<PAGE>
Filed pursuant to Rule 497(b)
Registration File No. 333-38255
PAINEWEBBER EQUITY TRUST
REIT Series 1
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The investment objective of this Trust is to provide for an attractive
total return through a combination of current income and the potential for
increasing dividends and capital appreciation by investing for approximately
three years in a diversified portfolio of publicly traded real estate
investment trusts ("REITs"). The value of the Units will fluctuate with the
value of the portfolio of underlying REITs and there is no assurance that
dividends will be paid or that the REITs, and therefore the Units, will
appreciate in value.
On the Initial Date of Deposit, no sales charge will be assessed.
The minimum purchase is 100 Units or 20 Units for IRAs and certain other
retirement plans. Only whole Units may be purchased.
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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.
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SPONSOR:
PAINEWEBBER INCORPORATED
Read and retain this prospectus for future reference.
PROSPECTUS DATED MAY 27, 1998
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ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF MAY 26, 1998(1)
<TABLE>
<CAPTION>
<S> <C>
Sponsor: PaineWebber Incorporated
Trustee: The Chase Manhattan Bank
</TABLE>
<TABLE>
Initial Date of Deposit: May 27, 1998
<S> <C>
Aggregate Value of Securities in Trust: ................. $150,000
Number of Units(2): ..................................... 10,000
Fractional Undivided Interest in the Trust Represented
by Each Unit: ......................................... 1/10,000th
Calculation of Public Offering Price Per Unit2,3
Aggregate Value of Underlying Securities in Trust ...... $150,000
Divided by 10,000 Units(2) ............................. $15.00
Plus Sales Charge(4) .................................. $.00
Public Offering Price per Unit ......................... $15.00
Redemption Value: ........................................... $15.00
Evaluation Time:............................................. 4:00 P.M. New York time.
Income Account Distribution Dates(5): ....................... July 25, 1998 and monthly
thereafter and on the Mandatory
Termination Date.
Capital Account Distribution Dates(5):....................... December 25, 1998 and annually
thereafter and on the Mandatory
Termination Date. No distributions
of less than $.075 per Unit need
be made from the Capital Account
on any Distribution Date.
Record Dates:................................................ July 10, 1998 and monthly
thereafter.
Mandatory Termination Date:.................................. June 30, 2001
Discretionary Liquidation Amount:............................ 50% of the value of Securities
upon completion of the deposit of
Securities.
Total Estimated Annual Expenses of the Trust6: .............. $.0172 per Unit.
</TABLE>
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(1) The date prior to the Initial Date of Deposit.
(2) As of the close of business on the Initial Date of Deposit, the number
of Units may be adjusted so that the Public Offering Price per Unit will
equal approximately $15.00, based on the 4:00 p.m. Eastern time
valuation of the Securities in the Portfolio on such date. Thereafter,
to the extent of any such adjustment in the number of Units, the
fractional undivided interest per Unit will increase or decrease
accordingly, from the amounts indicated above.
(3) The Public Offering Price per Unit will be based on the value of the
Securities established by the Trustee and will vary on any date
subsequent to the Initial Date of Deposit from the Public Offering Price
per Unit shown above. (See "Valuation"). Any investor purchasing Units
after the Initial Date of Deposit will also pay a pro-rata share of any
accumulated dividends in the Income Account. Costs incurred in
connection with the acquisition of additional Securities following the
Initial Date of Deposit will be at the expense of the Trust. (See
"Essential Information Regarding the Trust--Additional Deposits," "Risk
Factors and Special Considerations" and "Valuation").
(4) On the Initial Date of Deposit, no sales charge will be assessed on the
purchase of Units created on such date. Thereafter, for all Units
trading in the secondary market, including Units created after the
Initial Date of Deposit, a maximum sales charge of 3.50% of the Public
Offering Price (3.63% of the net amount invested) will be imposed,
subject to reduction commencing July 1, 1999. Additionally, the maximum
sales charge on Units purchased after the Initial Date of Deposit will
be subject to reductions for certain quantity purchases. (See "Public
Offering of Units--Sales Charge and Volume Discount.")
(5) See "Distributions".
(6) See "Expenses of the Trust". Estimated dividends from the Securities,
based upon last dividends actually paid, are expected by the Sponsor to
be sufficient to pay estimated expenses of the Trust. If such dividends
paid are insufficient to pay expenses, the Trustee is authorized to sell
Securities in an amount sufficient to pay such expenses. (See
"Administration of the Trust" and "Expenses of the Trust".)
2
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ESSENTIAL INFORMATION REGARDING THE TRUST (CONTINUED)
THE TRUST. The objective of the PaineWebber Equity Trust, REIT Series 1
(the "Trust") is to provide for an attractive total return through a
combination of current income and the potential for increasing dividends and
capital appreciation by investing for approximately three years in a
diversified portfolio of publicly traded real estate investment trusts
("REITs").
The Trust portfolio contains common stocks issued by twenty (20) equity
REITs, herein referred to as the "Securities", selected by PaineWebber's Real
Estate and Lodging Research Group ("PaineWebber's Research Group"). All of
the participating equity REITs are covered by PaineWebber's Research Group,
and their common stocks are currently rated "Buy" or "Attractive." All of the
issuers of the Securities have securities that are listed on a national
securities exchange or are traded in the over-the-counter market.
A REIT is an entity that combines the capital of many investors to acquire
real estate. REITs provide investors with the benefits of a diversified real
estate portfolio managed by real estate professionals. REITs are creations of
the federal income tax law and REITs must conform to certain requirements of
the Internal Revenue Code of 1986, as amended (the "Code"). In general, the
Code requires a REIT to hold at least 75% of its assets in real estate assets
and distribute at least 95% of its taxable income on an annual basis. REITs
invest in a wide variety of commercial real estate, including apartments,
healthcare facilities, hotels, industrial buildings, malls, manufactured
housing communities, office buildings, recreational facilities, restaurant
properties, shopping centers, self-storage centers and other.
Achievement of the Trust's objectives is dependent upon a number of
factors, including the financial condition of the issuers of the Securities,
as well as any appreciation of the Securities and the state of the real
estate market. Further, investors in the Trust may not realize as high a
total return as theoretical performance of the Securities held in the Trust
due to a variety of factors, including without limitation, sales charges and
expenses of the Trust, brokerage costs, unequal weightings of Securities and
any delays experienced in purchasing Securities with cash deposits.
SUMMARY OF RISK FACTORS. Investment in the Trust should be made with an
understanding that the value of the underlying Securities, and therefore the
value of the Units, will fluctuate, depending on the full range of economic
and market influences which may affect the market value of the Securities,
including the profitability and financial condition of issuers, conditions in
the real estate industry, market conditions and values of common stocks
generally, and other factors. The Trust is not appropriate for investors
requiring conservation of capital and may not be suitable for foreign
investors. (See "Risk Factors and Special Considerations").
TERMINATION. Unless advised to the contrary by the Sponsor, the Trustee
will begin to sell the Securities held in the Trust twenty days prior to the
Mandatory Termination Date. Moneys held upon such sale or maturity of
Securities will be held in non-interest bearing accounts created by the
Indenture until distributed and will be of benefit to the Trustee. The Trust
will terminate approximately three (3) years after the Initial Date of
Deposit regardless of market conditions at the time. (See "Termination of the
Trust" and "Federal Income Taxes".)
PUBLIC OFFERING PRICE. The Public Offering Price per Unit on the Initial
Date of Deposit is equal to the aggregate underlying value of the Securities
in the Trust (generally determined by the closing sale prices of listed
Securities) plus or minus a pro rata share of cash, if any, in the Capital
and Income Accounts of the Trust, with no sales charge added. For Units
created subsequent to the Initial Date of Deposit, the Public Offering Price
per Unit of the Trust will be based upon the aggregate underlying value of
the Securities in the Trust (generally determined by the closing sale prices
of listed
3
<PAGE>
Securities) plus or minus a pro rata share of cash, if any, in the Capital and
Income Accounts of the Trust plus a maximum sales charge of 3.50% (3.63% of the
net amount invested), divided by the number of Units of the Trust outstanding.
A pro rata share of accumulated dividends, if any, in the Income Account is
included in the Public Offering Price. The sales charge is reduced on a
graduated scale for volume purchasers and is reduced for certain other
purchasers. Units are offered at the Public Offering Price computed as of the
Evaluation Time for all sales subsequent to the previous evaluation. The Public
Offering Price on any date subsequent to the Initial Date of Deposit, will vary
from the Public Offering Price set forth on page 2. (See "Public Offering of
Units--Public Offering Price".) There is no "par value" for Units.
PORTFOLIO ACQUISITION. The Securities deposited in the Trust (as reflected
in the Schedule of Investments) were acquired by the Sponsor no later than
the business day prior to the Initial Date of Deposit in open market
purchases on The New York Stock Exchange. Any difference between the
aggregate prices the Sponsor paid to acquire the Securities and the aggregate
prices at which Securities were initially deposited in the Trust is noted in
footnote 3 to the Schedule of Investments.
The Securities to be deposited into the Trust on the Initial Date of
Deposit are expected to be acquired by the Sponsor in open market purchases
or to be purchased from the Sponsor in transactions in which the Sponsor will
act either as sole underwriter to the issuers of the Securities in public
distributions or as placement agent in private placements. Commencing on the
Initial Date of Deposit, the Sponsor may undertake to acquire certain of the
Securities in open market purchases. This purchasing activity may have the
unintended result of increasing the closing market price for such Securities
at the close of business on the Initial Date of Deposit. The underwritten and
private placement transactions will be effected by the Sponsor at prices
below the current market value of such Securities due to various factors,
including size of the purchase, expectation of holding period and cost of
issuance. All of the Securities will be deposited in the Trust based upon
their market value as of the Initial Date of Deposit. As a result of the
Sponsor's ability to purchase certain Securities below market value, the
Sponsor will offer Units of the Trust with no sales charge on the Initial
Date of Deposit. By virtue of buying the underwritten and private placement
Securities at below market prices, the Sponsor will realize a profit on the
deposit of such Securities to the Trust in an amount of up to 5% of the
market value of these Securities, less concessions to dealers and others
(expected to be up to 1% of the market value of Securities). Notwithstanding
the preceding, the Sponsor may create additional Units by depositing
Securities acquired on the applicable national stock exchanges or in the
over-the-counter market. The Sponsor may also realize a profit if the price
paid for Securities acquired in open market transactions is less than the
price at which such Securities are deposited into the Trust.
DISTRIBUTIONS. The Trustee will make distributions of dividends and
capital, if any, on the Distribution Dates. (See "Distributions" and
"Administration of the Trust".) Unitholders may elect to have their
distributions from the Income and Capital Accounts automatically reinvested
into additional Units of the Trust at no sales charge (see "Reinvestment
Plan"). Whether a distribution is reinvested or received in cash, the
distribution will be taxable to the Unitholder, except under certain
circumstances (see "Objective and Securities Selection" and "Federal Income
Taxes"). Unitholders who reinvest their distributions will receive additional
Units and will therefore own a greater percentage of the Trust than
Unitholders who receive cash distributions (see "Reinvestment Plan"). Upon
termination of the Trust, the Trustee will distribute to each Unitholder of
record on such date his pro rata share of the Trust's assets, less expenses.
The sale of Securities in the Trust in the period prior to termination and
upon termination may result in a lower amount than might otherwise be
realized if such sale were not required at such time due to impending or
actual termination of the Trust. For this reason, among others, the amount
realized by a Unitholder upon termination may be less than the amount paid by
such Unitholder.
MARKET FOR UNITS. The Sponsor, though not obligated to do so, presently
intends to maintain a secondary market for Units. The public offering price
in the secondary market will be based upon the
4
<PAGE>
value of the Securities next determined after receipt of a purchase order,
plus or minus cash, if any, in the Capital and Income Accounts of the Trust,
plus the applicable sales charge. (See "Public Offering of Units--Public
Offering Price" and "Valuation".) If a secondary market is not maintained, a
Unitholder may dispose of his Units only through redemption. With respect to
redemption requests in excess of $500,000, the Sponsor may determine, in its
sole discretion, to direct the Trustee to redeem Units "in kind" by
distributing Securities to the redeeming Unitholder. (See "Redemption".)
THE TRUST
The Trust is the first of a series of similar but separate unit investment
trusts created under New York law by the Sponsor pursuant to a Trust
Indenture and Agreement* (the "Indenture") effective as of the Initial Date
of Deposit, between PaineWebber Incorporated, as Sponsor, and The Chase
Manhattan Bank as Trustee (the "Trustee"). The investment objective of this
Trust is to provide for an attractive total return through a combination of
current income and the potential for increasing dividends and capital
appreciation by investing for approximately three years in a diversified
portfolio of publicly traded real estate investment trusts ("REITs").
