AHMAJAN
--------------------------------
Barbara Ahmajan,
Corporate Secretary
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CHARLES SCHWAB & CO., INC.
Charles R. Schwab and Charmel Huffman certify that:
1. They are the Chairman of the Board and Assistant Secretary,
respectively, of Charles Schwab & Co., Inc., a California corporation (this
"Corporation").
2. Article 7 shall be added to this Corporation's Articles of
Incorporation to read in its entirety as follows:
"7. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent
permissible under California law."
3. Article 8 shall be added to this Corporation's Articles of
Incorporation to read in its entirety as follows:
"8. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California General Corporation Law)
through bylaw provisions, agreements with agents, vote of shareholders
or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
General Corporation Law, subject only to the applicable limits set
forth in Section 204 of the California General Corporation Law with
respect to actions for breach of duty to this corporation and its
shareholders."
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
5. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the Corporation
is 4,050,296. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50%.
<PAGE>
Each of the undersigned declares under penalty of perjury under laws of
the State of California that the matters set forth in this certificate are true
and correct to his and her own knowledge.
Dated: October 26, 1988
/s/ CHARLES R. SCHWAB
---------------------
Charles R. Schwab
Chairman of the Board
/s/ CHARMEL HUFFMAN
---------------------
Charmel Huffman
Assistant Secretary
AMENDED AND RESTATED BYLAWS
OF
CHARLES SCHWAB & CO., INC..
ARTICLE I
Offices
Section 1.1 Principal Executive Office. The principal
executive office of Charles Schwab & Co., Inc. (hereafter called the
"Corporation") for the transaction of business shall be at 101 Montgomery
Street, San Francisco, California. The Board of Directors (hereafter called the
"board") is hereby granted full power and authority to charge said principal
executive office from one location to another.
Section 1.2 Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without the
State of California, as the Board may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
Section 2.1 Place of Meetings. All meetings of shareholders
shall be held at the principal executive office of the Corporation, or at any
other place, within or without the State of California, specified by the Board
or by the written consent of all shareholders entitled to vote at the meeting,
given either before or after the meeting and filed with the Secretary of the
Corporation.
Section 2.2 Annual Meeting. Annual meetings of the
shareholders of the Corporation for the purpose of electing directors and for
the transaction of such other proper business as may come before such meetings
shall be held each year on a date and at a time designated by the Board.
Section 2.3 Special Meetings. Special meetings of the
shareholders, for any purpose or purposes whatsoever, may be called at any time
by the Board, the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the President, or by one or more shareholders entitled to
cast, in the aggregate, not less than 10% of the votes at the meeting.
-1-
<PAGE>
To call a special meeting, the person(s) entitled to call such
meeting (other than the Board) shall submit a request for such meeting in
writing to the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the President, the Vice President, or Secretary of the
Corporation, and such officer forthwith shall cause notice to be given to all
shareholders entitled to vote thereat that a meeting will be held at the time
requested by the person or persons calling the meeting, which shall be not less
than 35 nor more than 60 days after the receipt of such request.
Section 2.4 Notice of Meetings. Written notice of any annual
or special meeting of shareholders shall be given not less than 10 nor more than
60 days before the date of the meeting to each shareholder entitled to vote at
such meeting. Such notice shall state the place, date and hour of the meeting
and (1) in the case of a special meeting, the general nature of the business to
be transacted and no other business may be transacted, or (2) in the case of
the annual meeting, those matters which the Board, at the time of the mailing of
the notice, intends to present for action by the shareholders. Notice of any
meeting at which directors are to be elected shall include the names of the
nominees intended at the time of the notice to be presented by management for
election.
Notice of a shareholders' meeting or any report shall be
given either personally or by mail or other means of written communication,
addressed to the shareholder at the address of such shareholder appearing on
the books of the Corporation or given by the shareholder to the Corporation for
the purpose of notice; or if no such address appears or is given, at the place
where the principal executive office of the corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the principal executive office is located. The notice or report shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by other means of written communication.
