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File No. 333-38255
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-6
For Registration Under the Securities Act of 1933 of Securities
of Unit Investment Trusts Registered on Form N-8B-2
A. Exact name of Trust:
THE PAINEWEBBER EQUITY TRUST,
REIT SERIES 1
B. Name of Depositor:
PAINEWEBBER INCORPORATED
C. Complete address of Depositor's principal executive office:
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
D. Name and complete address of agents for service:
PAINEWEBBER INCORPORATED
Attention: Mr. Robert E. Holley
1200 Harbor Boulevard
Weehawken, New Jersey 07087
Copy to:
CARTER, LEDYARD & MILBURN
Attention: Kathleen H. Moriarty, Esq.
2 Wall Street
New York, New York 10005
E. Total and amount of securities being registered:
An indefinite number of Units pursuant to Rule 24f-2
of the Investment Company Act of 1940.
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F. Proposed maximum offering price to the public of the
securities being registered:
Indefinite
G. Amount of filing fee, computed at one-thirty-fourth
of 1 percent of the proposed maximum aggregate
offering price to the public:
None required pursuant to Rule 24f-2.
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF
THE REGISTRATION STATEMENT
/ / Check box if it is proposed that this filing will
become effective on ____________, 1998 at 3:00
p.m. pursuant to Rule 487.
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THE PAINEWEBBER EQUITY TRUST,
REIT SERIES 1
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction 1
as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in
Prospectus
I. Organization and General Information
1. (a) Name of Trust ) Front Cover
(b) Title of securities issued )
2. Name and address of Depositor ) Back Cover
3. Name and address of Trustee ) Back Cover
4. Name and address of principal ) Back Cover
Underwriter )
5. Organization of Trust ) The Trust
6. Execution and termination of ) The Trust
Trust Agreement ) Termination of the
) Trust
7. Changes of name ) *
8. Fiscal Year ) *
9. Litigation ) *
II. General Description of the Trust
and Securities of the Trust
10. General Information regarding Trust's ) The Trust
Securities and Rights of Holders ) Rights of
Unitholders
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* Not applicable, answer negative or not required.
(a) Type of Securities ) The Trust
(Registered or Bearer) )
(b) Type of Securities ) The Trust
(Cumulative or Distributive) )
(c) Rights of Holders as to ) Rights of Unitholders
Withdrawal or Redemption ) Redemption
) Public Offering of
) Units, Secondary
) Market for Units
) Exchange Option
(d) Rights of Holders as to ) Public Offering of
conversion, transfer, etc. ) Units-Administration
) of the Trust
(e) Rights of Trust issues periodic ) *
payment plan certificates )
(f) Voting rights as to Securities, ) Rights of Unitholders
under the Indenture ) Amendment of the Trust
) Termination of the
) Trust
(g) Notice to Holders as to )
change in )
(1) Assets of Trust )
(2) Terms and Conditions )
of Trust's Securities )
(3) Provisions of Trust ) Amendment of the Indenture
(4) Identity of Depositor ) Administration of the Trust-
and Trustee ) Portfolio Supervision
(h) Consent of Security Holders )
required to change )
(1) Composition of assets ) Amendment of the Indenture
of Trust
(2) Terms and conditions ) Amendment of the Indenture
of Trust's Securities )
(3) Provisions of Indenture )
(4) Identity of Depositor and ) Amendment of the Indenture
Trustee )
11. Type of securities comprising ) The Trust Rights of Unit-security
holder's interest ) holders Administration of
) the Trust-Portfolio
) Supervision
* Not applicable, answer negative or not required.
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12. Information concerning periodic ) *
payment certificates )
13. (a) Load, fees, expenses, etc. ) Public Offering Price of
) Units, Administration of
) the Trust, Expenses of the
) Trust
(b) Certain information regarding ) *
periodic payment certificates )
(c) Certain percentages ) Public offering of Units
(d) Certain other fees, etc. )
payable by holders ) Rights of Unitholders
(e) Certain profits receivable by ) Public Offering of Units-
depositor, principal under- ) Public Offering Price;
writers, trustee or affiliated ) -Sponsor's Profit-Secondary
persons ) Market for Units
(f) Ratio of annual charges to ) *
income )
14. Issuance of trust's securities ) The Trust
) Public Offering of Units
15. Receipt and handling of payments ) Public offering of Units
from purchasers )
16. Acquisition and disposition of ) The Trust, Administration
Underlying Securities ) of the Trust, Amendment of
) the Indenture, Termination
) of the Trust
17. Withdrawal or redemption ) Public Offering of Units
) Administration of the Trust
18. (a) Receipt and disposition of ) Distributions, The Trust,
income ) Distributions, Administra-
) tion of the Trust
(b) Reinvestment of distributions ) *
(c) Reserves or special fund ) Distributions, Redemption,
) Expenses of the Trust,
) Termination of the Trust,
) Amendment of the Indenture
* Not applicable, answer negative or not required.
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(d) Schedule of distribution ) *
19. Records, accounts and report ) Distributions, Adminstra-
) tion of the Trust
20. Certain miscellaneous provisions ) Trustee, Sponsor, Termina-
of trust agreement ) tion of the Trust, Amend-
) ment of the Indenture
21. Loans to security holders ) *
22. Limitations on liability ) Sponsor, Trustee, Redemp-
) tion
23. Bonding arrangements ) Included in Form N-8B-2
24. Other material provisions of ) *
trust agreement )
III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of Depositor ) Sponsor
26. Fees received by Depositor ) Public Offering of
) Units-Public Offering
) Price, Expenses of the
) Trust
27. Business of Depositor ) Sponsor
28. Certain information as to ) Sponsor
officials and affiliated )
persons of Depositor )
29. Voting securities of Depositor ) *
30. Persons controlling Depositor ) Sponsor
31. Payments by Depositor for certain ) *
other services trust )
32. Payments by Depositor for certain ) *
certain other services )
rendered to trust )
33. Remuneration of employees of ) *
Depositor for certain services )
rendered to trust )
* Not applicable, answer negative or not required.
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34. Remuneration of other persons ) *
for certain services rendered )
to trust )
IV. Distribution and Redemption of Securities
35. Distribution of trust's ) Public Offering of Units
securities by states )
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution ) Public Offering of Units
(b) Underwriting agreements ) The Trust, Administration
(c) Selling agreements ) of The Trust
39. (a) Organization of principal ) Sponsor
Underwriter )
(b) N.A.S.D. membership of ) Sponsor
principal underwriter )
40. Certain fees received by ) Public Offering of Units,
principal underwriter ) Expenses of the Trust
41. (a) Business of principal ) Sponsor
underwriter )
(b) Branch officers of principal )
underwriter )
(c) Salesman of principal ) *
underwriter )
42. Ownership of trust's securities ) *
by certain persons )
43. Certain brokerage commissions ) *
received by principal underwriter )
44. (a) Method of valuation ) Public Offering of Units
) Valuation
(b) Schedule as to offering price ) *
(c) Variation in offering ) Public Offering of Units Price to
certain persons ) Administration of the Trust
* Not applicable, answer negative or not required.
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45. Suspension of redemption rights ) *
46. (a) Redemption valuation ) Public Offering of Units
) -Public Offering Price
) -Secondary Market for Units
) Valuation, Redemption
(b) Schedule as to redemption ) *
price )
V. Information concerning the Trustee or Custodian
47. Maintenance of position in ) Redemption, Public Offering
underlying securities ) of Units-Public Offering
) Price
48. Organization and regulation of ) Trustee
Trustee )
49. Fees and expenses of Trustee ) Expenses of the Trust
50. Trustee's lien ) Expenses of the Trust
VI. Information concerning Insurance of Holders of Securities
51. (a) Name and address of Insurance ) *
Company )
(b) Type of policies ) *
(c) Type of risks insured and ) *
excluded )
(d) Coverage of policies ) *
(e) Beneficiaries of policies ) *
(f) Terms and manner of ) *
cancellation )
(g) Method of determining premiums ) *
(h) Amount of aggregate premiums ) *
paid )
(i) Who receives any part of ) *
premiums )
(j) Other material provisions of ) *
the Trust relating to insurance )
* Not applicable, answer negative or not required.
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VII. Policy of Registrant
52. (a) Method of selecting and ) The Trust, Administration
eliminating securities from ) of the Trust
the Trust )
(b) Elimination of securities ) *
from the Trust )
(c) Policy of Trust regarding ) The Trust, Administration
substitution and elimination ) of the Trust
of securities )
(d) Description of any funda- ) The Trust, Administration
policy of the Trust ) mental of the Trust-Portfolio
) Supervision
53. (a) Taxable status of the Trust ) Federal Income Taxes
(b) Qualification of the Trust as )
a regulated investment company )
VIII. Financial and Statistical Information
54. Information regarding the Trust's ) *
past ten fiscal years )
55. Certain information regarding ) *
periodic payment plan certificates )
56. Certain information regarding ) *
periodic payment plan certificates )
57. Certain information regarding ) *
periodic payment plan certificates )
58. Certain information regarding ) *
periodic payment plan certificates )
59. Financial statements ) Statement of Financial
(Instruction 1(c) to Form S-6) ) Condition
* Not applicable, answer negative or not required.
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UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
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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 the Initial Date of Deposit, and on subsequent
dates, 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.
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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.
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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.
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<PAGE>
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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<PAGE>
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
12
<PAGE>
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).
- ------------
* 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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<PAGE>
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 they
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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
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<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
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<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
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<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 Securities Exchange Act of 1934, as amended, 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 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.
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<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.
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<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.
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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.
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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. (9.1%) 442 $ 13,646.75
Camden Property Trust (3.0%) ................ 152 4,493.50
Chateau Communities, Inc. (2.0%) ............ 104 2,990.00
Colonial Properties Trust (3.1%) ............ 153 4,647.38
Cornerstone Realty Income Trust, Inc. (7.5%) 978 11,247.00
EastGroup Properties, Inc. (2.0%) ........... 155 2,993.44
FelCor Suite Hotels, Inc. (3.2%) ............ 141 4,802.81
Gables Residential Trust (1.5%) ............. 83 2,246.19
Home Properties of New York, Inc. (7.2%) ... 409 10,812.94
Kimco Realty Corporation (7.6%) ............. 299 11,399.38
Liberty Property Trust (2.5%) ............... 144 3,762.00
The Macerich Company (12.5%) ................ 698 18,758.75
Mack-Cali Realty Corporation (9.0%) ........ 369 13,514.63
Post Properties, Inc. (3.7%) ................ 137 5,531.38
PS Business Parks, Inc. (6.2%) .............. 384 9,312.00
Realty Income Corporation (1.2%) ............ 69 1,794.00
Shurgard Storage Centers, Inc. (2.0%) ...... 106 2,981.25
Simon DeBartolo Group, Inc. (12.7%) ......... 581 19,060.09
Storage USA, Inc. (2.0%) .................... 82 3,008.38
Sun Communities, Inc. (2.0%)................. 90 2,998.13
------------------
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
$10.00.