The Portfolio may be an appropriate medium for investors who desire to
participate in a portfolio of REITs with greater variety than they might be
able to acquire individually. While REIT prices have had a low correlation
with price movements in common stocks generally (and therefore can help to
diversify an investment portfolio), because of substantial past price
fluctuations in REITs, an investment in the Portfolio should not be
considered a complete investment program.
The Securities deposited in the Trust on the Initial Date of Deposit
consist entirely of interests in equity REITs. The Sponsor believes that
these Securities may reflect the risks associated with the real estate market
generally but that the diversification among different issuers should
minimize the exposure to any single issuer. However, such diversification of
assets will not eliminate the risk of loss always inherent in the ownership
of securities and investors should carefully review the Portfolio and the
objectives of the Trust and consider their ability to assume the risks
involved before investing in the Trust. (See "Risk Factors and Special
Considerations" below).
The Securities listed in the Schedule of Investments were acquired by the
Sponsor no later than the business day prior to the Initial Date of Deposit
in open market purchases and are represented entirely by contracts to
purchase such Securities. Additional Securities to be deposited subsequently
into the Trust on the Initial Date of Deposit will be acquired by the Sponsor
through open market purchases or are expected to be issued pursuant to
underwriting or placement contracts to be entered into between the issuers
of the Securities and the Sponsor acting as sole underwriter or placement
agent.
On the Initial Date of Deposit, the Sponsor deposited with the Trustee
confirmations of such contracts for the purchase of Securities together with
an irrevocable letter or letters of credit of a commercial bank or banks in
an amount at least equal to the purchase price. The value of the Securities
was determined on the basis described under "Valuation". In exchange for the
deposit of the contracts to purchase Securities, the Trustee delivered to the
Sponsor a receipt for Units representing the entire ownership of the Trust.
In the event of a failure by an issuer to deliver any or all of the
Securities under any purchase contract, or if an issuer does not enter into a
contract with the Sponsor for the purchase of Securities or
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*Reference is hereby made to the Trust Indenture and Agreement and any
statements contained in this Prospectus are qualified in their entirety by
the provisions of the Trust Indenture and Agreement.
5
<PAGE>
fails to issue Securities under a purchase contract, the Sponsor may seek to
acquire such Securities by means of open market purchases or, instead, may
acquire proportionate amounts of the other Securities in the Trust.
With the deposit on the Initial Date of Deposit, the Sponsor established a
proportionate relationship between the Securities in the Trust (determined by
reference to the number of shares of each issue of Securities). The Sponsor
may, from time to time, cause the deposit of additional Securities
("Additional Securities") in the Trust when additional Units are to be
offered to the public or pursuant to the Reinvestment Plan. During the 90-day
period following the Initial Date of Deposit, deposits of Additional
Securities or cash in connection with the issuance and sale of additional
Units will maintain, to the extent practicable, the original proportionate
relationship among the number of shares of each Security. The original
proportionate relationship is subject to adjustment to reflect the occurrence
of a stock split or a similar event which affects the capital structure of
the issuer of a Security but which does not affect the Trust's percentage
ownership of the common stock equity of such issuer at the time of such
event, to reflect a merger or reorganization, to reflect the acquisition of
Securities or to reflect a sale or other disposition of a Security. 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, brokerage
commissions or unavailability of Securities (see "Administration of the
Trust--Portfolio Supervision"). Units may be continuously offered to the
public by means of this Prospectus (see "Public Offering of Units--Public
Offering Price") resulting in a potential increase in the number of Units
outstanding. Deposits of Additional Securities subsequent to the 90-day
period following the Initial Date of Deposit must replicate exactly the
proportionate relationship among the number of shares of each of the
Securities comprising the Portfolio at the end of the initial 90-day period.
Stock dividends issued in lieu of cash dividends, if any, received by the
Trust will be sold by the Trustee and the proceeds therefrom shall be added
to the Income Account. (See "Administration of the Trust" and "Reinvestment
Plan").
On the Initial Date of Deposit each Unit represented the fractional
undivided interest in the Securities and net income of the Trust set forth
under "Essential Information Regarding the Trust". However, if additional
Units are issued by the Trust (through the deposit of Additional Securities
for purposes of the sale of additional Units or pursuant to the Reinvestment
Plan), the aggregate value of Securities in the Trust will be increased and
the fractional undivided interest represented by each Unit in the balance
will be decreased. If any Units are redeemed, the aggregate value of
Securities in the Trust will be reduced, and the fractional undivided
interest represented by each remaining Unit in the balance will be increased.
Units will remain outstanding until redeemed upon tender to the Trustee by
any Unitholder (which may include the Sponsor) or until the termination of
the Trust. (See "Termination of the Trust".)
OBJECTIVE AND SECURITIES SELECTION
The objective of the Trust is to provide for an attractive total return
through a combination of current income and the potential for increasing
dividends and capital appreciation by investing for approximately three years
in a diversified portfolio of publicly traded REITs. A REIT is an entity that
combines the capital of many investors to acquire and manage a portfolio of
real estate properties. REITs often focus on acquiring and managing
particular types of real estate (e.g., apartments, shopping centers) and/or
operating in particular geographic regions (e.g., Southeast, West Coast).
REIT portfolios are generally managed by experienced real estate
professionals, many of whom have significant equity interests in their REITs.
6
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The Trust portfolio contains common stocks issued by twenty (20) equity
REITs selected by PaineWebber's Research Group. All of the participating
equity REITs are covered by PaineWebber's Research Group, and their common
stocks are currently rated "Buy" or "Attractive". All of the issuers of the
Securities have securities that are listed on a national securities exchange
or are traded in the over-the-counter market. Jonathan Litt, the director
of the Research Group, has been rated among the top real estate analysts
by Institutional Investor, for the past 3 years. PaineWebber's Research
Group is one of the largest real estate research teams and provides in-depth
coverage on more than 60 REITs and the industries in which they operate.
In selecting each REIT for the Trust, PaineWebber's Research Group considered,
among others, the following factors: (i) its current yield, prospects for
growth, property supply and demand trends and relative valuation (ii) its
capital structure and payout ratios, (iii) its liquidity and total market
capitalization, (iv) its business, property and geographic focus and (v) the
quality, experience and depth of its management.
According to the National Association of Real Estate Investment Trusts
("NAREIT"), the total market capitalization of REITs grew from approximately
$16 billion to approximately $160 billion over the period from January 1,
1992 through March 31, 1998. Still, REITs own less than 10% of U.S.
investment-grade commercial real estate. As of March 31, 1998, the 182 equity
REITs included in the NAREIT Index primarily invested in the following
property types: office/industrial (28%), retail (21%), apartments (17%),
lodging/resorts (13%), self-storage (4%), health care (4%), manufactured
housing (2%), specialty (1%) and diversified (10%).
An investment in REITs may offer investors several positive results.
First, REITs have historically generated attractive total returns. The
average annual total return of the NAREIT Index for the most recent 1, 3, 5,
10, 15 and 20 year periods ended March 31, 1998 was 18.9%, 23.2%, 13.6%,
13.0%, 14.0% and 15.8%, respectively. The average annual total return of the
S&P 500 Index for the most recent 1, 3, 5, 10, 15 and 20 years ended March
31, 1998, was 48.0%, 32.8%, 22.4%, 18.9%, 17.8% and 17.7%, respectively. The
average annual total return of the Russell 2000 Index for the most recent 1,
3, 5, 10 and 15 years ended March 31, 1998, was 42.1%, 23.5%, 17.7%, 14.9%
and 12.8%, respectively. The average annual total return of the Russell 2000
for the 20 years ended March 31, 1998 was unavailable.
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Second, REITs provide income to investors in the form of quarterly
dividends. The average dividend yield of equity REITs, as measured by NAREIT
as of December 31, 1997, was 5.48%. The table below compares the dividend
yield of the stocks in the NAREIT Index with the dividend yield of the S&P
500 Index and S&P Utility Index stocks and the yield to maturity of 10-year
U.S. Treasury bonds over the period December 31, 1987 through December 31,
1997 (as of December 31 in each year).
<TABLE>
<CAPTION>
S&P S&P 10-YR NAREIT
500 INDEX UTILITY INDEX TREASURY BOND EQUITY INDEX
----------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
1987 3.59% 7.29% 8.86% 8.73%
1988 3.59% 6.82% 9.14% 8.57%
1989 3.23% 5.45% 7.92% 8.42%
1990 3.78% 6.27% 8.07% 10.15%
1991 2.91% 5.80% 6.70% 7.85%
1992 2.78% 5.68% 6.69% 7.10%
1993 2.65% 5.28% 5.79% 6.81%
1994 2.90% 5.92% 7.83% 7.67%
1995 2.30% 4.74% 5.57% 7.37%
1996 2.04% 5.19% 6.42% 6.05%
1997 1.63% 4.43% 5.74% 5.48%
</TABLE>
In addition, a significant portion of a REIT's annual dividend may be
classified, for federal income tax purposes, as a "return of capital" and,
therefore, would not be subject to federal income taxation as a dividend (see
"Federal Income Taxes"). In 1997, the reported "return of capital" component
for equity REITs ranged from 0%-100%, with an average for equity REITs of
approximately 20%.
Third, an investment in REITs may provide additional diversification to an
investor's portfolio thereby decreasing the risk of the portfolio as a whole.
Historically, the performance of REIT investments have exhibited a low
correlation to corporate equities and bonds.
The past performance of the equity REITs set forth above is not
representative of the expected performance of the Trust, which contains a
significantly less diversified portfolio of REITs. In addition, past
performance is no guarantee of future results. An investment in equity REITs
provides only commercial real estate industry exposure which is characterized
by a lack of relative diversification as compared to an investment in all of
the common stocks which comprise a stock index.
Investors should be aware that the Trust is not a "managed" fund and as a
result the adverse financial condition of a company will not result in its
elimination from the portfolio except under extraordinary circumstances (see
"Trust Administration--Portfolio Administration"). In addition, Securities
will not be sold by the Trust to take advantage of market fluctuations or
changes in anticipated rates of appreciation.
Investors should note that PaineWebber, in its general securities
business, acts as agent or principal in connection with the purchases and
sales of equity securities, including the Securities in the Trust, and may
act as a market maker in certain of the Securities. PaineWebber also from
time to time issues reports and may make recommendations relating to equity
securities, including the Securities in the Trust, and has provided, and may
in the future provide, investment banking services to the issuers of the
Securities. Investors should note in particular that the Securities were
selected by the Sponsor as of the Initial Date of Deposit. The Trust may
continue to purchase Additional Securities or hold Securities originally
selected through this process even though the evaluation of the attractiveness
of such Securities may have changed and, if the evaluation were performed
again at that time, the Securities would not be selected for the Trust. In
addition, the Sponsor may continue to sell Trust Units even if PaineWebber
changes a recommendation relating to one or more Securities in the Trust.
8
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The following brief descriptions of the issuers of the Securities have been
obtained from publicly available sources, and each of such issuers is currently
subject to the informational requirements of the Securities Exchange Act of
1934 (the "Exchange Act"). Accordingly, each issuer files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). Copies of such information may be obtained from the offices of
the SEC.
Cornerstone Realty Income Trust, Inc.
Cornerstone Realty Income Trust, Inc., is a self-administered and
self-managed REIT which owns, manages, acquires and renovates multifamily
communities in Virginia, North Carolina, South Carolina and Georgia.
Gables Residential Trust
Gables Residential Trust is a self-administered and self-managed REIT
which owns, manages, develops, acquires, and constructs luxury multifamily
apartment communities in the Southeastern and Southwestern United States.
Home Properties of New York, Inc.
Home Properties of New York, Inc. is a self-administered and self-managed
REIT which owns and operates multifamily communities located throughout
the Northeastern, Mid-Atlantic and Midwestern regions of the United
States.
The Macerich Company
The Macerich Company is a self-administered and self-managed REIT which
acquires, owns, redevelops, manages and leases regional and community
shopping centers located throughout the United States.
Post Properties, Inc.
Post Properties, Inc. is a self-administered and self-managed REIT which
owns, operates and develops luxury multifamily apartment communities
located throughout the Southeastern and Southwestern United States.
Simon DeBartolo Group, Inc.
Simon DeBartolo Group, Inc. is a self-administered and self-managed REIT
which owns, develops, manages, leases, acquires and expands
income-producing properties, primarily regional malls and community
shopping centers located throughout the United States.
Mack-Cali Realty Corporation
Mack-Cali Realty Corporation is a self-administered and self-managed REIT
which owns and operates office/flex space located primarily in Northern
and Central New Jersey, Westchester County, New York, and suburban
Philadelphia, Pennsylvania.
Alexandria Real Estate Equities, Inc.
Alexandria Real Estate Equities, Inc., is a self-administered and
self-managed REIT which owns and operates office/laboratory space, located
in leading scientific research markets.