If any notice or report addressed to the shareholder at the
address of such shareholder appearing on the books of the Corporation is
returned to the Corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the notice
or report to the shareholder at such address, all future notices or reports
shall be deemed to have been duly given without further mailing if the same
shall be available for the shareholder upon written demand of the shareholder at
the
-2-
<PAGE>
principal executive office of the Corporation for a period of one year from the
date of the giving of the notice or report to all other shareholders.
Section 2.5 Adjourned Meetings and Notice Thereof. When any
shareholders' meeting is adjourned to another time or place, notice of the
adjourned meeting need not be given if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which it might have transacted at the
original meeting. If the adjournment is for more than 45 days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
Section 2.6 Voting. Except as otherwise provided in the
Articles of Incorporation and except for cumulative voting as provided for in
Section 2.7 below, each outstanding share, regardless of class, is entitled to
one vote on each matter submitted to a vote of shareholders. Any holder of
shares entitled to vote on any matter may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote. Such vote may be viva voce
or by ballot; provided, however, that all elections for directors must be by
ballot upon demand made by any shareholder at the meeting and before the voting
begins.
Section 2.7 Cumulative Voting. Every shareholder entitled to
vote at any election of directors may cumulate his or her vote and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which his or her shares are entitled, or
distribute his or her votes on the same principle among as many candidates as
the shareholder thinks fit, provided, that no shareholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of the shareholder's shares) unless such candidate or candidates' names
have been placed in nomination prior to the voting and at least one shareholder
has given notice at the meeting prior to the voting of the shareholder's
intention to cumulate the his or her votes. In any election of directors, the
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
-3-
<PAGE>
Section 2.8 Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders.
The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the Shares required to constitute a quorum.
Section 2.9 Consent of Absentees; Waiver of Notice. The
transactions of any meeting of shareholders, however called and noticed, are as
valid as though had at a meeting duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver
of notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by law to
be included in the notice but not so included, if such objection is expressly
made at the meeting. Neither the business to be transacted at nor the purpose of
any regular or special meeting of shareholders need be specified in any written
waiver of notice, consent to the holding of the meeting or approval of the
minutes thereof, except that any shareholder approval at a meeting, other than
unanimous approval by those entitled to vote, pursuant to Section 310
(transactions between the Corporation and one or more directors), Section 902
(amendment to Articles of Incorporation), Section 1201 (reorganization), Section
1900 (voluntary dissolution), or Section 2007 (plan of distribution upon
dissolution) of the California General Corporation Law shall be valid only if
the general nature of the proposal so approved is stated in the notice of
meeting or in any written waiver of notice.
Section 2.10 Action Without Meeting. Except as otherwise
provided in the Articles of Incorporation, any action which may be taken at any
annual or special meeting of the shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the
-4-
<PAGE>
action so taken, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval pursuant to
Section 310 (transactions between the Corporation and one or more directors),
Section 317 (indemnification of officers, directors, employees or other agents),
Section 1201 (reorganization), or Section 2007 (plan of distribution upon
dissolution) of the California General Corporation Law without a meeting by less
than unanimous written consent shall be given at least 10 days before the
consummation of the action authorized by such approval to those shareholders
entitled to vote who have not consented in writing. Prompt notice also shall be
given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing. Directors may not be elected
by written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.
Section 2.11 Proxies. Every person entitled to vote shares may
authorize another person or persons to act by proxy with respect to such shares.
Every proxy shall continue in full force and effect until revoked by the person
executing it prior to the vote pursuant thereto, provided that no proxy shall be
valid after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy. Revocation of a proxy may be effected by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or by attendance at the meeting and voting in person by the
person executing the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution regardless of the postmarked
dates on the envelopes in which they were mailed. A proxy is not revoked by the
death or incapacity of the maker unless, before the vote is counted, written
notice of such death or incapacity is received by the Corporation.