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 ................................ 6
Objective and Securities Selection ....... 7
Risk Factors and Special Considerations .. 10
General ................................ 10
Real Estate Investment Trusts .......... 12
Liquidity ............................. 15
Federal Income Taxes ..................... 15
Public Offering of Units ................. 17
Public Offering Price .................. 17
Sales Charge and Volume Discount ....... 17
Employee Discount ...................... 18
Exchange Option ........................ 18
Conversion Option ...................... 20
Distribution of Units .................. 20
Sponsor's Profits ....................... 21
Secondary Market for Units ............. 21
Sponsor's Profits ...................... 21
Redemption ............................... 22
Valuation ................................ 23
Comparison of Public Offering Price and
Redemption Value ........................ 24
Expenses of the Trust .................... 24
Rights of Unitholders .................... 25
Distributions ............................ 25
Reinvestment Plan ........................ 26
Administration of the Trust .............. 27
Accounts ............................... 27
Reports and Records .................... 27
Portfolio Supervision .................. 27
Amendment of the Indenture ............... 28
Termination of the Trust ................. 28
Sponsor .................................. 29
Trustee .................................. 29
Independent Auditors ..................... 30
Legal Opinions ........................... 30
Report of Independent Auditors ........... 31
Statement of Financial Condition ......... 32
Schedule of Investments .................. 33
</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.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following documents:
The facing sheet.
The Prospectus.
The Undertaking to file reports.
The signatures.
Written consents of the following persons:
Ernst & Young LLP (included in Exhibit
99.C2) Carter, Ledyard & Milburn (included
in Exhibits 99.2 and 99.C1)
The following exhibits:
1. Ex.-27 - Financial Data Schedule
2. Ex.-99.A1 - Standard Terms and Conditions of
Trust dated as of May 1,1998 between
PaineWebber Incorporated, Depositor and The
Chase Manhattan Bank, as Trustee.
3. Ex.-99.A2 - Copy of Trust Indenture and
Agreement between PaineWebber Incorporated,
Depositor, and The Chase Manhattan Bank, as
Trustee, incorporating by reference Standard
Terms and Conditions of Trust dated as of May
1, 1998 (included herewith as Exhibit No. 2).
4. Ex.-99.A5 - Form of Certificate of Ownership
(included in Standard Terms and Conditions of
Trust).
5. Ex.-99.A6 - Certificate of Incorporation of
PaineWebber Incorporated, as amended
(incorporated by reference to Exhibit 8 in File
No. 2-88344).
6. Ex.-99.A6 - By-Laws of PaineWebber
Incorporated, as amended (incorporated by
reference to Exhibit A(6)(a) in File No.
811-3722).
7. Ex.-99.2 - Opinion of Counsel as to legality of
securities being registered.
8. Ex.-99.C1 - Opinion of Counsel as to income tax
status of securities being registered.
9. Ex.-99.C2 - Consent of Ernst & Young LLP,
Independent Auditors.
<PAGE>
FINANCIAL STATEMENTS
1. Statement of Condition of the Trust as shown in the current Prospectus for
this series.
2. Financial Statements of the Depositor.
PaineWebber Incorporated-Financial Statements incorporated
herein by reference to Form 10-K and Form 10-Q(File No. 1-7367),
respectively.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and State of New York, on the 27th day of May, 1998.
THE PAINEWEBBER EQUITY TRUST,
REIT SERIES 1
(Registrant)
By: PaineWebber Incorporated
(Depositor)
/s/ Robert E. Holley
Robert E. Holley
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed on behalf of
PaineWebber Incorporated the Depositor by the following persons who constitute
a majority of the Executive Committee of its Board of Directors in the
following capacities and in the City of New York, and State of New York, on
this 27th of May, 1998.
PAINEWEBBER INCORPORATED
Name Office
---- ------
Donald B. Marron Chairman, Chief Executive
Officer, Director & Member of
the Executive Committee*
Regina A. Dolan Executive Vice President, Chief
Financial Officer & Director of PaineWebber
Incorporated*
Joseph J. Grano, Jr. President, Retail Sales & Marketing,
Director & Member of the Executive
Committee*
Steve P. Baum Executive Vice President, Director of
PaineWebber Incorporated*
Robert H. Silver Executive Vice President Director of
Paine Webber Incorporated*
Mark B. Sutton Executive Vice President, Director of
PaineWebber Incorporated*
Margo N. Alexander Executive Vice President, Director of
PaineWebber Incorporated*
Terry L. Atkinson Managing Director, Director of PaineWebber
Incorporated*
Brian M. Barefoot Executive Vice President, Director of
PaineWebber Incorporated*
Michael Culp Managing Director, Director of PaineWebber
Incorporated*
Edward M. Kerschner Managing Director, Director of PaineWebber
Incorporated*
James P. MacGilvray Executive Vice President, Director of
PaineWebber Incorporated*
By /s/ Robert E. Holley
-------------------------------
Robert E. Holley
Attorney-in-fact*
- -----------------
Executed copies of the powers of attorney have been filed with the Securities
and Exchange Commission in connection with Post Effective Amendment No.19 to
the Registration Statement File No. 2-61279.
<PAGE>
EXHIBIT INDEX
1. Ex.-27 - Financial Data Schedule
2. Ex.-99.A1 - Standard Terms and Conditions of Trust dated as of May
1,1998 between PaineWebber Incorporated, Depositor and The Chase
Manhattan Bank, as Trustee.
3. Ex.-99.A2 - Copy of Trust Indenture and Agreement between PaineWebber
Incorporated, Depositor, and The Chase Manhattan Bank, as Trustee,
incorporating by reference Standard Terms and Conditions of Trust
dated as of May 1, 1998, (included herewith as Exhibit No. 2).
4. Ex.-99.A5 - Form of Certificate of Ownership (included in Standard
Terms and Conditions of Trust).
5. Ex.-99.A6 - Certificate of Incorporation of PaineWebber Incorporated,
as amended (incorporated by reference to Exhibit 8 in File No.
2-88344).
6. Ex.-99.A6 - By-Laws of PaineWebber Incorporated, as
amended (incorporated by reference to Exhibit A(6)(a) in
File No. 811-3722).
7. Ex.-99.2 - Opinion of Counsel as to legality of securities being
registered.
8. Ex.-99.C1 - Opinion of Counsel as to income tax status of securities
being registered.
9. Ex.-99.C2 - Consent of Ernst & Young LLP, Independent Auditors.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 150,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.A1
THE PAINEWEBBER EQUITY TRUST
REIT SERIES 1
AND
SUBSEQUENT SERIES OF PAINEWEBBER EQUITY TRUST
STANDARD TERMS AND CONDITIONS OF TRUST
for all series formed on or subsequent to the
effective date specified below
Dated as of May 1, 1998
BETWEEN
PAINEWEBBER INCORPORATED,
as SPONSOR,
and
the TRUSTEE
EFFECTIVE DATE: MAY 27, 1998
<PAGE>
Table of Contents
INTRODUCTION.................................................................
ARTICLE I Definitions.........................................................
ARTICLE II Declaration of Trust; Original Issuance of Certificates
Section 2.01. Declaration of Trust.................................
Section 2.02. Deposit of Securities................................
Section 2.03. Issuance of Units; Issuance of Certificates..........
Section 2.04. Certain Contracts Satisfactory.......................
Section 2.05. Voting Rights........................................
ARTICLE III Administration of Trust
Section 3.01. Certain Moneys to Be Credited to Income Account......
Section 3.02. Certain Moneys to Be Credited to Capital Account.....
Section 3.03. Establishment of Reserve Account.....................
Section 3.04. Certain Deductions and Distributions.................
Section 3.05. Statements and Reports...............................
Section 3.06. Sale of Securities and of Certain Rights.............
Section 3.07. Reorganizations and Similar Events; Stock
Dividends..........................................
Section 3.08. Counsel..............................................
Section 3.09. Notice and Sale by Trustee...........................
Section 3.10. Action by Trustee Regarding Securities and
Voting.............................................
Section 3.11. Trustee Not to Adjust Accounts.......................
Section 3.12. Notice of Change in Capital Account..................
Section 3.13. Election to Qualify as a Regulated Investment
Company; Diversification Tests.....................
Section 3.14. Investment Restrictions..............................
Section 3.15 Replacement Securities; Reinvestment of Cash
Proceeds. .........................................
Section 3.16. Special Provisions for Grantor Trusts................
<PAGE>
ARTICLE IV Valuation of Securities
Section 4.01. Valuation of Securities..............................
Section 4.02. Liability of the Trustee.............................
ARTICLE V Trust Fund Evaluation and Redemption of Units
Section 5.01. Trust Fund Evaluation.............................
Section 5.02. Redemption of Units..................................
ARTICLE VI Transfer, Interchange or Replacement of Units.......................
Section 6.01. Transfer and Interchange of Units....................
Section 6.02. Replacement of Certificates..........................
Section 6.03. Form of Certificate..................................
ARTICLE VII Sponsor
Section 7.01. Liability of Sponsor and Indemnification.............
Section 7.02. Compensation of Sponsor..............................
Section 7.03. Liability............................................
Section 7.04. Discharge of Sponsor.................................
Section 7.05. Certain Matters Regarding Succession.................
Section 7.06. Resignation of Sponsor...............................
Section 7.07. Notice to Unitholders................................
ARTICLE VIII Trustee
Section 8.01. General Matters Relating to Trustee..................
Section 8.02. Books and Records....................................
Section 8.03. Reports to Securities and Exchange Commission and
Others.............................................
Section 8.04. Indenture and List of Securities on File.............
Section 8.05. Compensation of Trustee..............................
Section 8.06. Resignation, Discharge or Removal of Trustee;
Successor..........................................
Section 8.07. Qualification of Trustee.............................
ARTICLE IX Termination
Section 9.01. Procedure Upon Termination...........................
Section 9.02. Notice to Holders of Units Evidenced by
Certificates.......................................
Section 9.03. Moneys to Be Held in Trust Without Interest..........
Section 9.04. Dissolution of Sponsor Not to Terminate..............