Kimco Realty Corporation
Kimco Realty Corporation is a self-administered and self-managed REIT
which owns, acquires, develops and manages neighborhood and community
shopping centers located throughout the United States.
9
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PS Business Parks, Inc.
PS Business Parks, Inc. is a self-administered and self-managed REIT which
owns, manages and acquires business parks containing office/flex space
throughout the United States.
Liberty Property Trust
Liberty Property Trust is a self-administered and self-managed REIT which
owns, develops, acquires and manages office and industrial properties
located primarily within the Southeastern, Mid-Atlantic and Midwestern
United States.
Camden Property Trust
Camden Property Trust is a self-administered and self-managed REIT which
owns, develops and acquires multifamily apartment communities located in
the Sunbelt and Midwestern markets from Florida to California.
Chateau Communities, Inc.
Chateau Communities, Inc. is a self-administered and self-managed REIT
which owns and manages manufactured home communities located throughout
the United States.
Colonial Properties Trust
Colonial Properties Trust is a self-administered and self-managed REIT
which owns multifamily, retail and office properties located primarily in
the Southeastern United States.
EastGroup Properties, Inc.
EastGroup Properties, Inc. is a self-administered REIT which owns, acquires
and develops industrial properties in major Sunbelt markets.
FelCor Suite Hotels, Inc.
FelCor Suite Hotels, Inc. is a self-administered REIT which owns hotels
located throughout the United States, primarily in California, Florida and
Texas.
Realty Income Corporation
Realty Income Corporation is a self-administered and self-managed REIT
which owns and manages commercial properties leased to operators under
long-term net lease agreements located throughout the United States.
Shurgard Storage Centers, Inc.
Shurgard Storage Centers, Inc. is a self-administered and self-managed
REIT which owns and manages self-storage facilities located throughout the
United States and in Europe.
Storage USA, Inc.
Storage USA, Inc. is a self-administered and self-managed REIT which owns,
manages, constructs and franchises self-storage facilities located
throughout the United States.
Sun Communities, Inc.
Sun Communities, Inc. is a self-administered and self-managed REIT which
acquires, owns, manages and develops manufactured home communities located
primarily in the Midwest and Southeast United States.
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RISK FACTORS AND SPECIAL CONSIDERATIONS
GENERAL. An investment in Units of the Trust should be made with an
understanding of the risks inherent in an investment in common stocks in
general. The general risks are associated with the rights to receive payments
from the issuer which are generally inferior to creditors of, or holders of
debt obligations or preferred stocks issued by, the issuer. Holders of common
stocks have a right to receive dividends only when and 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
against the issuer have been paid or provided for. By contrast, holders of
preferred stocks 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, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on cumulative preferred stock must be paid
before any dividends are paid on common stock. Preferred stocks are also
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. The Trust is not appropriate for investors requiring conservation of
capital.
Common stocks do not represent an obligation of the issuer. Therefore they
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 rights of
holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Unlike debt securities which typically have a stated principal
amount payable at maturity, common stocks do not have a fixed principal
amount or a maturity. Additionally, the value of the Securities in the Trust
may be expected to fluctuate over the life of the Trust.
Any distributions of income to Unitholders will generally depend upon the
declaration of dividends by the issuers of Securities and the declaration of
dividends depends upon several factors, including the financial condition of
the issuers and general economic conditions. In addition, there are other
investment risks common to all equity issues. The Securities may appreciate
or depreciate in value depending upon a variety of factors, including the
full range of economic and market influences affecting corporate
profitability, the financial condition of issuers, changes in national or
worldwide economic conditions, and the prices of equity securities in general
and the Securities in particular. Distributions of income, generally made by
declaration of dividends, are also dependent upon several factors, including
those discussed above in the preceding sentence as well as those discussed
below under "Real Estate Investment Trusts".
The Sponsor's buying and selling of the Securities, especially during the
initial offering of Units of the Trust or to satisfy redemptions of Units may
impact upon the value of the underlying Securities and the Units. For
example, the Sponsor's acquisition of certain of the Securities in open
market purchases may have the unintended result of increasing the closing
market price for such Securities at the close of business on the date(s) of
such purchases. Also, the publication of the list of the Securities selected
for the Trust may cause increased buying activity in certain of the
Securities comprising the Trust portfolio. After such announcement,
investment advisory and brokerage clients of the Sponsor and its affiliates
may purchase individual Securities appearing on the list during the course of
the initial offering period. Such buying activity in the stock of these
companies prior to the purchase of the Securities by the Trust may cause the
Trust to purchase stocks at a higher price than those buyers who effect
purchases prior to purchases by the Trust and may also increase the amount of
the profit realized by the Sponsor on the purchase of the Securities from
their issuers. In addition, the issuances of the additional Securities by the
REITs in the transactions underwritten by the Sponsor may, in certain
circumstances, have an adverse impact on the value of the Securities and the
Units.
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Approximately 21% of the Securities are expected to be restricted
securities ("Restricted Securities") under the Securities Act of 1933, as
amended (the "Securities Act"), which cannot be sold publicly by the Trustee
without registration under the Securities Act or pursuant to an exemption
from such registration requirements. Restricted Securities are subject to
limitations on resale and other restrictions under the securities laws. The
Trust will not acquire any Restricted Securities unless it simultaneously
obtains registration rights or comparable rights that the Sponsor believes
will enable the Trust to sell such securities at the public market price for
the securities. See "Liquidity" below for the risks inherent in the purchase
of Restricted Securities.
Whether or not the Securities are listed on a national securities
exchange, the principal trading market for the Securities may be in the
over-the-counter market. As a result, the existence of a liquid trading
market for the Securities may depend on whether dealers will make a market in
the Securities. There can be no assurance that a market will be made for any
of the Securities, that any market for the Securities will be maintained 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 Sponsor. The price at which the Securities may be sold to
meet redemptions, and the value of the Trust, will be adversely affected if
trading markets for the Securities are limited or absent.
Investors should note that the creation of additional Units subsequent to
the Initial Date of Deposit may have an effect upon the value of previously
existing Units. To create additional Units the Sponsor may deposit cash (or
cash equivalents, e.g., a bank letter of credit in lieu of cash) with
instructions to purchase Additional Securities in amounts and in percentage
relationships described above under "The Trust", based on the price of the
Securities at the Evaluation Time on the date the cash is deposited. To the
extent the price of a Security increases or decreases between the time cash
is deposited with instructions to purchase the Additional Security and the
time the cash is used to purchase the Additional Security, Units will
represent less or more of that Security and more or less of the other
Securities in the Trust. Unitholders will be at risk because of price
fluctuations during this period since if the price of shares of a Security
increases, Unitholders will have an interest in fewer shares of that
Security, and if the price of a Security decreases, Unitholders will have an
interest in more shares of that Security, than if the Security had been
purchased on the date cash was deposited with instructions to purchase the
Security. In order to minimize these effects, the Trust will attempt to
purchase Additional Securities as closely as possible to the Evaluation Time
or at prices as closely as possible to the prices used to evaluate the Trust
at the Evaluation Time. Thus price fluctuations during this period will
affect the value of every Unitholder's Units and the income per Unit received
by the Trust. In addition, costs incurred in connection with the acquisition
of Additional Securities will be at the expense of the Trust and will affect
the value of every Unitholder's Units.
In the event a contract to purchase a Security to be deposited on the
Initial Date of Deposit or any other date fails, cash held or available under
a letter or letters of credit, attributable to such failed contract may be
reinvested in another stock or stocks having characteristics sufficiently
similar to the Securities originally deposited (in which case the original
proportionate relationship shall be adjusted) or, if not so reinvested,
distributed to Unitholders of record on the last day of the month in which
the failure occurred. The distribution will be made twenty days following
such record date and, in the event of such a distribution, the Sponsor will
refund to each Unitholder the portion of the sales charge, if any, attributable
to such failed contract.
BECAUSE THE TRUST IS ORGANIZED AS A UNIT INVESTMENT TRUST, RATHER THAN AS
A MANAGEMENT INVESTMENT COMPANY, THE TRUSTEE AND THE SPONSOR DO NOT HAVE
AUTHORITY TO MANAGE THE TRUST'S ASSETS FULLY IN AN
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ATTEMPT TO TAKE ADVANTAGE OF VARIOUS MARKET CONDITIONS TO IMPROVE THE TRUST'S
NET ASSET VALUE, BUT MAY DISPOSE OF SECURITIES ONLY UNDER LIMITED
CIRCUMSTANCES. (SEE THE DISCUSSION BELOW UNDER THE CAPTION "ADMINISTRATION OF
THE TRUST--PORTFOLIO SUPERVISION".)
A number of the Securities in the Trust may also be owned by other clients
of the Sponsor. However, because these clients may have investment objectives
which differ from that of the Trust, the Sponsor may sell certain Securities
from such clients' accounts in instances where a sale of such Securities by
the Trust would be impermissible, such as to maximize return by taking
advantage of attractive market fluctuations in such Securities. As a result,
the amount realized upon the sale of the Securities from the Trust may not be
the highest price attained for an individual Security during the life of the
Trust.
Like other investment companies, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer systems used by the Sponsor or Trustee or other service providers to
the Trust do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Sponsor and Trustee are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that they use and to obtain reasonable assurances that comparable
steps are being taken by the Trust's other service providers. At this time,
however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to the Trust. The Year 2000 Problem is expected to
impact corporations, which may include issuers of Securities contained in the
Trust, to varying degrees based upon various factors, including, but not
limited to, their industry sector and degree of technological sophistication.
The Sponsor is unable to predict what impact, if any, the Year 2000 Problem
will have on issuers of the Securities contained in the Trust.
PaineWebber has acted as sole underwriter to certain of the issuers of
Securities in the acquisition of the Securities at prices below market value
for deposit into the Trust on the Initial Date of Deposit. The Sponsor also
acquired Securities on the Initial Date of Deposit, and may acquire Additional
Securities on subsequent dates for deposit into the Trust, in open market
transactions, and may benefit if the price paid for such Securities acquired
is less than the price at which the Securities are deposited by the Sponsor
into the Trust. The Sponsor may have acted as underwriter, manager, or
co-manager of a public offering of the Securities deposited into the Trust on
the Initial Date of Deposit, or as an adviser to one or more of the issuers
of the Securities, during the last three (3) years. The Sponsor or affiliates
of the Sponsor may serve as specialists in the Securities on one or more stock
exchanges and may have a long or short position in any of these Securities or
in options on any of them, and may be on the opposite sides of public orders
executed on the floor of an exchange where the Securities are listed. The
Sponsor may trade for its own account as an odd-lot dealer, market maker,
block positioner and/or arbitrageur in any of the Securities or options on
them. The Sponsor, its affiliates, directors, elected officers and employee
benefits programs may have either a long or short position in any of the
Securities or in options on them.
Real Estate Investment Trusts. The Trust is considered "concentrated"* in
REIT issuers. A portfolio concentrated in a single industry may present more
risk than a portfolio of more broadly diversified investments. The Trust, and
therefore Unitholders, may be particularly susceptible to a negative impact
resulting from adverse market conditions or other factors affecting REITs
because any negative impact on the REIT or real estate industry will not be
diversified among issuers within other unrelated industries. In addition, due
to the relative lack of diversity in the portfolio in terms of the number of
issuers, a Unitholder may incur additional risk compared to an investment in
a more diversified portfolio. Accordingly, an investment in the Trust should
be made with an understanding of the risks inherent in an investment in REITs
specifically and in real estate generally (in addition to securities market
risks).
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* A Trust is considered to be "concentrated" in a particular industry when
the securities in that industry grouping constitute 25% or more of the
total asset value of such Trust's portfolio.
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REITs are financial vehicles that have as their objective the pooling of
capital from a number of investors in order to participate directly in real
estate ownership or financing. REITs are generally fully integrated operating
companies that have interests in income-producing real estate. REITs are
differentiated by the types of real estate properties held and the actual
geographic location of properties and fall into two major categories: equity
REITs emphasize direct property investment, holding their invested assets
primarily in the ownership of real estate or other equity interests, while
mortgage REITs concentrate on real estate financing, holding their assets
primarily in mortgages secured by real estate. REITs obtain capital funds for
investment in underlying real estate assets by selling debt or equity
securities on the public or institutional capital markets or by bank
borrowings. The value of REITs may be particularly sensitive to devaluation in
the event of rising interest rates. The returns on common equities of the REITs
in which the Trust invests will be significantly affected by changes in costs
of capital and, particularly in the case of highly "leveraged" REITs (i.e.,
those with large amounts of borrowings outstanding) by changes in the level of
interest rates. The objective of an equity REIT is to purchase income-producing
real estate properties in order to generate high levels of cash flow from
rental income and a gradual asset appreciation, and such REITs typically
invest in properties such as office, retail, industrial, hotel and apartment
buildings and health care facilities. The objectives of a mortgage REIT is to
invest primarily in mortgages secured by real estate in order to generate cash
flow from payments on the mortgage loans.