Section 2.12 Procedures for Conduct of Meeting. The chairman
of the meeting shall establish the procedural rules to govern a meeting of
shareholders and shall have the power to make final and binding decisions on the
procedural questions raised at the meeting. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the meeting
and any adjournment thereof. If inspectors of election are not so appointed, or
if any
-5-
<PAGE>
persons so appointed fail to appear or refuse to act, the chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refusal) at the meeting. The number of inspectors shall be
either one or three. If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one or three inspectors are to be appointed.
ARTICLE III
Directors
Section 3.1 General Powers and Duties. Subject to any
limitations in the Articles of Incorporation, these Bylaws and the provisions of
the California General Corporation Law as to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board. The Board may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed and all corporate powers shall be exercised under the ultimate
direction of the Board.
A director shall perform the duties of a director, including
duties as a member of any committee of the Board upon which the director may
serve, in good faith, in a manner such director believes to be in the best
interests of the Corporation and its shareholders and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances.
Section 3.2 Number of Directors. The authorized number of
directors of the Corporation shall be such number between 1 and 10 as shall be
determined from time to time by a resolution adopted by a majority of the Board
or by the affirmative vote of the holders of not less than 50% of the total
voting power of all outstanding shares of voting stock of the Corporation;
provided, however, that (1) so long as the Corporation has only one shareholder,
the number may be one or two, (2) so long as the Corporation has only two
shareholders, the number may be two and (3) so long as the Corporation has more
than two shareholders, the number shall be not less than three. An amendment to
this Section 3.2 reducing the minimum number of directors to a number less
-6-
<PAGE>
than five cannot be adopted if the votes cast against its adoption at a meeting,
or the shares not consenting in the case of action by written consent, are more
than 16-2/3% of the outstanding shares entitled to vote.
Section 3.3 Election and Term of Office. The directors shall
be elected at each annual meeting of shareholders to hold office until the next
annual meeting; but if any such annual meeting is not held, or the directors not
elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director, including a director elected
to fill a vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
Section 3.4 Vacancies. A vacancy or vacancies in the Board of
Directors shall be deemed to exist in the case of the death, resignation, or
removal of any director, or if a vacancy is declared by the Board as provided in
Section 3.5 below, or if the authorized number of directors is increased. No
reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office. Except for
a vacancy created by the removal of a director, vacancies on the Board may be
filled by a majority of the directors then in office, whether or not less than a
quorum, or by a sole remaining director. Vacancies created by the removal of a
director may be filled only by approval of the shareholders. The shareholders
may elect a director at any time to fill any vacancy not filled by the
directors. Any such election by written consent (other than to fill a vacancy
created by removal) shall require the consent of a majority of the outstanding
shares entitled to vote.
Section 3.5 Removal. The Board may declare vacant the office
of a director who has been declared of unsound mind by order of court or who has
been convicted of a felony. The entire Board or any individual director may be
removed from office without cause if such removal is approved by the outstanding
shares; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against removal, or not
consenting in writing to such removal, would be sufficient to elect such
director if voted cumulatively at an election at which the same total number of
votes cast were cast (or, if such removal is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of the directors, most recent election were then being
elected.
Section 3.6 Resignations. Any director may resign
effective upon giving written notice to the Chairman of the
-7-
<PAGE>
Board, the Chief Executive officer, the Chief Operating Officer, the President,
the Secretary, or the Board of the Corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
Section 3.7 Place of Meeting. Meetings of the Board may be
held at any place within or without the State of California which has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, designated in the Bylaws or by resolution of the Board. In the
absence of such designations, meetings shall be held at the principal executive
office.
Section 3.8 Organizational Meeting. Immediately following each
annual meeting of shareholders, the Board of Directors shall hold a regular
meeting for the purpose of organization, appointing officers, and the
transaction of other business. Notice of such meeting is hereby dispensed with.