ARTICLE X Miscellaneous Provisions
<PAGE>
Section 10.01. Amendment and Waiver................................
Section 10.02. Initial Costs.......................................
Section 10.03. Registration (Initial and Current) of Units
and Trust Fund....................................
Section 10.04. Certain Matters Relating to Unitholders.............
Section 10.05. New York Law to Govern..............................
Section 10.06. Notices.............................................
Section 10.07. Severability........................................
Section 10.08 Separate and Distinct Series........................
Section 10.09. Counterparts........................................
<PAGE>
THE PAINEWEBBER EQUITY TRUST
REIT SERIES 1
AND
SUBSEQUENT OF THE PAINEWEBBER EQUITY TRUST
STANDARD TERMS AND CONDITIONS OF TRUST
Dated as of May 1, 1998 and
Effective as of May 27, 1998
These Standard Terms and Conditions of Trust effective as of May 27,
1998 are executed between PaineWebber Incorporated, as Sponsor, and The Chase
Manhattan Bank, as Trustee.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Sponsor and the Trustee agree as follows:
INTRODUCTION
These Standard Terms and Conditions of Trust effective as of the day
and year first above written shall be applicable to The PaineWebber Equity
Trust, REIT Series 1 (a Unit Investment Trust) and to all subsequent Series of
The PaineWebber Equity Trust formed on or subsequent to the date hereof for
which their applicability and their incorporation by reference is specified in
the applicable Trust Indenture relating to such series. For each Series of The
PaineWebber Equity Trust to which these Standard Terms and Conditions of Trust
are to be applicable, the Sponsor and the Trustee shall execute a Trust
Indenture (or supplement or amendment to such Trust Indenture) incorporating by
reference these Standard Terms and Conditions of Trust and designating any
exclusion from or exception to such incorporation by reference for the purposes
of that series or variation of the terms hereof for the purposes of that series
and specifying for that series (i) the Securities deposited in trust at that
time and the number of Units delivered by the Trustee in exchange for the
Securities pursuant to Section 2.02, (ii) the initial fractional undivided
interest represented by each Unit, (iii) the Record Dates, (iv) the Capital
Account Distribution Dates and the Income Account Distribution Dates, (v) the
Mandatory Termination Date, and the date on which the Trustee shall begin to
sell equity Securities pursuant to Section 9.01, (vi) the Discretionary
Liquidation Amount, (viii) the Sponsor's fee, (ix) the Trustee's fees, (x) the
determination, if applicable, to qualify the Trust as a regulated investment
company under the Internal Revenue Code of 1986, as amended, (xi) the balance
in the Capital Account below which no distribution need be made from the
Capital Account, (xii) the determination to deposit additional Securities into
the Trust and to issue a corresponding amount of additional Units, (xiii) the
minimum dollar amount for redemptions "in kind", and (xiv) any terms specific
to any series of The PaineWebber Equity Trust.
<PAGE>
ARTICLE I
Definitions
Whenever used in this Indenture, the following capitalized words and
phrases, unless the context otherwise requires, shall have the following
meanings:
Business Day
Any day that the Sponsor or the Trustee is open for business or when
there is sufficient trading in the Securities as to materially affect the value
of the Securities, excluding, when permitted by law, U.S. business holidays.
Capital Account
The account created pursuant to Section 3.02.
Capital Account Distribution Date
Shall have the meaning set forth in the Trust Indenture.
Capital Distributions
Shall have the meaning ascribed to it in Section 3.04.
Cash Component
The amount described in Section 2.02(c).
Certificate
In the case of a Trust for which Units are not required to be held in
uncertificated form, any one of the Certificates manually executed by the
Trustee, in each case in substantially the following form with the blanks
appropriately filled in.
<PAGE>
[Face of Certificate]
CERTIFICATE OF BENEFICIAL INTEREST
Units
-Evidencing-
A Fractional Undivided Interest
-in-
THE PAINEWEBBER EQUITY TRUST,
[Name of Series]
THIS CERTIFIES that
is the registered owner of
Units of fractional undivided interest in the above-named
Trust created pursuant to the Trust Indenture between PAINEWEBBER INCORPORATED,
as Sponsor, and THE CHASE MANHATTAN BANK, as Trustee. This Certificate is
issued under and is subject to the terms, provisions and conditions of the
Trust Indenture to which the Holder of this Certificate by virtue of the
acceptance hereof assents and is bound, a summary of which Indenture is
contained in the Prospectus relating to the Trust. This Certificate is
transferable and interchangeable by the registered owner in person or by his
duly authorized attorney at the Trustee's office upon surrender of this
Certificate properly endorsed or accompanied by a written instrument of
transfer and any other documents that the Trustee may require for transfer, in
form satisfactory to the Trustee and payment of the fees and expenses provided
in the Indenture.
IN WITNESS WHEREOF, PaineWebber Incorporated has caused this
Certificate to be executed in facsimile by one of its Senior Vice Presidents as
an Authorized Signatory and The Chase Manhattan Bank, as Trustee, has caused
this Certificate to be executed in its corporate name by an authorized officer.
Date:
THE CHASE MANHATTAN BANK,
PAINEWEBBER INCORPORATED,
Trustee
Sponsor
<PAGE>
By
---------------------------
Authorized Officer
Authorized Signatory
Date:
[Reverse of Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - ......Custodian......
(Minor) (Cust)
under Uniform
Gifts to
Minors Act....
(State)
Additional abbreviations may also be used though not included in the above
list.
A form of transfer, including signature guaranty requirement, acceptable to the
Trustee and such other language as agreed upon by the Sponsor and the Trustee
from time to time shall be printed on the reverse of the Certificate.
<PAGE>
Certificateholder
The registered holder of any Certificate as recorded on the books of
the Trustee, his legal representative and heirs, and the successors of any
corporation, partnership or other legal entity which is a registered holder of
any Certificate.
Code
The Internal Revenue Code of 1986, as amended.
Commission
The Securities and Exchange Commission.
Contract Securities
Securities which are to be acquired by the Trust Fund pursuant to
contract.
Depositor
The Sponsor of any series of The PaineWebber Equity Trust.
Discretionary Liquidation Amount
The amount specified as such in the Trust Indenture.
Distribution Date
The date(s) specified as such in the Trust Indenture which may, if so
specified therein, be different for Income Account distributions ("Income
Account Distribution Dates") and Capital Account distributions ("Capital
Account Distribution Dates").
Diversification Test Date
Shall have the meaning specified in Section 3.13(b).
Dividend Equivalent Payment
The amount specified in Section 2.02(a).
<PAGE>
Income
Any interest payment, accrual of income on Securities issued at an
original issue discount or cash dividend distribution by an issuer of a
Security, whether or not such payment or distribution is taxable to the
recipient thereof, and any other amounts directed to be credited to the Income
Account hereby.
Income Account
The account created pursuant to Section 3.01.
Income Account Distribution Dates
Shall have the meaning set forth in the Trust Indenture.
Income Distributions
Shall have the meaning assigned to it in Section 3.04.
Indenture
These Standard Terms and Conditions of Trust together with the Trust
Indenture and all amendments and Supplemental Indentures hereto and thereto.
Initial Costs
Shall have the meaning specified in Section 10.02(a).
Initial Date of Deposit
Shall have the meaning assigned to such term in Section 2.02(a).
Mandatory Termination Date
The date specified as such in the Trust Indenture.
Percentage Ratios
<PAGE>
Shall have the meaning assigned to such term in Section 2.02(a).
Prospectus
The prospectus relating to a Trust in the form first used to confirm
sales of Units.
Record Date
The record date for the Capital Account and/or the Income Account, as
the case may be, specified as such in the Trust Indenture. Such record dates
may be specified as Capital Account Record Dates, or Income Account Record
Dates as the case may be.
Redemption Date
Shall have the meaning assigned to it in Section 5.02.
Redemption Value
Shall have the meaning assigned to it in Section 5.02.
Regulated Investment Company
A trust which, pursuant to Section (x) of the Introduction, elects to
qualify as a "regulated investment company" under the Code.
Replacement Security
Shall have the meaning assigned to it in Section 3.15.
Reserve Account
The account created pursuant to Section 3.03.
Restricted Securities
Securities which were acquired in private placements and which at the
time cannot, in the opinion of counsel designated by the Sponsor and
satisfactory to the Trustee, be sold publicly by the Trustee without either (1)
registration under the Securities Act, or (2) an exemption thereunder, or (3)
similar provisions of law subsequently enacted.
<PAGE>
Securities
The securities, including Contract Securities (a) which are listed or
referred to as Securities in Schedule A to the Trust Indenture or any
Supplemental Trust Indenture, (b) which have been received by the Trust in
exchange or substitution pursuant to Section 3.07 hereof or (c) which are
acquired pursuant to Sections 3.02 or 3.15 hereof, including Replacement
Securities, as may from time to time continue to be held as a part of the
Trust.
Short-term Treasury Obligations
Shall have the meaning assigned to such term in Section 3.02.
Securities Act
The Securities Act of 1933, as amended.
Sponsor
PaineWebber Incorporated, or its successors or any successor Sponsor
(or successor Sponsors if there be more than one) appointed as herein provided.
Supplemental Indenture
Shall mean a written direction from the Sponsor to the Trustee
instructing the Trustee to create additional Units pursuant to and in
accordance with Section 2.02(c) hereof.
Treasury Obligations
Shall mean direct obligations of the United States Government.
Trust or Trust Fund
Shall mean the trust created by the Trust Indenture which shall
consist of the Securities and all undistributed income or other amounts
received or receivable thereon and any undistributed cash held in the Capital
and Income Accounts or otherwise realized from the sale or liquidation of the
Securities, exclusive of any amounts which may be on deposit in the Reserve
Account.
Trust Fund Evaluation
<PAGE>
Shall have the meaning assigned to it in Section 5.01.
Trust Indenture
The Trust Indenture for the particular series of The PaineWebber
Equity Trust into which these Standard Terms and Conditions of Trust are
incorporated and all amendments and supplements thereto.
Trustee
The entity identified as the Trustee in the Trust Indenture, or any
successor Trustee appointed as herein provided.
Unit
Each Unit of fractional undivided interest in and ownership of the
Trust Fund, which shall be initially equal to the fraction specified in the
Trust Indenture, the denominator of which fraction shall be decreased by the
number of any Units redeemed as provided in Section 5.02 and shall be increased
by the number of any Units issued pursuant to a Supplemental Indenture pursuant
to and in accordance with Section 2.02(c) hereof. Whenever reference is made
herein to the "interest" of a Unitholder in the Trust Fund or in the Income or
Capital Accounts, it shall mean such fractional undivided interest represented
by the number of Units held of record by such Unitholder.