The underlying value of the Trust's Securities and the Trust's ability to
make distributions to its Unitholders may be adversely affected by adverse
changes in national, state or local economic climate and real estate
conditions (such as oversupply of or reduced demand for space and changes in
market rental rates), perceptions of prospective tenants of the safety,
convenience, and attractiveness of the properties, the ability of the owner
to provide adequate management, maintenance and insurance, the ability to
collect on a timely basis all rents from tenants, tenant defaults, the cost
of complying with the Americans with Disabilities Act, increased competition
from other properties, obsolescence of property, changes in the availability,
cost and terms of mortgage funds, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements, particularly in older properties, changes in
real estate tax rates and other operating expenses, regulatory and economic
impediments to raising rents, adverse changes in governmental rules and
fiscal policies, dependency on management skills, civil unrest, acts of God,
including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of the issuers of the REITs in the
Trust.
The Clinton Administration's proposed budget for fiscal year 1999 includes
four proposals affecting REITs. These proposals, if enacted, would place
additional restrictions on the structure of certain REITs, limit a REIT's
permissible investments, and affect the taxation of "built-in gains". In
addition, legislation has recently been proposed, and additional legislation
may be proposed or adopted in the future, which could adversely impact REITs,
and the Sponsor is unable to predict whether current or future proposals will
be enacted or what impact such proposals will have on the Securities.
REITs are a creation of the tax law. REITs essentially operate as a
corporation or business trust with the advantage of exemption from corporate
income taxes provided the REIT satisfies the requirements of Sections 856
through 860 of the Code. The major tests for tax qualified status are that
the REIT (i) be managed by one or more trustees or directors, (ii) issue
share of transferable interest to its owners, (iii) have at least 100
shareholders, (iv) have no more than 50% of the shares held by five or fewer
individuals, (v) invest substantially all of its capital in real estate
related assets and derive substantially all of its gross income from real
estate related assets and (vi) distribute at least 95% of its taxable income
to its shareholders each year. If any REIT in the Trust's portfolio should
fail to qualify for such tax status, the related shareholders (including the
Trust) could be adversely affected by the resulting tax consequences.
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In addition, because real estate generally is subject to real property
taxes, the REITs in the Trust may be adversely affected by changes in the
real property taxes on the properties underlying the REITs in the Trust as
property tax rates change or as such properties are assessed or reassessed by
taxing authorities. Furthermore, beause real estate is relatively illiquid,
the ability of REITs to vary their portfolios in response to changes in
economic and other conditions may be limited and may adversely affect the
value of the Units. There can be no assurance that any REIT will be able to
dispose of its underlying real estate assets when advantageous or necessary.
Certain REITs in the Trust may be structured as UPREITs. This form of REIT
owns an interest in a partnership that owns real estate, which can result in
a potential conflict of interest between shareholders who may want to sell an
asset and partnership interest holders who would be subject to tax liability
if the REIT sells the property. In some cases, REITs have entered into "no
sell" agreements, which are designed to avoid a taxable event to the holders
of partnership units by preventing the REIT from selling the property. This
kind of arrangement could mean that the REIT would refuse a lucrative offer
for an asset or be forced to hold on to a poor asset. Since "no sell"
agreements are often undisclosed, the Sponsor is unable to state whether any
of the REITs in the Portfolio have entered into this kind of arrangement.
REITs may concentrate investments in specific geographic areas or in
specific property types, e.g., hotels, shopping malls, residential complexes,
and office buildings; the impact of economic conditions on REITs can also be
expected to vary with geographic location and property type. Variations in
rental income and space availability and vacancy rates in terms of supply and
demand are additional factors affecting real estate generally and REITs in
particular. In addition, investors should be aware that REITs may not be
diversified and are subject to the risks of financing projects. REITs are
also subject to defaults by borrowers, self-liquidation, the market's
perception of the REIT industry generally, and the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code,
and to maintain exemption from the Investment Company Act of 1940. A default
by a borrower or lessee may cause the REIT to experience delays in enforcing
its rights as mortgagee or lessor and to incur significant costs related to
protecting its investments.
REITs generally maintain comprehensive insurance on presently owned and
subsequently acquired real property assets, including liability, fire and
extended coverage. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable
or not economically insurable, as to which the REITs properties are at risk
in their particular locales. The management of REIT issuers use their
discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to requiring appropriate insurance on
their investments at a reasonable cost and on suitable terms. This may result
in insurance coverage that in the event of a substantial loss would not be
sufficient to pay the full current market value or current replacement cost
of the lost investment. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make it infeasible
to use insurance proceeds to replace a facility after it has been damaged or
destroyed. Under such circumstances, the insurance received by a REIT might
not be adequate to restore its economic position with respect to such
property.
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator caused or knew of the presence of such
hazardous or toxic substances and whether or not the storage of such
substances was in violation of a tenant's lease. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect
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the owner's ability to borrow using such real property as collateral. No
assurance can be given that one or more of the REITs in the Trust may not be
presently liable or potentially liable for any such costs in connection with
real estate assets they presently own or subsequently acquire while such
REITs are held in the Trust.
LIQUIDITY. Although the Securities in the Trust, except for Restricted
Securities held by the Trust, themselves are listed on a national securities
exchange or are traded in the over-the-counter market and are liquid, real
estate investments, the primary holdings of each of the Securities in the Trust
are relatively illiquid. Therefore, the ability of the issuers of the
Securities in the Trust to vary their portfolios in response to changes in
economic and other conditions will be limited and, hence, may adversely affect
the value of the Units. There can be no assurance that any issuer of a Security
will be able to dispose of its underlying real estate assets when they find
disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of their investment.
To the extent that the total assets held by the Trust grow significantly
on or after the Initial Date of Deposit due to deposits of Additional
Securities in connection with the creation of additional Units, it is possible
that the Trust may hold a sizeable percentage of the total outstanding publicly
traded common stock of one or more issuers of the Securities. In such cases,
sales of such Securities from the Trust Portfolio to meet large redemption
requests may have a greater adverse impact on the sale prices received by the
Trust than would have been the case if the Trust had not held such a large
position in such Securities.
The Trust may purchase Restricted Securities under the Securities Act,
which cannot be sold publicly by the Trustee without registration under the
Securities Act but can be offered and sold under certain circumstances,
including to "qualified institutional buyers" as such term is defined in Rule
144A under the Securities Act. The Trust will not acquire any Restricted
Securities for the Trust unless it simultaneously obtains registration rights
or comparable rights that the Sponsor believes will enable the Trust to sell
such Restricted Securities at the public market price for such securities.
Were the Trustee unable to exercise such rights, this investment in
Restricted Securities could have the effect of increasing the level of
illiquidity in the Trust to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing Restricted Securities from the
Trust.
FEDERAL INCOME TAXES
In the opinion of Carter, Ledyard & Milburn, counsel for the Sponsor,
under existing law:
1. The Trust is not an association taxable as a corporation for federal
income tax purposes. Under the Internal Revenue Code of 1986, as amended
(the "Code"), each Unitholder will be treated as the owner of a pro rata
portion of the Trust, and income of the Trust will be treated as income of
the Unitholder.
2. Each Unitholder will have a taxable event when the Trust disposes of a
Security (whether by sale, exchange, redemption, or payment at maturity)
or when the Unitholder sells its Units or redeems its Units for cash. The
total tax cost of each Unit to a Unitholder is allocated among each of the
Securities in accordance with the proportion of the Trust comprised by
each Security to determine the per Unit tax cost for each Security.
3. The Trust is not an association taxable as a corporation for New York
State income tax purposes. Under New York State law, each Unitholder will
be treated as the owner of a pro rata portion of the Trust and the income
of the Trust will be treated as income of the Unitholders.
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The following general discussion of certain of the federal income tax
consequences of an investment in Units of the Trust, based on the Code and
Treasury Regulations promulgated thereunder as in effect on the date of this
Prospectus. The federal income tax treatment applicable to a Unitholder may
depend upon the Unitholder's particular tax circumstances. 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 Code.
The tax-treatment of non-U.S. investors is not addressed. Future legislative,
judicial or administrative changes could modify the statements below and
could affect the tax consequences to Unitholders. Accordingly, each
Unitholder is advised to consult its own tax advisor concerning the effect of
an investment in Units. For purposes of the following discussion and the
opinion above, it is assumed that each Security is considered a share in a
real estate investment trust for federal income tax purposes.
General. Each Unitholder must report on its federal income tax return a
pro rata share of income received by the Trust and a pro rata share of the
expenses of the Trust.
Distributions by a REIT to the Trust that are made out of a REIT's
earnings and profits will be taxable as ordinary income to investors except
to the extent that such REIT designates any distribution as a capital gain
dividend. The portion of any REIT distribution that is designated as a
capital gain dividend will be taxable to an investor as long-term capital
gain, regardless of the time the investor has held his Units. The Internal
Revenue Service has issued a notice (with interim guidance) of forthcoming
temporary regulations to permit a REIT to designate its dividends, subject to
certain limitations, as 20%, 25% or 28% gain distributions, which individual
investors would be entitled to treat as long-term capital gains subject to
tax at the maximum rates of 20%, 25% or 28%, respectively.
Unitholders will be taxed in the manner described above regardless of
whether distributions from the Trust are actually received by the Unitholder
or are reinvested pursuant to the Reinvestment Plan.
The Trust will own shares in REITs, entities that have elected and
qualified for the special tax treatment applicable to "real estate investment
companies." A number of complex requirements must be satisfied in order for
REIT status to be maintained. If the REIT distributes 95% or more of its real
estate investment trust taxable income, subject to certain adjustments, to
its shareholders, it will not be subject to Federal income tax on the amounts
so distributed. Moreover, if the REIT distributes at least 85% of its
ordinary income and 95% of its capital gain net income it will not be subject
to the 4% excise tax on certain undistributed income of REITs. Distributions
by the REIT from its earnings and profits to its shareholders will be taxable
as ordinary income to such shareholders. They will not be eligible for the
dividends-received deduction for corporations. Distributions of the REIT's
net capital gain, which are designated as capital gain dividends by the REIT,
will be taxable to its shareholders as long-term capital gain, regardless of
the length of time the shareholders have held their investment in the REIT.
To the extent distributions with respect to a Security were to exceed the
issuing corporation's current and accumulated earnings and profits, they
would not constitute dividends. Rather, they would be treated as a tax free
return of capital and would reduce a Unitholder's tax cost for such Security.
This reduction in basis would increase any gain, or reduce any loss, realized
by the Unitholder on any subsequent sale or other disposition of Units. After
the tax cost has been reduced to zero, any additional distributions in excess
of current and accumulated earnings and profits would be taxable as gain from
the sale of Security.
A Unitholder who is an individual, estate or trust may be disallowed
certain itemized deductions described in Code Section 67, including
compensation paid to the Trustee and administrative expenses of the Trust, to
the extent these itemized deductions, in the aggregate, do not exceed two
percent of the Unitholder's adjusted gross income. Thus, a Unitholder's
taxable income from an investment in Units may exceed amounts distributed to
the extent amounts are used by the Trust to pay expenses. In addition, the
Code limits the benefit of itemized deductions in the case of individual
taxpayers with adjusted gross income in excess of a specified amount.
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Gain or Loss on Sale. Each Unitholder will be considered the owner of a
pro rata portion of each Security in the Trust. A Unitholder should determine
his tax cost for each Security represented by his Units by allocating the
total cost for his Units, including the sales charge, among each Security in
the Trust represented by his Units (in proportion to the fair market values
thereof on the date the Unitholder purchases his Units). If a Unitholder
sells or otherwise disposes of a Unit, the Unitholder generally will
recognize gain or loss in an amount equal to the difference between the
amount realized on the disposition allocable to the Securities and the
Unitholder's adjusted tax bases in the Securities. Such gain or loss will be
capital gain or loss if the Unit and underlying Securities were held as
capital assets. Each Unitholder generally will also recognize taxable gain or
loss when all or part of its pro rata portion of a Security is sold or
otherwise disposed of for an amount greater or less than its per Unit tax
cost therefor. The deduction of capital losses is subject to limitations.
Withholding For Citizen or Resident Investors. In the case of any
noncorporate Unitholder that is a citizen or resident of the United States, a
31 percent "backup" withholding tax will apply to certain distributions of
the Trust unless the Unitholder properly completes and files under penalties
of perjury, IRS Form W-9 (or its equivalent).
The foregoing discussion of taxation is a general summary and relates only
to certain aspects of the federal income tax consequences of an investment in
the Trust for Unitholders that hold their Units as capital assets.