Section 3.9 Other Meetings. Meetings of the Board for any
purpose may be called by the Chairman of the Board, the Chief Executive Officer,
the Chief Operating officer, the President or any Executive Vice President or
the Secretary or any two directors. Regular meetings of the Board may be held
without notice if the time and place of such meetings are fixed by the Bylaws or
the Board. Special meetings of the Board may be held upon at least 48 hours'
notice delivered personally or by telephone or telegraph or at least four days'
notice sent to each director by first-class mail, postage prepaid. A notice, or
waiver of notice, need not specify the purpose of the meeting. Notice of any
meeting need not be given to any director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting and does not object to
the lack of notice either prior to or at the commencement of that meeting. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Section 3.10 Participating by Telephone. Members of the Board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members of the Board participating in
such meeting can hear one another. Participation in a meeting pursuant to this
section constitutes presence in person at such meeting.
-8-
<PAGE>
Section 3.11 Quorum. A quorum of the Board of Directors for
the transaction of business shall be a majority of the authorized number of
directors or two, whichever is larger, unless the authorized number of directors
is one, in which case one director constitutes a quorum. Every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present is the act of the Board, unless a greater number be
required by these Bylaws, by the California General Corporation Law or by the
Articles of Incorporation. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the required quorum for
such meeting. A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than 24 hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of the adjournment.
Section 3.12 Action Without a Meeting. Any action required or
permitted to be taken by the Board may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 3.13 Fees and compensation. Directors shall not
receive any stated salary for their services as directors, but, by resolution of
the Board, a fixed fee, with or without expenses of attendance, may be allowed
the directors for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation therefor.
Section 3.14 Committees. The Board, by resolution adopted by a
majority of the authorized number of directors, may designate one or more
committees each consisting of two or more directors, to serve at the pleasure of
the Board and may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
Any such committee, to the extent provided in the resolution of the Board, shall
have all the authority of the Board in the management of the business and the
affairs of the Corporation, except with respect to: (a) the approval of any
action for which shareholders'
-9-
<PAGE>
approval or approval of the outstanding shares is required by law; (b) the
filling of vacancies on the Board or in any committee; (c) the fixing of
compensation of the directors for serving on the Board or on any committee; (d)
the amendment or repeal of bylaws or the adoption of new bylaws; (e) the
amendment or repeal of any resolution of the Board which by its express terms
may not be so amended or repealed; (f) a distribution to the shareholders of the
Corporation, except at a rate, in a periodic amount, or within a price range set
forth in the Articles of Incorporation or determined by the Board; and (g) the
appointment of other committees of the Board or the members thereof.
Unless the Board shall otherwise provide, regular meetings of
any committee appointed pursuant to this Section 3.14 shall be held at such
times and places as are determined by the Board or by any such committee and
when notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter; special meetings of
any such committee may be held at the principal executive office of the
Corporation, or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof, and
may be called by the Chairman of the Board, the Chief Executive Officer, the
Chief Operating Officer, the President and any Vice President who is a member of
such committee, or by any two members thereof, upon written notice to the
members of such committee of the time and place of such special meeting given in
the manner provided for the giving of written notice to members of the Board of
the time and place of special meetings of the Board; and a majority of the
authorized number of members of any such committee shall constitute a quorum
for the transaction of business.
ARTICLE IV
Officers
Section 4.1 Executive Officers. The executive officers of the
Corporation shall be a Chairman of the Board, a Chief Executive Officer, a Chief
Operating Officer, a President, a Secretary, a Chief Financial Officer, and such
other executive officers (including one or more Executive or Senior Vice
Presidents) as may be appointed by the Board in its discretion, with such titles
and duties as may be determined by the Board from time to time. Any number of
such offices may be held by the same person.
-l0-
<PAGE>
Section 4.2 Election and Term. The officers of the Corporation
shall be chosen annually by the Board at its organizational meeting, except that
officers appointed by a committee of the Board pursuant to Section 4.3 shall be
chosen annually by such committee. All officers of the Corporation shall hold
office from the date appointed to the date of the next succeeding meeting for
the appointment of officers, and until their successors are elected and
qualified; provided that all officers, whether appointed pursuant to Section 4.1
or 4.3, may be removed at any time at the pleasure of the Board.