Unitholder
The registered holder of any Unit, whether or not evidenced by a
Certificate, as recorded on the registration books of the Trustee, and such
holder's legal representative and heirs, and the successors of any corporation,
partnership or other legal entity which is a registered holder of any Unit.
Unit Value
The value of the fractional undivided interest and ownership of the
Trust Fund represented by each Unit as determined by a Trust Fund Evaluation.
Valuation Time
4:00 p.m. New York time or any other time of day when trading on the
New York Stock Exchange may close, unless another meaning is assigned to such
term in the Trust Indenture.
<PAGE>
ARTICLE II
Declaration of Trust;
Original Issuance of Units
Section 2.01. Declaration of Trust. The Trustee hereby declares it
holds and will hold the Trust Fund as Trustee in trust upon the trusts herein
set forth for the use and benefit of all present and future Unitholders.
Section 2.02. Deposit of Securities. (a) The Sponsor concurrently with
the execution and delivery hereof, hereby grants and conveys all of its right,
title and interest in and to and hereby conveys to and deposits with the
Trustee in an irrevocable Trust, the Securities (together with accrued and
unpaid income thereon) and Contract Securities, listed in Schedule A to the
Trust Indenture, duly endorsed in blank or accompanied by all necessary
instruments of assignment and transfer in proper form, to be held, managed and
applied by the Trustee as herein provided for the benefit of each Unitholder to
the extent of such Unitholder's interest in the Trust Fund. The Sponsor hereby
also delivers to the Trustee a certified check or checks, cash or cash
equivalents or an irrevocable letter or letters of credit issued by a
commercial bank or banks in an amount necessary to consummate the purchase of
any Contract Securities. The Percentage Ratios for the Trust Fund shall be the
percentage ratios between the number of shares of each issue of Securities in
such Trust deposited in such Trust Fund on the initial date of deposit thereof
(the "Initial Date of Deposit") and determined by reference to Schedule A to
the Trust Indenture for such Trust Fund. Such Percentage Ratios are subject to
adjustment to reflect the occurrence of (i) a stock split or a similar event
which affects the capital structure of the issuer of a stock but which does not
affect the Trust's percentage ownership of the common stock equity of such
issuer at the time of such event, (ii) Securities received as a result of a
stock dividend, merger or reorganization and which are retained by the Trust,
(iii) acquisition of Replacement Securities and any other acquisition of
Securities permitted hereby, or (iv) the sale or other disposition of any
Securities from the Trust portfolio.
(b) The Sponsor shall deliver the Securities represented by Contract
Securities within 45 days of execution and delivery of the Trust Indenture. In
the event that the purchase of Contract Securities pursuant to any contract
shall not be consummated in accordance with said contracts, the Trustee shall
credit to the Capital Account referred to in Section 3.02 the funds, or, if
applicable, the funds drawn on an irrevocable letter of credit, deposited by
the Sponsor for the purpose of such purchase. Such funds, unless invested in
Replacement Securities, shall be distributed pursuant to Section 3.04 to
Unitholders of record as of the Record Date next following the failure of
consummation of such purchase. The Sponsor shall cause to be refunded to each
Unitholder his pro rata portion of the sales charge levied on
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the sale of Units to such Unitholder attributable to such Contract Security for
which no Replacement Security is acquired.
(c) From time to time, following the Initial Date of Deposit, the
Sponsor is hereby authorized, in its discretion, to cause the Trustee to issue
additional Units pursuant to a Supplemental Indenture directing such additional
Units to be created based upon the following:
(1) the deposit of additional Securities in respect of such
additional Units and/or contracts for the purchase of such
additional Securities; and/or
(2) the deposit of cash in an amount to purchase such additional
Securities based upon the price of such additional Securities
at the Valuation Time on such date of deposit.
To accomplish the issuance of additional Units by means of a deposit
of additional Securities, the Sponsor is authorized to assign, convey to and
deposit with the Trustee (i) additional Securities, duly endorsed in blank or
accompanied by all necessary instruments of assignment, and/or (ii) contracts
for the purchase of such additional Securities, and the Sponsor shall transfer
and deliver such necessary instruments of assignment and/or contracts for the
purchase of such additional Securities to the Trustee along with a certified
check or checks, cash, cash equivalents or an irrevocable letter or letters of
credit issued by a commercial bank in an amount necessary to consummate the
purchase of any such additional Securities represented by contracts for the
purchase of additional Securities.
To accomplish the issuance of additional Units by means of depositing
sufficient cash amounts with the Trustee to enable the Trustee to purchase and
deposit the additional Securities, the Sponsor is hereby authorized to, and
shall, instruct the Trustee to create a specified number of additional Units
whereupon the Trustee shall purchase and deposit the additional Securities in
respect thereof. Brokerage commissions with respect to the Trustee's purchase
of additional Securities, if any, shall be an expense borne by the Trust.
Except as provided in subparagraph (d), the Sponsor in each case shall
ensure that each deposit of additional Securities pursuant to this Section
shall maintain, as nearly as is practicable, the Percentage Ratios. The Sponsor
shall deliver the additional Securities which were represented by Contract
Securities within 45 days of the date of the additional deposit. In the event
that the purchase of Contract Securities pursuant to any contract shall not be
consummated in accordance with said contracts, the Trustee shall credit to the
Capital Account referred to in Section 3.02 the funds, or, if applicable, the
funds drawn on an irrevocable letter of credit, deposited by the Sponsor for
the purpose of such purchase. Such funds, unless invested in Replacement
Securities, shall be distributed pursuant to Section 3.04 to Unitholders of
record as of the Record Date next following the failure of consummation of such
purchase. The Sponsor shall cause to be refunded to each Unitholder his
pro rata portion of the
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sales charge levied on the sale of Units to such Unitholder attributable to
such Contract Security for which no Replacement Security is acquired.
In all cases of creating additional Units, the Sponsor shall also pay
to the Trustee for deposit into the Income Account an amount equal to the Cash
Component per Unit (as defined below), multiplied by the number of new Units
created in respect of the additional Securities deposited into the Trust Fund
pursuant to this Section 2.02(c).
For purposes of this subparagraph (c), Cash Component means cash or
other property (other than Securities) on hand in the Trust Fund (excluding
cash held for the purchase of Contract Securities) and/or cash receivable by
the Trust Fund as of the date of the deposit of additional Securities in
respect of a record date for payment on a Security which has occurred or will
occur before the Trust Fund will be the holder of record of a Security, reduced
by (i) payables and accrued expenses not chargeable to the additional Units in
accordance with the Trustee's customary accounting methods and (ii) amounts
allocated for redemption of Units or for distribution to holders of record as
of a preceding Record Date. Such purchase and deposit of additional Securities
shall be made, in each case, pursuant to a Supplemental Indenture. The Sponsor,
if depositing additional Securities with the Trustee pursuant to this Section
2.02(c), and the Trustee, if purchasing additional Securities with amounts
provided to it by the Sponsor pursuant to this Section 2.02(c), in each case
shall ensure that each deposit of additional Securities pursuant to this
Section 2.02(c) shall be made so as to maintain as closely as practicable the
Percentage Ratios for such Securities determined by reference to Schedule A of
the Trust Indenture for each Trust Fund and subject to adjustment as provided
herein.
(d) Additional Securities (or Contract Securities therefor) may, at
the Sponsor's discretion, be deposited or purchased in round lots. If the
amount of the deposit is insufficient to acquire round lots of each Security to
be acquired, the additional Securities shall be deposited or purchased in the
order of the Security in the Trust Fund most under-represented immediately
before the deposit with respect to the Percentage Ratios.
If at the time of a deposit of additional Securities, Securities of an
issue deposited on the Initial Date of Deposit (or an issue of Replacement
Securities acquired to replace an issue deposited on the Initial Date of
Deposit) are unavailable, cannot be purchased at reasonable prices or their
purchase is prohibited or restricted by applicable law, regulation or policies,
the Sponsor may (i) deposit, or instruct the Trustee to purchase, in lieu
thereof, another issue of Securities or Replacement Securities or (ii) deposit
cash or a letter of credit in an amount equal to the valuation of the issue
Securities whose acquisition is not feasible with instructions to the Trustee
to acquire such Securities of such issue when they become available.
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Any contrary authorization in the preceding paragraphs
notwithstanding, deposits of additional Securities to a Trust (other than a
Trust whose Trust Indenture specifies that it will elect to be taxed as a
Regulated Investment Company) made after the 90 day period immediately
following the Initial Date of Deposit (except for deposits made to replace
failed Contract Securities ("Failed Contract Securities") if such deposits
occur within 20 days from the date of a failure occurring within such initial
90-day period) shall maintain exactly the Percentage Ratios.
(e) The Securities deposited or to be held hereunder are comprised of
(1) the Securities set forth in Schedule A of the Trust Indenture, (2)
additional Securities deposited, or acquired with cash deposited, pursuant to
Section 2.02(c), (3) any Short-term Treasury Obligations which may be deposited
as temporary reinvestment for sale proceeds pursuant to Section 3.02, and (4)
Replacement Securities and Securities acquired pursuant to Section 3.15, if
applicable.
(f) The Trustee is hereby irrevocably authorized to effect
registration or transfer of the Securities in fully registered form to the name
of the Trustee or to the name of its nominee or the nominee of its agent.
Section 2.03. Issuance of Units; Issuance of Certificates. (a) The
Trustee acknowledges that the Securities and Contract Securities listed in
Schedule A to the Trust Indenture have been deposited with the Trustee by the
Sponsor on the date of the Trust Indenture and on the same date the Trustee has
recorded on its books the ownership by the Sponsor of the aggregate number of
Units specified in the Trust Indenture.
The number of Units may be increased through a split of the Units or
decreased through a reverse split thereof, as directed in writing by the
Sponsor at any time when the Sponsor is the only beneficial holder of Units,
which revised number of Units shall be recorded by the Trustee on its books.
The Trustee shall be entitled to rely on the Sponsor's direction as
certification that no person other than the Sponsor has a beneficial interest
in the Units and the Trustee shall have no liability to any person for action
taken pursuant to such direction. The Trustee hereby agrees that on the date of
any deposit of additional Securities, it shall acknowledge that the additional
Securities have been deposited with it by recording on its books the ownership
by the Sponsor of the number of Units issued in respect of such additional
Securities.