Unitholders may also be subject to foreign, state and local taxation. Each
Unitholder should consult its own tax advisor regarding the Federal, state
and local tax consequences to it of ownership of Units. Foreign investors
should consult their tax advisers with respect to United States tax
consequences of ownership of Units.
Investment in the Trust may be suited for purchase by funds and accounts
of individual investors that are exempt from federal income taxes such as
Individual Retirement Accounts, tax-qualified retirement plans including
Keogh Plans, and other tax-deferred retirement plans. Unitholders desiring to
purchase Units for tax-deferred plans and IRA's should consult their
PaineWebber Investment Executive for details on establishing such accounts.
Units may also be purchased by persons who already have self-directed
accounts established under tax-deferred retirement plans.
PUBLIC OFFERING OF UNITS
Public Offering Price. The public offering price per Unit is based on the
aggregate market value of the Securities, plus or minus a pro rata share of
cash, if any, in the Capital and Income Accounts, next determined after the
receipt of a purchase order, divided by the number of Units outstanding plus
the sales charge, if any, set forth below. The public offering price per Unit
is computed by dividing the Trust Fund Evaluation next determined after
receipt of a purchase order by the number of Units outstanding plus the
applicable sales charge. (See "Valuation".) The Public Offering Price on any
date subsequent to the Initial Date of Deposit will vary from the Public
Offering Price calculated on the business day prior to the Initial Date of
Deposit (as set forth on page 2 hereof) due to fluctuations in the value of
the Securities among other factors.
Sales Charge and Volume Discount. On the Initial Date of Deposit, no sales
charge will be assessed on purchases of Units created on such date.
Thereafter, for all Units trading in the secondary market, including Units
created after the Initial Date of Deposit, a maximum sales charge of 3.50% of
the Public Offering Price (3.63% of the net amount invested) will be imposed,
subject to reduction commencing May 28, 1998. Following July 1, 1999, the
maximum sales charge will be 2.50% of the Public Offering Price (2.56% of the
net amount invested), subject to reduction. Following July 1, 2000, the
maximum sales charge will be 1.50% of the Public Offering Price (1.52% of the
net amount invested), subject to reduction.
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<PAGE>
The maximum sales charge varies based upon the number of Units purchased by a
single purchaser. (See the sales charge schedules set forth below.) The sales
charge will be based on the number of Trust Units purchased on the same or
any preceding day by a single purchaser. Such purchaser or his dealer must
notify the Sponsor at the time of purchase of any previous purchase of Trust
Units in order to aggregate all such purchases and must supply the Sponsor
with sufficient information to permit confirmation of such purchaser's
eligibility; acceptance of such purchase order is subject to confirmation.
Purchases of Units of other trusts may not be aggregated with purchases of
Trust Units to qualify for this procedure. This procedure may be amended or
terminated at any time without notice. In the event of such termination, the
procedure will revert to that stated in the paragraph following the sales
charge schedules set forth below.
Sales charges for Units purchased after the Initial Date of Deposit are
set forth below. A discount in the sales charge is available to volume
purchasers of Units due to economies of scale in sales effort and sales
related expenses relating to volume purchases. The sales charge applicable to
volume purchases of Units is reduced on a graduated scale for sales to any
person of at least $50,000.
SALES CHARGES AFTER THE INITIAL DATE OF DEPOSIT THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
PERCENT OF
PUBLIC PERCENT OF
AGGREGATE DOLLAR VALUE OF OFFERING NET AMOUNT
UNITS PRICE INVESTED
- ------------------------------ ------------ ------------
<S> <C> <C>
Less than $50,000.............. 3.50% 3.63%
$50,000 to $99,999............. 3.25 3.36
$100,000 to $199,999........... 2.75 2.83
$200,000 to $399,999........... 2.50 2.56
$400,000 to $499,999........... 2.00 2.04
$500,000 to $999,999........... 1.75 1.78
$1,000,000 or more ............ 1.50 1.52
</TABLE>
SALES CHARGES FROM JULY 1, 1999 THROUGH JUNE 30, 2000
<TABLE>
<CAPTION>
PERCENT OF
PUBLIC PERCENT OF
AGGREGATE DOLLAR VALUE OF OFFERING NET AMOUNT
UNITS PRICE INVESTED
- ------------------------------ ------------ ------------
<S> <C> <C>
Less than $50,000.............. 2.50% 2.56%
$50,000 to $99,999............. 2.25 2.30
$100,000 to $199,999........... 2.00 2.04
$200,000 to $399,999........... 1.75 1.78
$400,000 to $499,999........... 1.50 1.52
$500,000 to $999,999........... 1.25 1.27
$1,000,000 or more ............ 1.00 1.01
</TABLE>
SALES CHARGES FROM JULY 1, 2000 AND THEREAFTER
<TABLE>
<CAPTION>
PERCENT OF
PUBLIC PERCENT OF
AGGREGATE DOLLAR VALUE OF OFFERING NET AMOUNT
UNITS PRICE INVESTED
- ------------------------------ ------------ ------------
<S> <C> <C>
Less than $50,000.............. 1.50% 1.52%
$50,000 to $99,999............. 1.25 1.27
$100,000 to $199,999........... 1.00 1.01
$200,000 or more............... 0.75 0.76
</TABLE>
The volume discount sales charge shown above will apply to all purchases
of Units on any one day by the same person in the amounts stated herein, and
for this purpose purchases of Units of this Trust will
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<PAGE>
be aggregated with concurrent purchases of any other trust which may be
offered by the Sponsor. Units held in the name of the purchaser's spouse or
in the name of a purchaser's child under the age of 21 are deemed for the
purposes hereof to be registered in the name of the purchaser. The reduced
sales charges are also applicable to a trustee or other fiduciary purchasing
Units for a single trust estate or single fiduciary account.
No sales charge will be imposed on Units of the Trust acquired by
Unitholders in connection with participation in the Reinvestment Plan (see
"Reinvestment Plan").
Employee Discount. Due to the realization of economies of scale in sales
effort and sales related expenses with respect to the purchase of Units by
employees of the Sponsor and its affiliates, the Sponsor intends to permit
employees of the Sponsor and its affiliates and certain of their relatives to
purchase Units of the Trust in the secondary market at then-current net asset
value, with no sales charge.
Exchange Option. Unitholders may elect to exchange any or all of their
Units of this series for units of one or more of any series of PaineWebber
Municipal Bond Fund (the "PaineWebber Series"); The Municipal Bond Trust (the
"National Series"); The Municipal Bond Trust, Multi-State Program (the
"Multi-State Series"); The Municipal Bond Trust, California Series (the
"California Series"); The Corporate Bond Trust (the "Corporate Series");
PaineWebber Pathfinder's Trust (the "Pathfinder's Trust"); the PaineWebber
Federal Government Trust (the "Government Series"); The Municipal Bond Trust,
Insured Series (the "Insured Series"); or the PaineWebber Equity Trust (the
"Equity Series") (collectively referred to as the "Exchange Trusts"), at a
Public Offering Price for the units of the Exchange Trusts to be acquired
based on a reduced sales charge of $15 per unit, per 100 units in the case of
a trust whose Units cost approximately $10 or per 1,000 units in the case of
a trust whose units cost approximately one dollar. Unitholders of this Trust
are not eligible for the Exchange Option into an Equity Trust, Growth Stock
Series designated as a rollover series for the 30 day period prior to
termination of the Trust. The purpose of such reduced sales charge is to
permit the Sponsor to pass on to the Unitholder who wishes to exchange Units
the cost savings resulting from such exchange of Units. The cost savings
result from reductions in time and expense related to advice, financial
planning and operational expenses required for the Exchange Option. Each
Exchange Trust has different investment objectives; therefore, a Unitholder
should read the prospectus for the applicable Exchange Trust carefully prior
to exercising this option. Exchange Trusts having as their objective the
receipt of tax-exempt interest income would not be suitable for tax-deferred
investment plans such as Individual Retirement Accounts. A unitholder who
purchased units of a series and paid a per unit, per 100 unit or per 1,000
unit sales charge that was less than the per unit, per 100 unit or per 1,000
unit sales charge of the series of the Exchange Trusts for which such
unitholder desires to exchange into, will be allowed to exercise the Exchange
Option at the Unit Offering Price plus the reduced sales charge, provided the
Unitholder has held the Units for at least five months. Any such Unitholder
who has not held the Units to be exchanged for the five-month period will be
required to exchange them at the Unit Offering Price plus a sales charge
based on the greater of the reduced sales charge, or an amount which,
together with the initial sales charge paid in connection with the
acquisition of the Units being exchanged, equals the sales charge of the
series of the Exchange Trust into which such Unitholder desires to exchange,
determined as of the date of the exchange.
The Sponsor will permit exchanges at the reduced sales charge provided
there is either a primary market for Units or a secondary market maintained
by the Sponsor in both the Units of this series and units of the applicable
Exchange Trust and there are units of the applicable Exchange Trust available
for sale. While the Sponsor has indicated that it intends to maintain a
market for the Units of the respective Trusts, there is no obligation on its
part to maintain such a market. Therefore, there is no assurance that
20
<PAGE>
a market for Units will in fact exist on any given date at which a Unitholder
wishes to sell his Units of this series and thus there is no assurance that
the Exchange Option will be available to a Unitholder. Exchanges will be
effected in whole Units only. Any excess proceeds from Unitholders' Units
being surrendered will be returned. Unitholders will be permitted to advance
new money in order to complete an exchange to round up to the next highest
number of Units. An exchange of Units pursuant to the Exchange Option
generally will constitute a "taxable event" under the Code, i.e., a
Unitholder will recognize a tax gain or loss at the time of exchange.
Unitholders are urged to consult their own tax advisors as to the tax
consequences to them of exchanging Units in particular cases.
The Sponsor reserves the right to modify, suspend or terminate this
Exchange Option at any time with notice to Unitholders. In the event the
Exchange Option is not available to a Unitholder at the time he wishes to
exercise it, the Unitholder will be immediately notified and no action will
be taken with respect to his Units without further instruction from the
Unitholder.
To exercise the Exchange Option, a Unitholder should notify the Sponsor of
his desire to exercise the Exchange Option and to use the proceeds from the
sale of his Units to the Sponsor of this series to purchase Units of one or
more of the Exchange Trusts from the Sponsor. If Units of the applicable
outstanding series of the Exchange Trust are at that time available for sale,
and if such Units may lawfully be sold in the state in which the Unitholder
is resident, the Unitholder may select the series or group of series for
which he desires his investment to be exchanged. The Unitholder will be
provided with a current prospectus or prospectuses relating to each series in
which he indicates interest.
The exchange transaction will operate in a manner essentially identical to
any secondary market transaction, i.e., Units will be repurchased at a price
based on the market value of the Securities in the portfolio of the Trust
next determined after receipt by the Sponsor of an exchange request and
properly endorsed documents. Units of the Exchange Trust will be sold to the
Unitholder at a price based upon the next determined market value of the
Securities in the Exchange Trust plus the reduced sales charge. Exchange
transactions will be effected only in whole units; thus, any proceeds not
used to acquire whole units will be paid to the selling Unitholder.
For example, assume that a Unitholder, who has three thousand units of a
trust with a current price of $1.30 per unit, desires to sell his units and
seeks to exchange the proceeds for units of a series of an Exchange Trust
with a current price of $890 per Unit based on the bid prices of the
underlying securities. In this example, which does not contemplate any
rounding up to the next highest number of Units, the proceeds from the
Unitholder's Units would aggregate $3,900. Since only whole units of an
Exchange Trust may be purchased under the Exchange Option, the Unitholder
would be able to acquire four Units in the Exchange Trust for a total cost of
$3,620 ($3,560 for the Units and $60 for the sales charge). If all 3,000
Units were tendered, the remaining $280 would be returned to the Unitholder.
Conversion Option. Owners of units of any registered unit investment trust
sponsored by others which was initially offered at a maximum applicable sales
charge of at least 3.0% (a "Conversion Trust") may elect to apply the cash
proceeds of the sale or redemption of those units directly to acquire
available units of any Exchange Trust at a reduced sales charge of $15 per
Unit, per 100 Units in the case of Exchange Trusts having a Unit price of
approximately $10, or per 1,000 Units in the case of Exchange Trusts having a
Unit price of approximately $1, subject to the terms and conditions
applicable to the Exchange Option (except that no secondary market is
required for Conversion Trust units). To exercise this option, the owner
should notify his retail broker. He will be given a prospectus for each
series in which he indicates interest and for which units are available. The
dealer must sell or redeem the units of the Conversion Trust. Any dealer
other than PaineWebber must certify that the purchase of the units of the
21
<PAGE>
Exchange Trust is being made pursuant to and is eligible for the Conversion
Option. The dealer will be entitled to two thirds of the applicable reduced
sales charge. The Sponsor reserves the right to modify, suspend or terminate
the Conversion Option at any time with notice, including the right to
increase the reduced sales charge applicable to this option (but not in
excess of $5 more per Unit, per 100 Units or per 1,000 Units, as applicable,
than the corresponding fee then being charged for the Exchange Option). For a
description of the tax consequences of a conversion, reference is made to the
Exchange Option section herein.