Section 4.3 Subordinate officers. The Corporation shall have
such other officers as are appointed from time to time by the Board, or by a
committee of the Board designated by a resolution adopted by a majority of the
Board, with such titles and duties as the Board or such committee may from time
to time specify.
Section 4.4 Salaries. The salaries of all executive officers
of the Corporation shall be fixed by the Board or by such committee of the Board
as may be designated from time to time by a resolution adopted by a majority of
the Board.
Section 4.5 Removal and Resignation. Any officer may be
removed at any time, with or without cause, by a majority of the directors at
the time in office, at any regular or special meeting of the Board. Any officer
may resign at any time by giving written notice of such resignation to the
Corporation. The giving of such resignation shall not operate to waive any
rights the Corporation may have under any employment agreements or
understandings with such officers. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 4.6 Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in the Bylaws for regular appointment to such office.
Section 4.7 Chairman of the Board. If there is a Chairman of
the Board, then he shall, when present, preside at all meetings of the Board and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board or these Bylaws. If there is no Chief Executive
Officer, then the Chairman of the Board shall perform all duties of the Chief
Executive Officer.
-11-
<PAGE>
Section 4.8 Chief Executive officer. The Chief Executive
Officer shall be the general manager and chief executive officer of the
Corporation; shall have general supervision, direction and control of the
business and activities of the Corporation and its officers; and shall have such
other powers and duties as the Board or these Bylaws may from time to time
assign to him.
Section 4.9 Chief Operating Officer. The Chief Operating
Officer shall assist the Chief Executive Officer in the active management,
supervision, direction and control of the Corporation's business and affairs; in
general, shall have the powers and perform the duties usually vested in the
office of the chief operating officer of a corporation; and shall have such
other powers and duties as the Board, these Bylaws or the Chief Executive
Officer may from time to time assign to him.
Section 4.10 President. The President of the Corporation shall
have the primary responsibility for the effective operation of the marketing and
branch office functions of the Corporation and shall have such other powers and
duties as the Board, these Bylaws or the Chief Executive Officer may from time
to time assign to him.
Section 4.11 Vice President. In the absence or disability of
the Chief Executive Officer, the Vice Presidents, if any, in order of their rank
as fixed by the Board, or if not ranked, the Vice President designated by the
Board, shall perform all the duties of the Chief Executive Officer, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the Chief Executive Officer. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board or these Bylaws.
Section 4.12 Secretary. The secretary shall record, or cause
to be recorded, actions taken at meetings of shareholders and directors and
committees in a book of written minutes to be kept at the principal executive
office and such other places as the Board may order, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' and committee meetings,
the number of shares present or represented at shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the
-12-
<PAGE>
Corporation's transfer agent, a record of its shareholders, giving the names and
addresses of shareholders and the number and class of shares held by each, the
number and date of cancellation of every certificate surrendered for
cancellation. The aforementioned information be maintained either in written
form or in any other form capable of being converted into written form,
including, without limitation, punch cards, magnetic tape, or other information
storage device related to electronic data processing equipment, provided that
such card, tape, or other equipment is capable of reproducing the information in
clearly legible form.
Unless another officer is designated by the Board or these
Bylaws, the Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board required by these Bylaws or the
California General Corporation Law to be given, and shall keep the Seal of the
Corporation in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the Board.
If there is no Vice President, then in the absence or
disability of the Chief Executive Officer, the Secretary shall perform all the
duties of the Chief Executive Officer and when so acting shall have all the
powers of, and be subject to all the restrictions on, the Chief Executive
Officer.