(b) Units will be held in uncertificated form unless the Trust Fund
Prospectus provides otherwise. If the Prospectus so provides, and under the
terms and conditions of the Indenture, Unitholders may elect to have their
Units held in certificated form by making a written request to the
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Trustee. The Trustee shall, upon receiving such written request, issue a new
Certificate or Certificates in quantities and denominations as requested by the
Unitholder (not exceeding the aggregate number of Units held by such Unitholder
on the Trustee's records) and deemed appropriate by the Trustee, subject to a
fee of $2.00 per Certificate, and at such time make an appropriate notation in
the registration books of the Trustee.
Section 2.04. Certain Contracts Satisfactory. The Sponsor hereby
approves as satisfactory in form and substance the contracts to be entered into
or assumed by the Trustee with regard to any Securities listed on Schedule A to
the Trust Indenture and any Supplemental Indenture and hereby authorizes the
Trustee on behalf of the Trust Fund to enter into or assume such contracts, to
give any investment representations required for the purchase of Restricted
Securities thereunder, and otherwise to carry out the terms and provisions
thereof in order to complete the purchase of the Securities covered thereby.
Section 2.05. Voting Rights. Voting rights with respect to the
Securities held by the Trust shall be exercised by the Trustee as directed by
the Sponsor in accordance with Section 3.10.
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ARTICLE III
Administration of Trust
Section 3.01. Certain Moneys to Be Credited to Income Account. The
Trustee shall collect the Income on the Securities as it becomes payable and
credit all income to a separate non-interest bearing account to be known as the
"Income Account", on the date on which the Trust Fund receives such Income
(including all moneys realized by the Trustee from the sale of options,
warrants or other similar rights received in respect of the Securities and
including any proceeds of stock dividends sold pursuant to Section 3.07).
Section 3.02. Certain Moneys to be Credited to Capital Account. All
moneys other than amounts credited to the Income Account received by the
Trustee in respect of the Securities under this Indenture shall be credited to
a separate non-interest bearing account to be known as the "Capital Account".
If Securities in a Trust are to be sold pursuant to Sections 3.06, 3.07 or
3.09, the proceeds of such sale, or moneys received as a distribution of
capital as the result of any corporate or other business action of the issuer
of a Security in the Trust, may be reinvested, upon the instruction of the
Sponsor, (i) in additional Securities held at such time in the Trust Fund on a
pro rata basis in the manner set forth in, and to the extent permitted by,
Section 3.15, or (ii) if not so permitted by Section 3.15, if (a) at the time
there is no legal or regulatory impediment and (b) in the opinion of the
Sponsor it is in the best interests of the Unitholders to do so, in U.S.
Treasury Obligations which mature on or prior to the next scheduled
Distribution Date (the "Short-term Treasury Obligations"). Any Short-term
Treasury Obligations purchased pursuant to this Section 3.02 shall be deposited
into the applicable Trust and shall be subject to the terms of such Trust
Indenture to the same extent as any Security deposited into such Trust on the
Initial Date of Deposit and the terms "Trust Fund" and "Securities" shall
thereafter be defined as including such Short-term Treasury Obligations
provided, however, that, with respect to any Trust Fund other than a Trust Fund
which has qualified, or is anticipated to qualify, as a Regulated Investment
Company, the Trustee shall not have the power to sell, transfer or otherwise
dispose of any such Short-term Treasury Obligation prior to the maturity
thereof. Brokerage commissions with respect to the purchase of Short-term
Treasury Obligations, if any, shall be an expense borne by the Trust. The
Trustee shall have no liability for loss or damage resulting from any
reinvestment made pursuant to the Sponsor's direction and in the absence of
such direction shall not reinvest monies credited to the Capital Account.
Anything in this Section 3.02 to the contrary notwithstanding, moneys which are
required to cover the purchase of Contract Securities shall be held specially
by the Trustee for such purchase and shall not be deemed to be part of the
Capital Account until the Sponsor shall have notified the Trustee that such
contracts have failed, whereupon, unless invested in Replacement Securities,
such moneys shall be credited to the Capital Account and shall be held
specially for distribution in the manner provided in Section 2.02(b).
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Section 3.03. Establishment of Reserve Account. From time to time the
Trustee may withdraw from the Income or Capital Accounts such amounts as it, in
its sole discretion, shall deem requisite to establish a reserve for any
applicable taxes or other governmental charges that may be payable out of the
Trust Fund. Such amounts so withdrawn shall be credited to a separate
non-interest bearing account which shall be known as the "Reserve Account". The
Trustee shall not be required to distribute to the Unitholders any of the
amounts in the Reserve Account; provided, however, that if it, in its sole
discretion, determines that such amounts are no longer necessary for payment of
any applicable taxes or other governmental charges, then it shall promptly
deposit such amounts in the account from which such amounts were withdrawn or
if the Trust Fund has been terminated or shall be in the process of
termination, the Trustee shall distribute to each Unitholder such holder's
interest in the Reserve Account in accordance with Section 9.01.
Section 3.04. Certain Deductions and Distributions. Each month the
Trustee shall satisfy itself as to the adequacy of the Reserve Account, making
any further credits thereto as may appear appropriate in accordance with
Section 3.03 and shall then:
(a) deduct from the Income Account or, to the extent such
funds are not available in such Account, from the Capital Account, and
pay to itself individually the amounts that it is at the time entitled
to receive pursuant to Sections 8.01 and 8.05 on account of its
services theretofore performed and expenses, losses and liabilities
theretofore incurred, if any;
(b) deduct from the Income Account or, to the extent funds
are not available in such account, from the Capital Account, and pay
to itself individually an amount equal to the portion of the advance
for the Initial Costs specified in Section 10.02(b) for which it is
then entitled to reimbursement pursuant to such section;
(c) deduct from the Income Account or, to the extent funds
are not available in such Account, from the Capital Account, and pay
to the Sponsor or successor Sponsor the amount that it is entitled to
receive pursuant to Sections 7.02 and 8.01(f); and
(d) to the extent that the Trustee has been advised that
costs incurred in keeping the registration of Units and the Trust on a
current basis are permitted to be deducted at that time by the
Securities and Exchange Commission, deduct from the Income Account, or
to the extent funds are not available in such Account, from the
Capital Account, an amount equal to the unpaid fees and expenses
incurred in keeping the registration statement current as provided in
Section 10.03.
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Any amounts that the Trustee has paid pursuant to (c) above in excess
of the amount to which the Sponsor is entitled pursuant to Section 7.02, shall
be returned to the Trust and distributed on the next Distribution Date to
Unitholders of record on the preceding Record Date.
On each Income Account Distribution Date with respect to Income
Account Distributions ("Income Distributions"), and on each annual Distribution
Date with respect to Capital Account Distributions ("Capital Distributions") or
within a reasonable period of time thereafter, the Trustee shall distribute by
mail to each Unitholder of record at the close of business on the preceding
Record Date at his address appearing on such Record Date on the registration
books of the Trustee or by such other means as may be mutually agreed upon by
the Trustee and the Unitholder, such Unitholder's pro rata share of the balance
of the Income and/or Capital Accounts, as the case may be, computed as of such
Record Date in the manner set forth below, provided, however, that the Trustee,
if so directed with respect to distributions from the Income Account and the
Capital Account in a writing signed by the Sponsor on behalf of Unitholders
electing the reinvestment plan offered in the Prospectus (the "Reinvestment
Plan") and received by the Trustee at least ten days prior to the Record Date
for the first distribution to which such notice is to apply, use such
distributions to purchase Units from the Sponsor, which may be Units held by
the Sponsor or additional Units created pursuant to the provisions of Section
2.02, for the accounts of such Unitholders under the terms and conditions set
forth in the Prospectus. Only whole Units shall be purchased pursuant to this
Section.
The Trustee shall on or before each Distribution Date in respect of
Income Distributions and/or Capital Distributions, as the case may be, compute
the amount of the distribution per Unit for such Distribution Date (i) by
deducting, as applicable, from the cash on hand in the Capital and Income
Accounts as of the Record Date immediately preceding such Distribution Date the
total of (x) cash required for the redemption of unredeemed tendered Units, (y)
the sum of the amounts to be deducted from such Accounts on or before such
Distribution Date pursuant to the foregoing provisions of this Section 3.04 and
(z) the Trustee's estimate of other expenses properly chargeable to the Income
Account pursuant to the Indenture which have accrued, as of such Record Date,
or are otherwise properly attributable to the period to which such Income
Distribution relates and (ii) dividing the amount so obtained by the number of
Units outstanding on the Record Date immediately preceding such Distribution
Date.
No distribution need be made from the Capital Account if the balance
therein is less than an amount set forth in the Trust Indenture.
The amount to be so distributed to each Unitholder shall be that pro
rata share of the cash balance of the Income or Capital Accounts, as the case
may be, computed as set forth herein, as shall be represented by the number of
Units evidenced by the number of Units held of record by such Unitholder. In
making the computation of such holder's pro rata share of the balance of the
Income and Capital Accounts, fractions of less than one cent shall be omitted.
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In the event a Unitholder of a particular series of any Trust fund is
also a Unitholder of one or more other series of a trust for which the Trustee
is the trustee and for which the Sponsor is the sole depositor, and such
Unitholder has not elected to participate in the Reinvestment Plan, then the
Trustee shall consolidate in one check the distribution required to be made to
a Unitholder hereunder with all other distributions required to be made on such
Distribution Date to such Unitholder pursuant to the indenture governing such
other series; provided that an appropriate statement of distribution be
furnished therewith as required by the applicable Trust Indenture.
Section 3.05. Statements and Reports. With each distribution from the
Income or Capital Accounts the Trustee shall set forth, either in the
instrument by means of which payment of such distribution is made or in a
separate statement to each Unitholder, the amount being distributed from each
such account expressed as a dollar amount per Unit, per 100 Units or per 1,000
Units, as appropriate, and, the number of such Units in the Unitholder's
account maintained by the Trustee.
Within 60 days following the last day of each calendar year commencing
with the calendar year stated in the applicable Trust Indenture and
corresponding Prospectus, or within 60 days of termination of the Trust, if
earlier, the Trustee shall furnish to each person who was a Unitholder at any
time during such calendar year, a statement setting forth, with respect to such
calendar year:
(a) as to the Income Account:
(1) the amount of Income received in respect of the
Securities or on the sale pursuant to Section 3.06 of any rights to
purchase securities;
(2) the deductions for fees and expenses of the Trustee and
the Sponsor pursuant to Section 3.04, if any, and deductions, if any,
for payments to the Reserve Account;
(3) the amounts reserved for purchases of Contract
Securities;
(4) the balance remaining after such distributions,
deductions and reservations, expressed both as a total dollar amount
and as a dollar amount per Unit, per 100 Units or per 1,000 Units, as
appropriate, outstanding on the last day of such calendar year; and
(5) the amounts paid for redemptions pursuant to Section
5.02.