Distribution of Units. The minimum purchase is 100 Units, or 20 Units in
the case of a purchase for an IRA or other qualified retirement plan. Only
whole Units may be purchased.
The Sponsor is the sole underwriter of the Units. Sales may, however, be
made to dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD") at prices which include per Unit a concession of 20%
of the highest sales charge per Unit, subject to change from time to time.
The difference between the sales charge and the dealer concession will be
retained by the Sponsor. In the event that the dealer concession is 90% or
more of the sales charge per Unit, dealers taking advantage of such
concession may be deemed to be underwriters under the Securities Act. The
Sponsor has adopted an internal policy whereby an allocation of sales credit
to an Investment Executive may be reversed if Units are re-sold within 90
days of the effective date of the Trust.
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units. The Sponsor intends to qualify the Units in all
states of the United States, the District of Columbia and the Commonwealth of
Puerto Rico.
SPONSOR'S PROFITS
On the Initial Date of Deposit, the Sponsor realized a profit or loss on
deposit of the Securities into the Trust in the amount set forth in the notes
to the Schedule of Investments, which equals the difference between the cost
of the Securities to the Trust (which is based on the aggregate value of the
Securities on the Initial Date of Deposit) and the purchase price of such
Securities to the Sponsor. In the event that subsequent deposits are effected
by the Sponsor with the deposit of Securities (as opposed to cash or a letter
of credit) with respect to the sale of additional Units to the public, the
Sponsor similarly may realize a profit or loss. The Sponsor will also realize
a profit in an amount of up to 5% of the market value of the Securities by
virtue of buying such Securities in underwritten transactions at prices below
their market value (see "The Composition of the Trust--Portfolio
Acquisition"). The Sponsor also may 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 of the Public Offering Price received by
the Sponsor for Units. Cash, if any, made available by buyers of Units to the
Sponsor prior to the settlement dates for purchase of Units may be used in
the Sponsor's business and may be of benefit to the Sponsor. The Sponsor has
adopted an internal policy whereby an allocation of sales credit to an
Investment Executive may be reversed if Units are re-sold by the Unitholder
within 90 days of the effective date of the Trust.
Secondary Market for Units. While not obligated to do so, the Sponsor
intends to maintain a secondary market for the Units and continuously offer
to purchase Units at the Trust Fund Evaluation per Unit next computed after
receipt by the Sponsor of an order from a Unitholder. The Sponsor may cease
to maintain such a market at any time, and from time to time, without notice.
In the event that a secondary market for the Units is not maintained by the
Sponsor, a Unitholder desiring to dispose of Units may tender such Units to
the Trustee for redemption at the price calculated in the manner set forth
under
22
<PAGE>
"Redemption". Redemption requests in excess of $500,000 may be redeemed "in
kind" as described under "Redemption." The Sponsor does not in any way
guarantee the enforceability, marketability, value or price of any of the
Securities in the Trust, nor that of the Units.
Investors should note the Trust Fund Evaluation per Unit at the time of
sale or tender for redemption may be less than the price at which the Unit
was purchased.
The Sponsor may redeem any Units it has purchased in the secondary market
if it determines for any reason that it is undesirable to continue to hold
these Units in its inventory. Factors which the Sponsor may consider in
making this determination will include the number of units of all series of
all trusts which it holds in its inventory, the saleability of the Units and
its estimate of the time required to sell the Units and general market
conditions.
A Unitholder who wishes to dispose of his Units should inquire of his bank
or broker as to current market prices in order to determine if
over-the-counter prices exist in excess of the redemption price and the
repurchase price (see "Redemption").
Sponsor's Profits. In addition to the applicable sales charge, the Sponsor
realizes a profit (or sustains a loss) in the amount of any difference
between the cost of the Securities to the Sponsor and the price at which it
deposits the Securities in the Trust in exchange for Units, which is the
value of the Securities, determined by the Trustee as described under
"Valuation". The cost of Securities to the Sponsor includes the amount paid
by the Sponsor for brokerage commissions. These amounts are an expense of the
Trust.
Cash, if any, received from Unitholders prior to the settlement date for the
purchase of Units or prior to the payment for Securities upon their delivery
may be used in the Sponsor's business subject to the limitations of Rule 15c3-3
under the Exchange Act, and may be of benefit to the Sponsor.
In selling any Units in the initial public offering after the Initial Date
of Deposit, the Sponsor may realize profits or sustain losses resulting from
fluctuations in the net asset value of outstanding Units during the period.
In maintaining a secondary market for the Units, the Sponsor may realize
profits or sustain losses in the amount of any differences between the price
at which it buys Units and the price at which it resells or redeems such
Units.
REDEMPTION
Units may be tendered to The Chase Manhattan Bank for redemption in person
at its office at 4 New York Plaza, Ground Floor--Unit Trust Window, New York,
New York or by mail at Customer Service Retail Department, Bowling Green
Station, P.O. Box 5185, New York, NY 10274-5185, upon payment of any stock
transfer or similar tax which must be paid to effect the redemption. At the
present time there are no such taxes. No redemption fee will be charged by
the Sponsor or Trustee. If the Units are represented by a certificate it must
be properly endorsed accompanied by a letter requesting redemption. If held
in uncertificated form, a written instrument of redemption must be signed by
the Unitholder. Unitholders must sign exactly as their names appear on the
records of the Trustee, with signatures guaranteed by an eligible guarantor
institution participating in an approved Medallion Guarantee program, or in
such other manner as may be acceptable to the Trustee. In certain instances
the Trustee may require additional documents such as, but not limited to,
trust instruments, certificates of death, appointments as executor or
administrator, or certificates of corporate authority. Unitholders should
contact the Trustee to determine whether additional documents are necessary.
Units tendered to the Trustee for redemption will be cancelled, if not
repurchased by the Sponsor.
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<PAGE>
Units will be redeemed at the Redemption Value per Unit next determined
after receipt of the redemption request in good order by the Trustee. The
Redemption Value per Unit is determined by dividing the Trust Fund Evaluation
by the number of Units outstanding. (See "Valuation".)
A redemption request is deemed received on the business day (see
"Valuation" for a definition of business day) when such request is received
prior to 4:00 p.m. If it is received after 4:00 p.m., it is deemed received
on the next business day. During the period in which the Sponsor maintains a
secondary market for Units, the Sponsor may repurchase any Unit presented for
tender to the Trustee for redemption no later than the close of business on
the second business day following such presentation and Unitholders will
receive the Redemption Value next determined after receipt by the Trustee of
the redemption request. Proceeds of a redemption will be paid to the
Unitholder no later than the seventh calendar day following the date of
tender (or if the seventh calendar day is not a business day on the first
business day prior thereto).
With respect to cash redemptions, amounts representing income received
shall be withdrawn from the Income Account, and, to the extent such balance
is insufficient and for remaining amounts, from the Capital Account. The
Trustee is empowered, to the extent necessary, to sell Securities to meet
redemptions. The Trustee will sell Securities in such manner as is directed
by the Sponsor. In the event no such direction is given, the Trustee may
designate Securities to be sold. (See "Administration of the Trust".)
However, with respect to redemption requests in excess of $500,000, the
Sponsor, in its sole discretion, may determine to direct the Trustee to
redeem Units "in kind" by distributing Securities to such redeeming
Unitholder. When Securities are so distributed, a proportionate amount of
each Security will be distributed, to the extent of whole shares, and cash
will be distributed from the Capital Account equal to the value of the
fractional shares to which such redeeming Unitholder is entitled. The Sponsor
may direct the Trustee to redeem Units "in kind" even if it is then
maintaining a secondary market in Units of the Trust. Securities will be
valued for this purpose as set forth under "Valuation". Securities will be
delivered to the account of the Unitholder's bank or broker at The Depository
Trust Company. A Unitholder receiving a redemption "in kind" may incur
brokerage or other transaction costs in converting the Securities distributed
into cash. The availability of redemption "in kind" is subject to compliance
with all applicable laws and regulations, including the Securities Act.
To the extent that Securities are redeemed in kind or sold, the size and
diversity of the Trust will be reduced. Sales will usually be required at a
time when Securities would not otherwise be sold and may result in lower
prices than might otherwise be realized. The price received upon redemption
may be more or less than the amount paid by the Unitholder depending on the
value of the Securities in the portfolio at the time of redemption. In
addition, because of the minimum amounts in which Securities are required to
be sold, the proceeds of sale may exceed the amount required at the time to
redeem Units; these excess proceeds will be distributed to Unitholders on the
Distribution Dates.
The Trustee may, in its discretion, and will, when so directed by the
Sponsor, suspend the right of redemption, or postpone the date of payment of
the Redemption Value, for more than seven calendar days following the day of
tender for any period during which The New York Stock Exchange, Inc. is
closed other than for weekend and holiday closings; or for any period during
which the SEC determined that trading on The New York Stock Exchange, Inc. is
restricted or for any period during which an emergency exists as a result of
which disposal or evaluation of the Securities is not reasonably practicable;
or for such other period as the SEC may by order permit for the protection of
Unitholders. The Trustee is not liable to any person or in any way for any
loss or damages which may result from any such suspension or postponement, or
any failure to suspend or postpone when done in the Trustee's discretion.
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<PAGE>
VALUATION
The Trustee will calculate the Trust's value (the "Trust Fund Evaluation")
per Unit at the Evaluation Time set forth under "Summary of Essential
Information Regarding the Trust" (1) on each business day as long as the
Sponsor is maintaining a bid in the secondary market, (2) on the business day
on which any Unit is tendered for redemption, (3) on any other day desired by
the Sponsor or the Trustee and (4) upon termination, by adding (a) the
aggregate value of the Securities and other assets determined by the Trustee
as set forth below, (b) cash on hand in the Trust, including dividends
receivable on Securities trading ex-dividend and income accrued held but not
yet distributed (other than any cash held in any reserve account established
under the Indenture or cash held for the purchase of Contract Securities) and
(c) accounts receivable for Securities sold, and any other assets of the
Trust, and deducting therefrom the sum of (v) taxes or other governmental
charges against the Trust not previously deducted, (w) accrued fees and
expenses of the Trustee and the Sponsor (including legal and auditing
expenses) and other Trust expenses, (x) cash allocated for distributions to
Unitholders and (y) accounts payable for Units tendered for redemption and
any other liabilities of the Trust Fund not included in (v), (w), (x) and (y)
above. The per Unit Trust Fund Evaluation is calculated by dividing the
result of such computation by the number of Units outstanding as of the date
thereof. Business days do not include Saturdays, Sundays, New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and other
days that The New York Stock Exchange, Inc. is closed.
The value of Securities shall be determined by the Trustee in good faith
in the following manner: (1) if the domestic Securities are listed on one or
more national securities exchanges or traded on the Nasdaq National Market
System, such evaluation shall be based on the last reported sale price on
that day (unless the Trustee deems such price inappropriate as a basis for
evaluation) on the exchange which is the principal market thereof (deemed to
be the New York Stock Exchange in the case of the domestic Securities if such
Securities are listed thereon), (2) if there is no such appropriate sales
price on such exchange or system, at the mean between the closing bid and
asked prices on such exchange or system (unless the Trustee deems such price
inappropriate as a basis for evaluation), (3) if the Securities are not so
listed or, if so listed and the principal market therefor is other than on
such exchange or there are no such appropriate closing bid and asked prices
available, such evaluation shall be made by the Trustee in good faith based
on the closing sale price in the over-the-counter market (unless the Trustee
deems such price inappropriate as a basis for evaluation) or (4) if there is
no such appropriate closing price, then (a) on the basis of current bid
prices, (b) if bid prices are not available, on the basis of current bid
prices for comparable securities, (c) by the Trustee's appraising the value
of the Security in good faith on the bid side of the market or (d) by any
combination thereof. The tender of a Security pursuant to a tender offer will
not affect the method of valuing such Security.
Because the Sponsor believes that the registration rights and certain
other rights acquired in connection with the acquisition of Restricted
Securities will enable the Trust to sell such securities at their public
market price (see "Risk Factors and Special Considerations"), the Restricted
Securities will be evaluated at the public market price.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION VALUE
The Securities are valued in the manner described above under "Valuation"
on the same basis for the initial offering period as for the offering of the
Units in the secondary market and for purposes of redemptions. On any
business day following the Initial Date of Deposit, the Public Offering Price
per Unit (which figure includes the sales charge) may exceed the Redemption
Value. (See "Essential
25
<PAGE>
Information"). For this reason and others, including the fact that the Public
Offering Price on any day other than the Initial Date of Deposit includes the
sales charge, the amount realized by a Unitholder upon redemption of Units
may be less than the price paid by the Unitholder for such Units.