Section 4.13 Chief Financial Officer. The Chief Financial
Officer shall keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account of the properties and business
transactions of the Corporation. The Chief Financial Officer shall deposit all
moneys and other valuables in the name and to the credit of the Corporation with
such depositories as may be designated by the Board. He shall disburse the funds
of the Corporation as may be ordered by the Board, shall render to the Chairman
of the Board, the Chief Executive Officer, the Chief Operating Officer, the
President and the Board, whenever any of them request it, an account of all
financial transactions of the Corporation and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board or these Bylaws.
-13-
<PAGE>
ARTICLE V
Indemnification
Section 5.1 Indemnification. The Corporation shall to the
fullest extent permitted by the California General Corporation Law indemnify
each of its agents against expenses, judgments, fines, settlements and other
amounts reasonably incurred in connection with any proceeding to which that
agent is, or is threatened to be made, a party by reason of being or having been
such agent, if such person acted in good faith and in a manner such agent
reasonably believed to be in the best interests of the Corporation. The
Corporation may advance expenses incurred by its agent in defending any
proceeding prior to final disposition of such proceeding provided that the
Corporation receives an undertaking by or on behalf of its agent to repay all
amounts advanced if it is ultimately determined that such agent was not entitled
to indemnification. The rights conferred on any person by this Section 5.1 shall
not be exclusive of any other right which such person may have or hereafter
acquire under any statute, provision of the Corporation's articles of
incorporation, agreement, vote of shareholders or disinterested directors, or
otherwise. To the extent that any provision of the Corporation's articles of
incorporation, agreement, or vote of the shareholders or disinterested directors
is inconsistent with these Bylaws, the terms of such provision, agreement or
vote shall take precedence.
ARTICLE VI
Shares of Stock
Section 6.1 Record Date and Closing Stock Books. The Board may
fix, in advance, a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting of shareholders or entitled to
receive any dividend or distribution, or any allotment of rights or entitled to
exercise any rights in respect of any other lawful action. The record date so
fixed shall be not more than 60 days nor less than 10 days prior to the date of
the meeting nor more than 60 days prior to the event for the purpose of which it
is fixed. When a record date is so fixed, only shareholders who are such of
record on that date are entitled to notice of and to vote at the meeting or to
receive the dividend, distribution, or allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date. If no record date is fixed, the
record date for determining shareholders entitled to notice
-14-
<PAGE>
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given, or if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held. The record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting, when
no prior action by the Board is necessary, should be the day on which the first
written consent is given. The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto, or the sixtieth day prior to the date of
such action, whichever is later.
Section 6.2 Share Certificates. Every holder of shares in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Chief Financial officer or the Secretary or any Assistant Secretary,
certifying the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
The foregoing notwithstanding, in the event that the
Corporation becomes an issuer of securities registered under the Securities
Exchange Act of 1934, the Corporation may adopt a system of issuance,
recordation and transfer of its shares by electronic or other means not
involving any issuance of certificates, including provisions for notice to
purchasers in substitution of the statements required to be placed upon the
certificates pursuant to Sections 417 and 418 of the California General
Corporation Law, which system has been approved by the Commissioner of
Corporations or the Securities and Exchange Commission or which is authorized by
any statute of the United States.
ARTICLE VII
Miscellaneous
Section 7.1 Execution of Corporate Instruments. The Board may,
in its discretion, determine the method and designate the signatory officer or
officers or other person or persons authorized to enter into any contract or
execute
-15-
<PAGE>
any corporate instrument or document, or to sign the corporate name without
limitation, except where otherwise provided by law, and such authority may be
general or confined to specific instances; but unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or in any amount.
Section 7.2 Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board.
Section 7.3 Representation of Shares of Other Corporations.
The Chairman of the Board, the Chief Executive Officer, the Chief Operating
Officer, the President or any Vice President and the Secretary or Assistant
Secretary of this Corporation are authorized to vote, represent and exercise on
behalf of this Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this Corporation. The
authority herein granted to those officers to vote or represent on behalf of
this Corporation any and all shares held by this Corporation in any other
corporation or corporations may be exercised either by such officers in person
or by any person authorized so to do by proxy or power of attorney duly executed
by those officers.