(b) as to the Capital Account:
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(1) the net proceeds received (excluding any portion thereof
credited to the Income Account) from the sale or liquidation of any of
the Securities or the sale pursuant to Section 3.06 of any rights to
purchase securities;
(2) the deductions for payment of fees and expenses of the
Trustee and the Sponsor pursuant to Section 3.04, if any, and
deductions, if any, for payments to the Reserve Account;
(3) the amounts reserved for purchases of Contract
Securities;
(4) the balance remaining after such distributions,
deductions and reservations expressed both as a total dollar amount
and as a dollar amount per Unit or per 1,000 Units, as appropriate,
outstanding on the last day of such calendar year; and
(5) the amounts paid for redemptions pursuant to Section
5.02.
(c) the following information:
(1) a list of the Securities disposed of or acquired during
such calendar year, and a list of the Securities as of the last day of
such calendar year showing which Securities constitute Restricted
Securities;
(2) the number of Units outstanding on the last day of such
calendar year;
(3) the Unit Value based on the last Trust Fund Evaluation
made during such calendar year; and
(4) the amounts actually distributed to Unitholders during
such calendar year from the Income and Capital Accounts, separately
stated, expressed both as total dollar amounts and as dollar amounts
per Unit (or per such number of Units having a value of approximately
$1,000 on the Initial Date of Deposit or otherwise as the Sponsor
shall direct), outstanding on the Record Dates for such distributions
and the status of such distributions for Federal income tax purposes
in the case of a trust which has elected to be treated as a Regulated
Investment Company under the Code.
If so provided in the Trust Indenture, in lieu of an annual statement, the
Trustee shall, within a reasonable time following the termination of the Trust,
provide to each person who was a Unitholder during the term of the Trust a
statement containing the information specified above covering the period of the
Trust term. Notwithstanding the foregoing, when directed by the Sponsor, no
annual statement need be furnished with respect to a calendar year ending (x)
within six months of the Initial Date of
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Deposit during which the Trust has not made any distributions pursuant to
Section 3.05 or (y) not more than two months prior to the designated
termination date of the Trust, and the information for such calendar year may,
instead, be included in the next annual statement otherwise required pursuant
to this Section 3.06.
Section 3.06. Sale of Securities and of Certain Rights. The Sponsor by
written notice may direct the Trustee to sell or, under the circumstances
described in subparagraph (g), tender for cash, Securities at such price and
time and in such manner as shall be deemed appropriate by the Sponsor if the
Sponsor shall have determined that any one or more of the following conditions
exist:
(a) that there has been a failure to declare or pay
anticipated dividends or interest;
(b) that any materially adverse action or proceeding has been
instituted at law or in equity seeking to restrain or enjoin the
declaration or payment of dividends or interest on any such Securities
or that there exists any other materially adverse legal question or
impediment affecting such Securities or the declaration or payment of
dividends or interest on the same;
(c) that there has occurred any breach of covenant or
warranty in any trust indenture or other document relating to the
issuer or obligor or guarantor which might materially and adversely
affect either immediately or contingently the declaration or payment
of dividends or interest on such Securities;
(d) that there has been a default in the payment of the
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 or
interest on the Securities;
(e) that a decline in price has occurred or such materially
adverse market or credit factors have occurred, that in the opinion of
the Sponsor the retention of such Securities would not be in the best
interests of the Unitholders;
(f) that the sale of such Securities is desirable in order to
maintain the qualification of the Trust Fund as a "Regulated
Investment Company" in the case of a trust which has elected to
qualify as such;
(g) that a public tender offer has been made for a Security,
or a merger or acquisition has been announced affecting a Security,
that in the opinion of the Sponsor, the sale or tender of such
Security is in the best interest of the Unitholders;
<PAGE>
(h) that there has been a decrease in the Sponsor's internal
rating of the Security; or
(i) that there has been a happening of events which, in the
opinion of the Sponsor, negatively affects the economic fundamentals
of the issuer of the Security or the industry of which it is a part.
Upon receipt of such direction from the Sponsor with respect to any
Securities, or in the case of options, warrants or other rights to purchase
securities distributed to the Trust in respect of Securities as soon as is
practicable after receipt of such options, warrants or other rights, the
Trustee shall proceed to sell the specified securities or any such rights. The
Trustee shall not be liable or responsible in any way for depreciation or loss
incurred by reason of any sale made pursuant to any such direction or by reason
of the failure of the Sponsor to give any such direction, and in the absence of
such direction the Trustee shall have no duty to sell any Securities under this
Section 3.06 except to the extent otherwise required by Section 3.09. The
Sponsor shall not be liable for errors of judgment in directing or failing to
direct the Trustee pursuant to this Section 3.06. This provision, however,
shall not protect the Trustee or Sponsor against any liability for which they
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their obligations and duties hereunder.
As requested by the Trustee, the Sponsor shall instruct the Trustee,
upon which instruction the Trustee is authorized to rely, as to the manner in
which any sale of Restricted Securities is to be made and in connection with
any such sale shall furnish the Trustee with any documents necessary for the
transfer of such Restricted Securities or for compliance with transfer
restrictions, if any, on such Restricted Securities. In the event the sale of
any Restricted Securities held by the Trust is to be registered under the
Securities Act, the Sponsor shall prepare, and, if required, submit to the
Trustee for review and signature, any documentation required for such
registration.
Section 3.07. Tender Offers, Reorganizations and Similar Events, Stock
Dividends.
(a) In the event the Trustee is notified of any vote to be taken or
proposed to be taken by holders of the Securities held by the Trust Fund in
connection with any proposed merger, reorganization, spin-off, split-off or
split-up by the issuer of Securities held in the Trust Fund, the Trustee shall:
(i) in the case of a Trust Fund which has elected to qualify as a
Regulated Investment Company, take such action with respect thereto as the
Sponsor shall direct; or
(ii) in the case of a Trust Fund which is organized as a "grantor
trust" for purposes of Federal income taxation, use its best efforts to vote
the Securities as closely as practicable in the same manner and in the same
general proportion as the Securities held by owners other than the Trust Fund
are voted.
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(b) In the event that an offer shall be made by any person to exchange
stock or securities for any Securities (including but not limited to a tender
offer), the Trustee shall:
(i) in the case of a Trust Fund which has elected to qualify as a
Regulated Investment Company, take such action with respect thereto as the
Sponsor shall direct; or
(ii) in the case of a Trust Fund which is organized as a "grantor
trust" for purposes of Federal income taxation, reject such offer.
(c) If stock or other securities are received by the Trustee, with or
without cash, as a result of any merger, reorganization, tender offer,
spin-off, split-off, or split-up by the issuer of Securities held in the Trust
Fund or in exchange for Securities (including any stock or securities received
notwithstanding the Trustee's rejection of an offer or received without an
initial offer), the Trustee, at the direction of the Sponsor, may retain or
sell such stock or securities in the Trust Fund. Any stock or securities so
retained shall be subject to the terms and conditions of this Indenture to the
same extent as the Securities originally deposited hereunder. The Trustee shall
give notice to the Unitholders of the retention of stock or securities acquired
in exchange for Securities within five Business Days after such acquisition.
(d) Additional shares of Securities received as a distribution on
Securities (other than shares received in a non-taxable distribution which
shall be retained by the Trust Fund) shall be sold and the proceeds credited to
the Income Account.
Section 3.08. Counsel. The Sponsor may employ from time to time
counsel to act on behalf of the Trust Fund and perform any legal services in
connection with the Securities, including advice as to whether any Securities
constitute Restricted Securities and any legal matters relating to the possible
disposition or acquisition of any Securities pursuant to any provision hereof.
The fees and expenses of such counsel shall be paid by the Trustee as provided
in Section 3.04(b) hereof.
Section 3.09. Notice and Sale by Trustee. If at any time the issuer of
any Security fails to pay or declare an anticipated dividend or interest
payment, and provision for such payment has not been duly made, the Trustee
shall notify the Sponsor thereof. If within thirty calendar days after such
notification the Sponsor has not given any instruction in writing to sell or to
hold or has not taken any action in connection with such Securities, the
Trustee shall sell such Securities forthwith, and neither the Trustee nor the
Sponsor shall be liable or responsible in any way for depreciation or loss
incurred by reason of such sale.
<PAGE>
Section 3.10. Action by Trustee Regarding Securities and Voting.
Except as otherwise provided for in Section 3.07, in the event that the Trustee
shall have been notified at any time of any action to be taken or proposed to
be taken by the holders of the Securities, the Trustee shall promptly notify
the Sponsor and shall thereupon take such action or refrain from taking any
action as the Sponsor shall in writing direct; provided, however, that if the
Sponsor shall not within five Business Days of the giving of such notice to the
Sponsor direct the Trustee to take or refrain from taking any
action, the Trustee shall take such action as it, in its sole discretion, shall
deem advisable. The Securities may, in the discretion of the Trustee, be
interchanged from time to time into either bearer or registered form without
any notification thereof to the Sponsor or the Unitholders and may be
registered in the name of the Trustee or the name of any nominee designated by
it or any nominees of its agent. Neither the Sponsor nor the Trustee shall be
liable to any person for any action or failure to take action with respect to
this Section 3.10.
Section 3.11. Trustee Not to Adjust Accounts. Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make any
adjustments between the Income Account and the Capital Account by reason of any
premium or discount in respect of any of the Securities.
Section 3.12. Notice of Change in Capital Account. The Trustee shall
give prompt written notice to the Sponsor of all amounts credited to or
withdrawn from the Capital Account pursuant to any of the provisions of this
Article III and the balance in such account after giving effect to the credit
or withdrawal.
Section 3.13. Election to Qualify as Regulated Investment Company;
Diversification Tests. (a) If the applicable Trust Indenture and corresponding
Prospectus for the Trust Fund indicate that the Trust intends to elect to be
treated and to qualify as a Regulated Investment Company as defined in the
Code, and the Trustee is directed to make such elections, including any
appropriate election to be taxed as a corporation, as shall be necessary to
effect such qualification.
(b) In the case of a trust which has elected to qualify as a Regulated
Investment Company, the Trustee shall furnish to independent certified public
accountants designated by the Sponsor pursuant to Section 8.01(e) hereof, the
market value of each of the Securities in the Trust Fund as of (1) the Friday
(or the immediately preceding Business Day if such Friday is not a Business
Day) before the last Business Day of the first quarter of the Trust Fund's
first taxable year, (2) the last Business Day of the first quarter of the Trust
Fund's first taxable year, and (3) the last Business Day of any subsequent
quarter during which any Securities are acquired by the Trust Fund. For
purposes of this Section 3.13 each said day shall, except as the context may
otherwise require, be hereinafter referred to as a "Diversification Test Date".