EXPENSES OF THE TRUST
The cost of the preparation and printing of the Indenture and this
Prospectus, the initial fees of the Trustee and the Trustee's counsel, and
expenses incurred in establishing the Trust, including legal and auditing
fees (the "Organizational Expenses"), will be paid by the Sponsor. The
Sponsor will receive no fee from the Trust for its services in establishing
the Trust.
The Sponsor has agreed to waive all compensation for portfolio supervisory
services.
For its services as Trustee and Evaluator, the Trustee will be paid in
monthly installments, annually $.0158 per Unit, based on the largest number
of Units outstanding during the previous month. In addition, the regular and
recurring expenses of the Trust are estimated to be $.0014 per Unit which
include, but are not limited to certain mailing, printing, and audit
expenses. Expenses in excess of this estimate will be borne by the Trust. The
Trustee could also benefit to the extent that it may hold funds in
non-interest bearing accounts created by the Indenture.
The Trustee's fee may be increased without approval of the Unitholders by
an amount not exceeding a proportionate increase in the category entitled
"All Services Less Rent" in the Consumer Price Index published by the United
States Department of Labor or, if the Price Index is no longer published, a
similar index as determined by the Trustee and Sponsor.
In addition to the above, the following charges are or may be incurred by
the Trust and paid from the Income Account, or, to the extent funds are not
available in such Account, from the Capital Account (see "Administration of
the Trust--Accounts"): (1) fees for the Trustee for extraordinary services;
(2) expenses of the Trustee (including legal and auditing expenses) and of
counsel; (3) various governmental charges; (4) expenses and costs of any
action taken by the Trustee to protect the Trust and the rights and interests
of the Unitholders; (5) indemnification of the Trustee for any loss,
liabilities or expenses incurred by it in the administration of the Trust
without gross negligence, bad faith or wilful misconduct on its part; (6)
brokerage commissions and other expenses incurred in connection with the
purchase and sale of Securities; and (7) expenses incurred upon termination
of the Trust. In addition, to the extent then permitted by the SEC, the Trust
may incur expenses of maintaining registration or qualification of the Trust
or the Units under Federal or state securities laws so long as the Sponsor is
maintaining a secondary market (including, but not limited to, legal,
auditing and printing expenses).
Unless otherwise directed by the Sponsor, the accounts of the Trust shall
be audited not less than annually by independent public accountants selected
by the Sponsor. The expenses of the audit shall be an expense of the Trust.
So long as the Sponsor maintains a secondary market, the Sponsor will bear
any annual audit expense which exceeds $.0075 per Unit. Unitholders covered
by the audit during the year may receive a copy of the audited financial
statements upon request.
The fees and expenses set forth above are payable out of the Trust and
when unpaid will be secured by a lien on the Trust. Based upon the last
dividends paid prior to the Initial Date of Deposit, dividends on the
Securities are expected to be sufficient to pay the entire amount of
estimated expenses of the Trust. To the extent that dividends paid with
respect to the Securities are not sufficient to meet the expenses of the
Trust, the Trustee is authorized to sell Securities to meet the expenses of
the Trust. Securities will be selected in the same manner as is set forth
under "Redemption".
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<PAGE>
RIGHTS OF UNITHOLDERS
Ownership of Units is evidenced by recordation on the books of the
Trustee. In order to avoid additional operating costs and for investor
convenience, certificates will not be issued unless a request, in writing
with signature guaranteed by an eligible guarantor institution participating
in an approved Medallion Guarantee program, or in such other manner as may be
acceptable to the Trustee, is delivered by the Unitholder to the Sponsor.
Issued Certificates are transferable by presentation and surrender to the
Trustee at its office in New York, New York properly endorsed or accompanied
by a written instrument or instruments of transfer. Uncertificated Units are
transferable by presentation to the Trustee at its office in New York, New
York of a written instrument of transfer.
Certificates may be issued in denominations of one Unit or any integral
multiple thereof as deemed appropriate by the Trustee. A Unitholder may be
required to pay $2.00 per certificate reissued or transferred, and shall be
required to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. For new certificates issued to
replace destroyed, mutilated, stolen or lost certificates, the Unitholder
must furnish indemnity satisfactory to the Trustee and must pay such expenses
as the Trustee may incur. Mutilated certificates must be surrendered to the
Trustee for replacement.
DISTRIBUTIONS
The annual income per Unit, after deducting estimated annual Trust
expenses per Unit, will depend primarily upon the amount of dividends
declared and paid by the issuers of the Securities and changes in the
expenses of the Trust and, to a lesser degree, upon the level of purchases of
Additional Securities and sales of Securities. There is no assurance that
dividends on the Securities will continue at their current levels or be
declared or paid.
The Trustee will distribute net dividends from the Income Account on the
monthly Distribution Dates to Unitholders of record on the preceding Record
Date. Distributions from the Capital Account will be made on annual
Distribution Dates to Unitholders of record on the preceding Record Date.
Each Unit receives an equal share of monthly distributions of dividend income
net of estimated expenses. Because dividends on the Securities are not
received at a constant rate throughout the year, any distribution may be more
or less than the amount then credited to the Income Account. Subject to the
Reinvestment Plan, the Income Account distribution for each investor shall
consist of an amount, computed monthly by the Trustee, substantially equal to
one-twelfth of the investor's pro rata share of the estimated annual income
to the Income Account after deducting estimated expenses. There is no
assurance that actual distributions will be made since all dividends received
may be used to pay expenses. Distributions of less than $.075 per Unit need
not be made from the Capital Account on any Distribution Date. See "Essential
Information". Whenever required for regulatory or tax purposes, the Trustee
will make special distributions of any dividends or capital on special
Distribution Dates to Unitholders of record on special Record Dates declared
by the Trustee.
If and to the extent that the Sponsor, on behalf of the Trust, receives a
favorable response to a no-action letter request which it intends to submit
to the Division of Investment Management of the SEC with respect to
reinvesting cash proceeds received by the Trust, the Trustee may reinvest
such cash proceeds in Additional Securities held in the Trust Fund at such
time. Such reinvestment shall be made so that each deposit of Additional
Securities shall be made so as to match as closely as practicable the
percentage relationships of shares of Securities, and such reinvestment shall
be made in accordance with the parameters set forth in the no-action letter
response. If the Sponsor and the Trustee determine that it shall be necessary
to amend the Indenture to comply with the parameters set forth in the
no-action
27
<PAGE>
letter response, such documents may be amended without the consent of
Unitholders. There can be no assurance that the Sponsor will receive a
favorable no-action letter response.
Unitholders may elect to have their distributions from the Income and
Capital Accounts automatically reinvested into additional Units of the Trust
at no sales charge. (See "Reinvestment Plan").
Upon termination of the Trust, each Unitholder of record on such date will
receive his pro rata share of the amounts realized upon disposition of the
Securities plus any other assets of the Trust, less expenses of the Trust.
(See "Termination of the Trust".)
REINVESTMENT PLAN
Distributions to the Income and Capital Accounts may be reinvested by
participating in the Trust's Reinvestment Plan (the "Reinvestment Plan"). To
participate in the Reinvestment Plan, a Unitholder must contact his broker,
dealer or financial institution to determine whether he may participate in
the Reinvestment Plan. Under the Reinvestment Plan, the Units acquired for
current Unitholders will be either Units already held in inventory by the
Sponsor or new Units created by the Sponsor's deposit of 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. Deposits or purchases of Additional Securities will be made so as
to maintain the percentage relationships. Purchases made pursuant to the
Reinvestment Plan will be made without any sales charge at the net asset
value for Units of the Trust. Under the Reinvestment Plan, the Trust will pay
the distributions to the Trustee which in turn will purchase for those
participating Unitholders whole Units of the Trust at the price determined as
of the close of business on the Distribution Date and will add such Units to
the Unitholder's account. The Unitholder's account statement will reflect the
reinvestment. The Trustee will not issue fractional Units, thus any cash
remaining after purchasing the maximum number of whole Units will be
distributed to the Unitholder. Unitholders wishing to terminate their
participation in the Reinvestment Plan must notify their broker, dealer or
financial institution of such decision. The Sponsor reserves the right to
amend, modify or terminate the Reinvestment Plan at any time without prior
notice.
ADMINISTRATION OF THE TRUST
Accounts. All dividends and income received on Securities, proceeds from
the sale of Securities or other moneys received by the Trustee on behalf of
the Trust may be held in trust in non-interest bearing accounts until
required to be disbursed.
The Trustee will credit on its books to an Income Account dividends, if
any, and income, on Securities in the Trust. All other receipts (i.e., return
of principal and gains) are credited on its books to a Capital Account. A
record will be kept of qualifying dividends within the Income Account. The
pro rata share of the Income Account and the pro rata share of the Capital
Account represented by each Unit will be computed by the Trustee as set forth
under "Valuation".
The Trustee will deduct from the Income Account and, to the extent funds
are not sufficient therein, from the Capital Account, amounts necessary to
pay expenses incurred by the Trust. (See "Expenses and Charges.") In
addition, the Trustee may withdraw from the Income Account and the Capital
Account such amounts as may be necessary to cover redemption of Units by the
Trustee. (See "Redemption.")
The Trustee may establish reserves (the "Reserve Account") within the
Trust for state and local taxes, if any, and any other governmental charges
payable out of the Trust.
28
<PAGE>
Reports and Records. With any distribution from the Trust, Unitholders
will be furnished with a statement setting forth the amount being distributed
from each account.
The Trustee keeps records and accounts of the Trust at its office in New
York, including records of the names and addresses of Unitholders, a current
list of underlying Securities in the portfolio and a copy of the Indenture.
Records pertaining to a Unitholder or to the Trust (but not to other
Unitholders) are available to the Unitholder for inspection at reasonable
times during business hours.
Within a reasonable period of time after the end of each calendar year,
commencing with calendar year 1998, the Trustee will furnish each person who
was a Unitholder at any time during the calendar year an annual report
containing the following information, expressed in reasonable detail both as
a dollar amount and as a dollar amount per Unit: (1) a summary of
transactions for such year in the Income and Capital Accounts and any
Reserves; (2) any Securities sold during the year and the Securities held at
the end of such year; (3) the Trust Fund Evaluation per Unit, based upon a
computation thereof on the 31st day of December of such year (or the last
business day prior thereto); and (4) amounts distributed to Unitholders
during such year.
Portfolio Supervision. The portfolio of the Trust is not "managed" by the
Sponsor or the Trustee; their activities described herein are governed solely
by the provisions of the Indenture. The Indenture provides that the Sponsor
may (but need not) direct the Trustee to dispose of a Security (or tender a
stock for cash in the case of paragraph (6) below):
(1) upon the failure of the issuer to declare or pay anticipated
dividends or interest;
(2) upon the institution of a materially adverse action or proceeding at
law or in equity seeking to restrain or enjoin the declaration or payment
of dividends or interest on any such Securities or the existence of any
other materially adverse legal question or impediment affecting such
Securities or the declaration or payment of dividends or interest on the
same;
(3) upon the breach of covenant or warranty in any trust indenture or
other document relating to the issuer which might materially and adversely
affect either immediately or contingently the declaration or payment of
dividends on such Securities;
(4) upon the default in the payment of principal or par or stated value
of, premium, if any, or income on any other outstanding securities of the
issuer or the guarantor of such Securities which might materially and
adversely, either immediately or contingently, affect the declaration or
payment of dividends on the Securities;
(5) upon the decline in price or the occurrence of any materially adverse
credit factors, that in the opinion of the Sponsor, make the retention of
such Securities not in the best interest of the Unitholder;
(6) upon a public tender offer being made for a Stock, or a merger or
acquisition being announced affecting a Stock that in the opinion of the
Sponsor make the sale or tender of the Stock in the best interests of the
Unitholders; or
(7) upon the happening of events which, in the opinion of the Sponsor,
negatively affect the economic fundamentals of the issuer of the Security
or the industry of which it is a part.
The Trustee may dispose of Securities where necessary to pay Trust
expenses or to satisfy redemption requests as directed by the Sponsor and in
a manner necessary to maximize the objectives of the Trust, or if not so
directed, in its own discretion.
29
<PAGE>
AMENDMENT OF THE INDENTURE
The Indenture may be amended by the Trustee and the Sponsor without the
consent of any of the Unitholders to cure any ambiguity or to correct or
supplement any provision thereof which may be defective or inconsistent or to
make such other provisions as will not adversely affect the interest of the
Unitholders.
The Indenture may also be amended by the Trustee and the Sponsor without
the consent of any of the Unitholders to implement a program to reinvest cash
proceeds received by the Trust in connection with corporate actions and in
other situations, when and if the Sponsor receives a favorable response to
the no-action letter request which it intends to submit to the Division of
Investment Management at the SEC discussed above (see "Distributions"). There
can be no assurance that a favorable no-action letter response will be
received.