Section 7.4 Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board.
Section 7.5 Amendments. The Bylaws of the Corporation shall be
subject to amendment or repeal and new Bylaws may be adopted by the approval of
the outstanding shares. A bylaw specifying or changing a fixed number of
directors or the maximum or minimum number of changing from a fixed to a
variable board or vice versa may only be adopted by approval of the outstanding
shares; provided, however, that a bylaw reducing the number or the minimum
number of directors to a number less than five cannot be adopted if the votes
cast against its adoption at a meeting or the shares not consenting in the case
of action by written consent are equal to more than 16-2/3% of the outstanding
shares entitled to vote. Subject to the right of the shareholders to adopt,
amend or repeal the Bylaws, the Bylaws (other than a Bylaw or an amendment
thereof changing the authorized number of directors) may be adopted, amended,
or repealed by the affirmative vote of a majority of the directors. As used in
this Section
-16-
<PAGE>
"approval of the outstanding shares make this a double quotation mark shall mean
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote. Such approval shall include the affirmative vote of a majority
of the outstanding shares of each class or series entitled, by any provisions of
the articles of incorporation or bylaw, to vote as a class or series on the
subject matter being voted upon and shall also include the affirmative vote of
such greater proportion (including all) of the outstanding shares of any class
or series if such greater proportion is required by the articles of
incorporation or bylaw.
-17-
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
November 4, 1997
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104
Reich & Tang Distributors L.P.
600 Fifth Avenue
New York, New York 10020
Re: Schwab Trusts, Schwab Ten Trust, 1997 Series A
Dear Sirs:
We have acted as special counsel for Charles Schwab & Co.,
Inc. and Reich & Tang Distributors L.P., as Depositors, Sponsors and Principal
Underwriters (collectively, the "Depositors") of Schwab Trusts, Schwab Ten
Trust, 1997 Series A (the "Trust") in connection with the issuance by the Trust
of units of fractional undivided interest (the "Units") in the Trust. Pursuant
to the Trust Agreements referred to below, the Depositors have transferred to
the Trust certain securities and contracts to purchase certain securities
together with an irrevocable letter of credit to be held by the Trustee upon the
terms and conditions set forth in the Trust Agreements. (All securities to be
acquired by the Trust are collectively referred to as the "Securities").
In connection with our representation, we have examined copies
of the following documents relating to the creation of the Trust and the
issuance and sale of the Units: (a) the Trust Indenture and Agreement and
related Reference Trust Agreement, each of even date herewith, relating to the
Trust (collectively the "Trust Agreements") among the Depositors and The Chase
Manhattan Bank, as Trustee; (b) the Notification of Registration on Form N-8A
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors L.P.
November 4, 1997
and the Registration Statement on Form N-8B-2, as amended, relating to the
Trust, as filed with the Securities and Exchange Commission (the "Commission")
pursuant to the Investment Company Act of 1940 (the "1940 Act"); (c) the
Registration Statement on Form S-6 (Registration No. 333-31133) filed with the
Commission pursuant to the Securities Act of 1933 (the "1933 Act"), and all
Amendments thereto (said Registration Statement, as amended by said Amendment(s)
being herein called the "Registration Statement"); (d) the proposed form of
final Prospectus (the "Prospectus") relating to the Units, which is expected to
be filed with the Commission this day; (e) certified resolutions of the Board of
Directors of the general partner of Reich & Tang, Inc. and of the Board of
Directors of Charles Schwab & Co., Inc. authorizing the execution and delivery
by the Depositors of the Trust Agreements and the consummation of the
transactions contemplated thereby; (f) the Certificate of Formation and
Agreement Among Limited Partners of Reich & Tang, Inc.; (g) the Restated
Articles of Incorporation, the Certificate of Amendment of Articles of
Incorporation and the Amended and Restated Bylaws of Charles Schwab & Co., Inc.;
and (h) a certificate of an authorized officer of Reich & Tang, Inc. with
respect to certain factual matters contained therein.