<PAGE>
On each Diversification Test Date upon written request from the
Trustee no later than five Business Days prior thereto, which date shall be
specified by the Trustee in such request, such accountants shall send a written
report, in form and substance satisfactory to the Trustee and its counsel, to
the Trustee and to the Sponsor stating whether or not the aggregate market
value of all Securities of each issuer, Securities issued by which are valued
at greater than 5% of the total assets of the Trust Fund, exceeds 50% of the
market value of the total assets of the Trust Fund on such Diversification Test
Date. In making the necessary computations, such accountants shall compute the
market value of the Securities by taking the market value of the Securities in
the Trust Fund, as so furnished by the Trustee, including the amount of any
accrued interest thereon, by treating as Securities of the same issuer only
those Securities whose name so indicates; by treating contracts to purchase
Securities as if the Securities subject to such contracts had been acquired by
the Trust Fund; and by the settlement of contracts to purchase Securities as
the acquisition of Securities on their respective settlement dates.
In the event the foregoing certification by such accountants states
that the aggregate market value of Securities (other than Government
securities within the meaning of Section 851 of the Code, hereafter "U.S.
Government Securities") of each issuer, Securities issued by which are valued
at more than 5% of the total assets of the Trust Fund, on the Friday (or the
immediately prior Business Day if such Friday is not a Business Day) before the
last Business Day in the first quarter of the first taxable year of the Trust
Fund exceeds 50% of the total assets of the Trust Fund on such date, as
provided in Section 3.06 (other than for U.S. Government Securities), the
Sponsor shall direct the Trustee to sell all or any portion of the Securities
whose market value is greater than 5% of total assets of the Trust Fund or take
such other action as is necessary so that the aggregate market value of
Securities (other than for U.S. Government Securities) of each issuer,
Securities issued by which have market values greater than 5% of the total
assets of the Trust Fund, does not exceed 50% of the market value of the total
assets of the Trust Fund on the last Business Day of the first quarter of the
first taxable year of the Trust Fund. On the last day of the first quarter of
the first taxable year of the Trust Fund the Sponsor shall provide a
certificate satisfactory in form and substance to the Trustee and its counsel
to the effect that the aggregate market value of all Securities (other than for
U.S. Government Securities) of each issuer, Securities issued by which are
valued at greater than 5% of the total assets of the Trust Fund does not exceed
50% of the market value of the Fund's total assets on the last day of the
quarter.
In order to ensure the continued qualification as a Regulated
Investment Company of a trust which has elected to so qualify, the Trustee
shall cause a review of the Trust to be performed by such accountants prior to
the end of the calendar year. The purpose of such review shall be to determine
whether the Trust is deriving at least 90% of its gross income from dividends,
interest and gains from the sale or other disposition of the Securities. The
Trustee shall submit the written results of such review to the Sponsor.
<PAGE>
In the event that the foregoing audit states that less than 90% of the
gross income of the Trust is derived from dividends, interest and gains from
the sale or other disposition of the Securities, the Sponsor shall direct the
Trustee to sell certain of the Securities pursuant to Section 3.06 in an amount
deemed necessary by the Sponsor to maintain the status of the Trust as a
Regulated Investment Company.
In performing the duties set forth in this Section 3.13, the Trustee
may seek the advice of the independent certified public accountants designated
by the Sponsor pursuant to Section 8.01 hereof and may rely upon the advice of
such accountants.
Section 3.14. Investment Restrictions. The Sponsor hereby agrees that
it will not deposit Securities in any series of the Trust, if such deposit
would cause the Trust (including any prior series of the Trust) to be the
holder of 5% or more of the outstanding voting securities of any one issuer of
Securities of, or otherwise cause the Trust to be deemed an "affiliate" of, a
public utility company, as defined in the Public Utility Holding Company Act of
1935 (the "1935 Act") or in any way cause the Trust to be in violation of the
1935 Act.
Section 3.15. Replacement Securities; Reinvestment of Cash Proceeds.
(a) If any contract in respect of Contract Securities (other than a contract to
purchase a Replacement Security), shall have failed due to any occurrence, act
or event beyond the control of the Sponsor or the Trustee (such failed Contract
Securities being herein called "Failed Contract Securities"), the Sponsor shall
notify the Trustee (such notice being herein called the "Failed Contract
Notice") of its inability to deliver the Failed Contract Security . Within 20
days of delivery of the Failed Contract Notice (the "Purchase Period"), the
Sponsor shall, if possible, purchase, or enter into a contract to purchase, a
security to be held as a Security hereunder (the "Replacement Security") as
part of the Trust Fund in replacement of the Failed Contract Security, subject
to the satisfaction of all of the following conditions:
(1) The Replacement Securities shall be equity securities and
shall, in the opinion of the Sponsor, be of the same general quality
as those Securities originally deposited.
(2) The purchase price of the Replacement Securities shall
not exceed the amount of funds reserved for the purchase of the Failed
Contract Securities.
(3) The Sponsor shall furnish a notice to the Trustee (which
may be part of the Failed Contract Notice) in respect of the
Replacement Security purchased or to be purchased that shall (i)
identify the Replacement Securities, (ii) state that the contract to
purchase, if any, entered into by the Sponsor is satisfactory in form
and substance and (iii) state that the foregoing conditions of clauses
(1) and (2) have been satisfied with respect to the Replacement
Securities.
<PAGE>
If the Prospectus for the Trust Fund indicates that it is organized as a
"grantor trust" for purposes of the Code, no deposit of Replacement Securities
shall be made unless the Failed Contract Security shall have been declared to
have failed within 90 days following the Initial Date of Deposit.
Whenever a Replacement Security is acquired by the Sponsor pursuant to
the provisions of this subparagraph (a), the Trustee shall, within five days
thereafter, mail to all Unitholders a notice of such acquisition, including an
identification of the Failed Contract Security and the Replacement Security
acquired. The purchase price of a Replacement Security shall be paid out of the
funds in the Capital Account attributable to the Failed Contract Security which
it replaces.
(b) If the applicable Trust Indenture and corresponding Prospectus for
the Trust Fund indicate that the Trust intends to elect to be treated and to
qualify as a Regulated Investment Company as defined in the Internal Revenue
Code, the Sponsor may in writing from time to time direct the Trustee to
purchase securities to be held as Securities hereunder with funds held in the
Capital Account, provided, however, that the Sponsor shall provide such
direction not later than the Record Date for the subsequent Distribution Date
on which such funds would be distributed. Each such purchase shall be subject
to the following conditions and such other conditions as may be specified in
the Trust Indenture applicable to such Trust. To be eligible for purchase, the
securities must:
(1) have the same general characteristics as the Securities
described in the Prospectus;
(2) not constitute Restricted Securities or be purchased on a
when, as and if issued basis;
(3) have characteristics necessary for the Trust to comply with
requirements for the maintenance of Regulated Investment
Company status;
(4) not cause the Trust to hold more than 50% of any issue that
has been registered under the Securities Act, nor cause more
than 25% of the Trust (on the basis of the Trust Fund
Evaluation next preceding their date of purchase) to consist
of Securities of a single issuer (or of two or more issuers
that are "affiliated persons" within the meaning of the
Investment Company Act, other than an issuer described in
Section 2(b) of the Investment Company Act, which Securities
are not registered under the Securities Act); and
(5) have a purchase price which does not exceed the balance in
the Capital Account at the time of the purchase resulting
from the proceeds of any sale of Securities pursuant to
Section 3.06, 3.07 or 3.09 or from the proceeds of any sale
of Securities pursuant to Section 5.02 to the extent such
proceeds are not necessary for redemption, provided, however,
that proceeds of Securities sold for redemption may be
reinvested only in an
<PAGE>
amount each year not to exceed 10% of the aggregate value of
the assets of the Trust at the beginning of such year.
(c) If (i) the applicable Trust Indenture and corresponding Prospectus
for the Trust Fund indicate that the Trust intends to elect to be treated and
to qualify as a Regulated Investment Company as defined in the Code, and (ii)
to the extent that the Sponsor, on behalf of the Trust, receives a favorable
response to its no-action letter request submitted to the Commission with
respect to reinvesting cash proceeds received by the Trust, the Trustee shall,
upon receipt of instructions from the Sponsor, 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 Ratios, 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 letter response, such documents may be so amended without the consent
of Unitholders.
(d) The Trustee shall have no duty or responsibility with respect to
selecting securities and their selection by the Sponsor shall be deemed to be
the Sponsor's certification that such securities comply with the provisions of
this Section 3.15. The Trustee shall not be liable or responsible for
depreciation or loss incurred by reason of any purchase made pursuant to any
instruction from the Sponsor and in the absence of such instruction the Trustee
shall have no duty to purchase any securities. The Sponsor shall not be liable
for any failure to instruct the Trustee to purchase any security or for errors
of judgment in selecting any security.
Section 3.16. Special Provisions for Grantor Trusts. If the Prospectus
for the Trust Fund indicates that it is organized as a "grantor trust" for
purposes of the Code, nothing in this Indenture or the Trust Indenture under
which the Trust Fund is created, or otherwise, shall be construed to give the
Trustee the power to vary the investment of the Unitholders within the meaning
of U.S. Treasury Regulation Section 301.7701-4(c) or any similar or successor
provisions of U.S. Treasury Regulations, nor shall the Sponsor give the Trustee
any direction that would vary the investment of the Unitholders.
<PAGE>
ARTICLE IV
Valuation of Securities
Section 4.01. Valuation of Securities. The Trustee shall determine
separately and promptly furnish to the Sponsor upon request, the value of each
issue of Securities as of the Valuation Time on the days on which the Trust
Fund Evaluation is required pursuant to Section 5.01. The Securities which are
equity securities or securities convertible into equity securities shall be
valued as follows: (1) if the Securities are listed on one or more national
exchanges, the NASDAQ National Market System or foreign securities exchanges,
the valuation shall be determined on the basis of the last reported sale price
on such exchange on that day on the exchange which is the principal market
therefor (deemed to be the New York Stock Exchange if the Securities are listed
thereon) (unless the Trustee deems such price inappropriate as a basis for
valuation); (2) if there is no sale price on such exchange, at the mean between
the closing bid and asked prices on such exchange (unless the Trustee deems
such price inappropriate as a basis for valuation); (3) if the Securities are
not so listed, or if so listed and the principal market therefor is other than
on such exchange, the valuation shall be based on the closing sale price on the
over-the-counter market (unless the Trustee deems such price inappropriate as a
basis for valuation); or (4) if no such closing sale prices are available (a)
on the basis of current bid prices for the Securities, (b) if bid prices are
not available for any Securities, on the basis of current bid prices for
comparable securities, (c) by the Trustee's appraisal of the value of the
Securities in good faith, on the bid side of the market or (d) by any
combination of the above.