The Indenture may be amended in any respect by the Sponsor and the Trustee
with the consent of the holders of 51% of the Units then outstanding;
provided that no such amendment shall (1) reduce the interest in the Trust
represented by a Unit or (2) reduce the percentage of Unitholders required to
consent to any such amendment, without the consent of all Unitholders.
The Trustee will promptly notify Unitholders of the substance of any
amendment affecting Unitholders' rights or their interest in the Trust.
TERMINATION OF THE TRUST
The Indenture provides that the Trust will terminate on the Mandatory
Termination Date. If the value of the Trust as shown by any evaluation is
less than fifty per cent (50%) of the market value of the Securities upon
completion of the deposit of Securities, the Trustee may in its discretion,
and will when so directed by the Sponsor, terminate the Trust. The Trust may
also be terminated at any time by the written consent of 51% of the
Unitholders or by the Trustee upon the resignation or removal of the Sponsor
if the Trustee determines termination to be in the best interest of the
Unitholders. In no event will the Trust continue beyond the Mandatory
Termination Date.
Unless advised to the contrary by the Sponsor, approximately 20 days prior
to the termination of the Trust, the Trustee will begin to sell the
Securities held in the Trust and will then, after deduction of any fees and
expenses of the Trust and payment into the Reserve Account of any amount
required for taxes or other governmental charges that may be payable by the
Trust, distribute to each Unitholder, after due notice of such termination,
such Unitholder's pro rata share in the Income and Capital Accounts. Moneys
held upon the sale of Securities may be held in non-interest bearing accounts
created by the Indenture until distributed and will be of benefit to the
Trustee. The sale of Securities in the Trust in the period prior to
termination may result in a lower amount than might otherwise be realized if
such sale were not required at such time due to impending or actual
termination of the Trust. For this reason, among others, the amount realized
by a Unitholder upon termination may be less than the amount paid by such
Unitholder.
SPONSOR
The Sponsor, PaineWebber Incorporated, is a corporation organized under
the laws of the State of Delaware. The Sponsor is a member firm of The New
York Stock Exchange, Inc. as well as other major securities and commodities
exchanges and is a member of the National Association of Securities Dealers,
Inc. The Sponsor is engaged in a security and commodity brokerage business as
well as underwriting and distributing new issues. The Sponsor also acts as a
dealer in unlisted securities and municipal bonds and
30
<PAGE>
in addition to participating as a member of various selling groups or as an
agent of other investment companies, executes orders on behalf of investment
companies for the purchase and sale of securities of such companies and sells
securities to such companies in its capacity as a broker or dealer in
securities.
The Indenture provides that the Sponsor will not be liable to the Trustee,
the Trust or to the Unitholders for taking any action or for refraining from
taking any action made in good faith or for errors in judgment, but will be
liable only for its own willful misfeasance, bad faith, gross negligence or
willful disregard of its duties. The Sponsor will not be liable or
responsible in any way for depreciation or loss incurred by reason of the
sale of any Securities in the Trust.
The Indenture is binding upon any successor to the business of the
Sponsor. The Sponsor may transfer all or substantially all of its assets to a
corporation or partnership which carries on the business of the Sponsor and
duly assumes all the obligations of the Sponsor under the Indenture. In such
event the Sponsor shall be relieved of all further liability under the
Indenture.
If the Sponsor fails to undertake any of its duties under the Indenture,
becomes incapable of acting, becomes bankrupt, or has its affairs taken over
by public authorities, the Trustee may either appoint a successor Sponsor or
Sponsors to serve at rates of compensation determined as provided in the
Indenture or terminate the Indenture and liquidate the Trust.
TRUSTEE
The Trustee is The Chase Manhattan Bank, a New York Bank with its
principal executive office located at 270 Park Avenue, New York, New York
10081 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. In connection with the
storage and handling of certain Securities deposited in the Trust, the
Trustee may use the services of The Depository Trust Company. These services
may include safekeeping of the Securities and coupon-clipping, computer
book-entry transfer and institutional delivery services. The Depository Trust
Company is a limited purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System and a clearing
agency registered under the Securities Exchange Act of 1934.
The Indenture provides that the Trustee will not be liable for any action
taken in good faith in reliance on properly executed documents or the
disposition of moneys, Securities or Certificates or in respect of any
valuation which it is required to make, except by reason of its own gross
negligence, bad faith or willful misconduct, nor will the Trustee be liable
or responsible in any way for depreciation or loss incurred by reason of the
sale by the Trustee of any Securities in the Trust. In the event of the
failure of the Sponsor to act, the Trustee may act and will not be liable for
any such action taken by it in good faith. The Trustee will not be personally
liable for any taxes or other governmental charges imposed upon or in respect
of the Securities or upon the interest thereon or upon it as Trustee or upon
or in respect of the Trust which the Trustee may be required to pay under any
present or future law of the United States of America or of any other taxing
authority having jurisdiction. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee. The Trustee will
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 its acceptance or administration of the
Trust, including the costs and expenses (including counsel fees) of defending
itself against any claim of liability.
INDEPENDENT AUDITORS
The Statement of Financial Condition and Schedule of Investments audited
by Ernst & Young LLP, independent auditors, have been included in reliance on
their report given on their authority as experts in accounting and auditing.
31
<PAGE>
LEGAL OPINIONS
The legality of the Units offered hereby has been passed upon by Carter,
Ledyard & Milburn, 2 Wall Street, New York, New York, as counsel for the
Sponsor.
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE UNITHOLDERS, SPONSOR AND TRUSTEE
THE PAINEWEBBER EQUITY TRUST, REIT SERIES 1
We have audited the accompanying Statement of Financial Condition of The
PaineWebber Equity Trust, REIT Series 1, including the Schedule of
Investments, as of May 27, 1998. This financial statement is the
responsibility of the Trustee. 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, the Trustee,
of an irrevocable letter of credit deposited for the purchase of securities,
as shown in the financial statement as of May 27, 1998. An audit also
includes assessing the accounting principles used and significant estimates
made by the Trustee, 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 The PaineWebber Equity
Trust, REIT Series 1 at May 27, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
May 27, 1998
33
<PAGE>
THE PAINEWEBBER EQUITY TRUST,
REIT SERIES 1
STATEMENT OF FINANCIAL CONDITION
AS OF INITIAL DATE OF DEPOSIT, MAY 27, 1998
<TABLE>
<CAPTION>
TRUST PROPERTY
<S> <C>
Sponsor's Contracts to Purchase underlying Securities backed
by irrevocable letter of credit (a)........................... $150,000
----------
Total...................................................... $150,000
==========
INTEREST OF UNITHOLDERS
10,000 Units outstanding: (b)..................................
Cost to investors (c)......................................... $150,000
Less: Gross underwriting commissions (d)...................... 0
----------
Total liabilities and net assets........................... $150,000
==========
</TABLE>
- ------------
(a) The aggregate cost to the Trust of the securities listed under
"Schedule of Investments" is determined by the Trustee on the basis set forth
above under "Public Offering of Units--Public Offering Price." See also the
column headed Cost of Securities to Trust under "Schedule of Investments."
Pursuant to contracts to purchase securities, an irrevocable letter of credit
issued by Bank of America on May 26, 1998 in the amount of $300,000 has been
deposited with the Trustee, The Chase Manhattan Bank, for the purchase of
$150,000 aggregate value of Securities in the initial deposit and for the
purchase of Additional Securities in subsequent deposits.
(b) Because the value of the Securities at the Valuation Time on the
Initial Date of Deposit may differ from the amounts shown in this Statement
of Financial Condition, the number of Units offered on the Initial Date of
Deposit will be adjusted from the initial number of Units shown to maintain
the $15 per Unit offering price only for that day. The Public Offering Price
on any subsequent day will vary.
(c) The aggregate public offering price is computed on the basis set forth
under "Public Offering of Units--Public Offering Price."
(d) No sales charge is imposed on the Initial Date of Deposit. Thereafter,
a maximum sales charge of 3.50% of the Public Offering Price per Unit is
computed on the basis set forth under "Public Offering of Units--Sales Charge
and Volume Discount."
34
<PAGE>
SCHEDULE OF INVESTMENTS
AS OF INITIAL DATE OF DEPOSIT, MAY 27, 1998
COMMON STOCKS (1)
<TABLE>
<CAPTION>
NUMBER OF COST OF SECURITIES
NAME OF ISSUER SHARES TO TRUST(2)(3)
- ------------------------------------------------------ ----------- -------------------
<S> <C> <C>
Alexandria Real Estate Equities, Inc. (9.0%) ......... 435 $ 13,430.63
Camden Property Trust (3.0%) ......................... 152 4,493.50
Chateau Communities, Inc. (1.5%) ..................... 78 2,242.50
Colonial Properties Trust (2.0%) ..................... 99 3,007.13
Cornerstone Realty Income Trust, Inc. (7.5%) ......... 978 11,247.00
EastGroup Properties, Inc. (2.3%) .................... 175 3,379.69
FelCor Suite Hotels, Inc. (3.7%) ..................... 165 5,620.31
Gables Residential Trust (2.3%) ...................... 130 3,518.13
Home Properties of New York, Inc. (7.2%) ............. 409 10,812.94
Kimco Realty Corporation (7.5%) ...................... 295 11,246.88
Liberty Property Trust (3.3%) ........................ 187 4,885.38
The Macerich Company (12.5%) ......................... 697 18,731.26
Mack-Cali Realty Corporation (9.0%) .................. 369 13,514.63
Post Properties, Inc. (3.7%) ......................... 139 5,612.13
PS Business Parks, Inc. (6.2%) ....................... 381 9,239.25
Realty Income Corporation (1.0%) ..................... 58 1,508.00
Shurgard Storage Centers, Inc. (2.0%) ................ 107 3,009.38
Simon DeBartolo Group, Inc. (12.8%) .................. 587 19,260.94
Storage USA, Inc. (2.0%) ............................. 82 3,008.38
Sun Communities, Inc. (1.5%) ......................... 67 2,231.94
------------
TOTAL INVESTMENTS ................................. $ 150,000.00
============
</TABLE>
- ----------
(1) All Securities are represented entirely by contracts to purchase
Securities.
(2) Valuation of the Securities by the Trustee was made as described in
"Valuation" as of the close of business on the business day prior to the
Initial Date of Deposit.
(3) The loss to the Sponsor on the date of Initial Date of Deposit is $7.00.
35
<PAGE>
PaineWebber Equity Trust
REIT Series 1
TRUSTEE:
THE CHASE MANHATTAN BANK
Customer Service Retail Department
Bowling Green Station
P.O. Box 5187
New York, N.Y. 10274-5187
1-800-428-8890
SPONSOR:
PAINEWEBBER INCORPORATED
1200 Harbor Boulevard,
Weehawken, N.J. 07087
(201) 902-3000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Essential Information Regarding the
Trust ..................................... 2
The Trust ................................ 5
Objective and Securities Selection ....... 6
Risk Factors and Special Considerations .. 11
General ................................ 11
Real Estate Investment Trusts .......... 13
Liquidity ............................. 16
Federal Income Taxes ..................... 16
Public Offering of Units ................. 18
Public Offering Price .................. 18
Sales Charge and Volume Discount ....... 19
Employee Discount ...................... 20
Exchange Option ........................ 20
Conversion Option ...................... 22
Distribution of Units .................. 22
Sponsor's Profits ....................... 22
Secondary Market for Units ............. 23
Sponsor's Profits ...................... 23
Redemption ............................... 23
Valuation ................................ 25
Comparison of Public Offering Price and
Redemption Value ........................ 26
Expenses of the Trust .................... 26
Rights of Unitholders .................... 27
Distributions ............................ 27
Reinvestment Plan ........................ 28
Administration of the Trust .............. 28
Accounts ............................... 28
Reports and Records .................... 29
Portfolio Supervision .................. 29
Amendment of the Indenture ............... 30
Termination of the Trust ................. 30
Sponsor .................................. 31
Trustee .................................. 31
Independent Auditors ..................... 32
Legal Opinions ........................... 32
Report of Independent Auditors ........... 33
Statement of Financial Condition ......... 34
Schedule of Investments .................. 35
</TABLE>
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS; AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE
TRUST, THE TRUSTEE OR THE SPONSOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY STATE TO
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
- -------------------------------------------------------------------------------
THIS PROSPECTUS CONTAINS INFORMATION CONCERNING THE TRUST AND THE SPONSOR,
BUT DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE TRUST'S
REGISTRATION STATEMENTS, AMENDMENTS AND EXHIBITS RELATING THERETO, WHICH HAVE
BEEN 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 HEREBY MADE.