We have examined the Order of Exemption from certain
provisions of Sections 11(a) and 11(c) of the 1940 Act, filed on behalf of Reich
& Tang Distributors L.P.; Equity Securities Trust (Series 1, Signature Series
and Subsequent Series), Mortgage Securities Trust (CMO Series 1 and Subsequent
Series), Municipal Securities Trust, Series 1 (and Subsequent Series) (including
Insured Municipal Securities Trust, Series 1 (and Subsequent Series and 5th
Discount Series and Subsequent Series)); New York Municipal Trust (Series 1 and
Subsequent Series); and A Corporate Trust (Series 1 and Subsequent Series)
granted on October 9, 1996. In addition, we have examined the Order of Exemption
from certain provisions of Sections 2(a)(32), 2(a)(35), 22(d) and 26(a)(2) of
the 1940 Act and Rule 22C-1 thereunder, filed on behalf of Reich & Tang
Distributors L.P.; Equity Securities Trust; Mortgage Securities Trust; Municipal
Securities Trust (including Insured Municipal Securities Trust); New York
Municipal Trust; A Corporate Trust; Schwab Trusts; and all presently outstanding
and subsequently issued series of these trusts and all subsequently issued
series of unit investment trusts sponsored by Reich & Tang Distributors L.P.
granted on October 29, 1997.
We have not reviewed the financial statements, compilation of
the Securities held by the Trust, or other financial or statistical data
contained in the Registration Statement and the Prospectus, as to which you have
been furnished with the reports of the accountants appearing in the Registration
Statement and the Prospectus.
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors L.P.
November 4, 1997
In addition, we have assumed the genuineness of all
agreements, instruments and documents submitted to us as originals and the
conformity to originals of all copies thereof submitted to us. We have also
assumed the genuineness of all signatures and the legal capacity of all persons
executing agreements, instruments and documents examined or relied upon by us.
Statements in this opinion as to the validity, binding effect
and enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations under
equitable principles governing the availability of equitable remedies.
We are not admitted to the practice of law in any jurisdiction
but the State of New York and we do not hold ourselves out as experts in or
express any opinion as to the laws of other states or jurisdictions except as to
matters of Federal and Delaware corporate law.
Based exclusively on the foregoing, we are of the opinion that
under existing law:
(1) The Trust Agreements have been duly authorized and entered
into by an authorized officer of each of the Depositors and is a valid and
binding obligation of the Depositors in accordance with their respective terms.
(2) The registration of the Units on the registration books of
the Trust by the Trustee has been duly authorized by the Depositors in
accordance with the provisions of the Trust Agreements and issued for the
consideration contemplated therein, will constitute fractional undivided
interests in the Trust, will be entitled to the benefits of the Trust
Agreements, and will conform in all material respects to the description thereof
contained in the Prospectus. Upon payment of the consideration for the Units as
provided in the Trust Agreements and the Registration Statement, the Units will
be fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus under the headings "Tax Status" and "Legal
Opinions". We authorize you to deliver copies of this opinion to the Trustee and
the Trustee may rely on this opinion as fully and to the same extent as if it
had been addressed to it.
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors L.P.
November 4, 1997
This opinion is intended solely for the benefit of the
addressees and the Trustee in connection with the issuance of the Units of the
Trust and may not be relied upon in any other manner or by any other person
without our express written consent.
Very truly yours,
Battle Fowler LLP
648314.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial
information extracted from the statement of
financial condition as of opening of business on
date of deposit and is qualified in its entirety
by reference to such financial statement.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<CURRENCY> US DOLLARS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> NOV-03-1997
<PERIOD-END> NOV-03-1997
<PERIOD-TYPE> OTHER
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 149,775
<INVESTMENTS-AT-VALUE> 149,775
<RECEIVABLES> 0
<ASSETS-OTHER> 51,500
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,275
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,500
<TOTAL-LIABILITIES> 51,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 149,775
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 149,775
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 149,775
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