With respect to any Security not listed on a national exchange or the
NASDAQ National Market System, the Sponsor and the Trustee shall, from time to
time, designate one or more evaluation services or other sources of information
on which the Trustee shall be authorized to rely in evaluating such Security,
and the Trustee shall have no liability for any errors contained in the
information so received. The cost thereof shall be an expense reimbursable to
the Trustee from the Income and Capital Accounts pursuant to Section 8.05.
Except as may be provided in the Trust Indenture, all Securities which
are not equity Securities or Securities convertible into equity Securities
shall be valued as follows: during the initial offering period, on the basis of
offering prices; thereafter, for purposes of determining the Trust Fund
Evaluations required by Section 5.01, on the basis of bid prices. The aggregate
offering and bid prices of the Securities are the prices obtained from
investment dealers or brokers (which may include the Sponsor) who customarily
deal in such Securities; or if there is no market for the Securities and bid or
offering prices are not available, on the basis of current bid or offering
prices for comparable securities; or by appraisal; or by any combination of the
above. In the case of Securities issued at an original issue discount the value
shall be reduced to reflect the accrual of Income credited to the Income
Account.
<PAGE>
Among the factors the Trustee will consider in determining the value
of any Restricted Securities as identified by the Sponsor are (a) an estimate
of the existence and extent of any market therefor, (b) the extent of any
discount at which such Securities were acquired by the Trust Fund, (c) the
estimated period of time during which such Securities will not be freely
marketable, (d) the estimated expenses, if any, to the Trust Fund of
registering or otherwise qualifying such Securities for public sale, (e)
estimated underwriting commissions if underwriting would be required to effect
a sale, and (f) any credit or other factors affecting the issuer of such
Securities. In making valuations, opinions of counsel may be relied upon as to
whether or not any Securities are Restricted Securities.
For each valuation, the Trustee shall also determine and furnish to
the Sponsor the aggregate of (a) the value of all Securities on the basis of
such valuation and (b) the amount of cash on hand in the Trust Fund (other than
cash specifically for the purchase of Contract Securities).
Section 4.02. Liability of the Trustee. The Sponsor and the
Unitholders may rely on any valuation furnished by the Trustee and shall have
no responsibility for the accuracy thereof. The determinations made by the
Trustee hereunder shall be made in good faith upon the basis of information
reasonably available to it. The Trustee shall be under no liability to the
Sponsor or the Unitholders for errors in judgment; provided, however, that this
provision shall not protect the Trustee against any liability to which it would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
Section 4.03. Continued Qualification as Regulated Investment Company.
With respect to any Trust which elects to qualify as a Regulated Investment
Company, in order to ensure the continued qualification of such Trust as a
Regulated Investment Company, the Trustee shall submit the written results of
the review provided for in Section 3.13 to the Sponsor. The Sponsor shall, on
the basis of such audit report, determine whether it is necessary to sell
certain of the underlying Securities pursuant to Section 3.06(f) hereof in an
amount deemed necessary by the Sponsor to maintain the status of the Trust as a
Regulated Investment Company.
<PAGE>
ARTICLE V
Trust Fund Evaluation
and
Redemption of Units
Section 5.01. Trust Fund Evaluation. As of the Valuation Time (1) on
each June 30 and December 31 (or the last Business Day prior thereto), (2) on
each Business Day so long as the Sponsor is maintaining a secondary market in
Units, (3) on any Business Day as of the Valuation Time next following the
tender of any Unit for redemption, (4) on any other Business Day desired by the
Sponsor or Trustee, the Trustee shall:
Add
(1) cash on hand in the Trust Fund, including dividends
receivable on Securities trading ex-dividend and accrued but unpaid
interest on the Securities on the date of such computation, other than
cash declared held especially for the purchase of Contract Securities
or cash held in the Reserve Account;
(2) the aggregate value of each issue of the Securities,
including Contract Securities; and
(3) accounts receivable for Securities sold;
(4) the excess of the Trust's paid organizational expenses
over the organizational expenses accrued; and
(5) any other assets of the Trust Fund; and
Deduct
(1) amounts representing any applicable taxes or governmental
charges payable out of the Trust Fund and for which no deductions
shall have previously been made for the purpose of addition to the
Reserve Account;
(2) amounts representing estimated accrued fees and expenses
of the Trust Fund including but not limited to unpaid fees and
expenses of the Trustee (including legal and auditing expenses) and
the Sponsor pursuant to Section 3.04;
<PAGE>
(3) cash allocated as of a date prior to the evaluation then
being made for distribution; and
(4) accounts payable for Units tendered for redemption and
any other liabilities of the Trust Fund not included in (1), (2) and
(3) above.
The resulting amount is herein called a "Trust Fund Evaluation".
For each day on which the Trustee shall make a Trust Fund Evaluation
it shall also determine the "Unit Value" for such day. Such "Unit Value" shall
be determined by dividing such Trust Fund Evaluation by the number of Units
outstanding on such day, treating Units as no longer outstanding which have
been tendered for redemption and for which a liability has been established
pursuant to (4) above.
Until the Sponsor has informed the Trustee that there will be no
further deposits of additional Securities pursuant to Section 2.02, the Sponsor
shall provide the Trustee with written estimates of (i) the total
organizational expenses to be borne by the Trust pursuant to Section 10.02 and
(ii) the total number of Units to be issued in connection with the initial
deposit and all anticipated deposits of additional Securities and (iii) the
period or periods over which such expenses are to be amortized, separately
stated with respect to each such amortization period. For purposes of
calculating the Trust Fund Evaluation and Unit Value, the Trustee shall treat
all such expenses as having been paid and all liabilities therefor as having
been incurred, and all Units as having been issued, on the date of the Trust
Indenture, and, in connection with each such calculation, shall take into
account a pro rata portion of such expense and liability based on the actual
number of Units issued as of the date of such calculation. In the event the
Trustee is informed by the Sponsor of a revision in its estimate of total
expenses, total Units or period of amortization and upon the conclusion of the
deposit of additional Securities, the Trustee shall base calculations made
thereafter on such revised estimates or actual expenses or period of
amortization, respectively, but such adjustment shall not affect calculations
made prior thereto and no adjustment shall be made in respect thereof.
Section 5.02. Redemption of Units. Any Unit tendered by a Unitholder
(for purposes of this Section 5.02, a written instrument evidencing such
transfer, delivered to the Trustee and in form satisfactory to the Trustee,
shall constitute tender with respect to Units owned by Unitholders and not
represented by a Certificate) or his duly authorized attorney for redemption to
the Trustee at its unit investment trust office shall be redeemed and canceled
by the Trustee on or prior to the seventh calendar day following the day on
which tender for redemption is made, provided that if such seventh calendar day
is not a Business Day, then such Unit shall be redeemed on the first Business
Day prior thereto (such seventh calendar day or first Business Day prior
thereto being herein called the "Redemption Date"). Subject to payment by such
Unitholder of any tax or other governmental charges which may be imposed
<PAGE>
thereon, such redemption is to be made by payment on the Redemption Date of
cash or check equal to the Unit Value (determined on the basis of the Trust
Fund Evaluation made in accordance with Section 5.01) multiplied by the number
of Units being redeemed (herein called the "Redemption Value"). The portion of
the Redemption Value which represents income shall be withdrawn from the Income
Account to the extent available. The balance paid on any redemption including
accrued or declared but unpaid Income, if any, shall be withdrawn from the
Capital Account to the extent that funds are available for such purpose. If
such available balance shall be insufficient, the Trustee shall sell such
Securities from among those designated on the current list for such purpose as
provided below and in the manner, in the Trustee's discretion, as the Trustee
shall deem advisable or necessary and as shall not result in Restricted
Securities constituting more than 50% in value of the Securities remaining in
the Trust Fund upon the completion of such sale or result in the Trust Fund
ceasing to be qualified as a Regulated Investment Company under the Code (if it
has so elected to be so treated), or result in the Trust Fund holding less than
$250,000 in value of any Restricted Security; provided, however, that the
Sponsor shall use its best efforts to ensure that such sale shall not result in
Restricted Securities constituting more than 40% in value of the Securities
remaining in the Trust Fund upon completion of such sale, it being understood
that sales of unrestricted Securities may be made if the Sponsor's best efforts
are unsuccessful with regard to the timely sale of Restricted Securities at
prices it deems reasonable if as a result of such sales, more than 50% in value
of the Trust Fund does not consist of Restricted Securities. The Trustee shall
use reasonable efforts to obtain the best price available in connection with
the sale of Securities, subject to any minimum value limitations on sales which
shall have been specified by the Sponsor and, as to any Restricted Securities
being sold, any price reductions necessitated by the disposition of such
Securities being by way of private sale for investment. Securities transactions
of the Trust Fund will be placed by the Trustee with brokers or dealers, which
may include the Sponsor and its affiliates. In the event that funds are
withdrawn from the Capital Account or Securities are sold for payment of any
portion of the Redemption Value representing accrued or declared but unpaid
Income, the Capital Account shall be reimbursed when sufficient funds are next
available in the Income Account for such funds so applied. The net proceeds of
any sales of Securities representing accrued interest shall be credited to
the Income Account and the proceeds of such sales representing principal or
gains shall, to the extent necessary for payment of expenses hereunder, first
be credited to the Capital Account and then disbursed therefrom in payment of
such expenses, and any balance shall remain credited to the Capital Account.
The Sponsor shall deliver a current list of Securities to be sold for
the purpose of redemption of Units and for payment of expenses hereunder. If at
any time the Sponsor shall fail to deliver such a list, the Trustee, in its
sole discretion, may designate Securities to be sold.
In the event a Unitholder shall tender for redemption Units with a
Redemption Value in excess of the dollar amount specified in the Trust
Indenture, the Trustee shall notify the Sponsor. If so provided in the
Prospectus for the Trust, either the Unitholder may request, or the Sponsor may
direct, that the Unitholder receive, in lieu of cash, such Unitholder's pro
rata share of each Security then held by the
<PAGE>
Trust Fund (exclusive of any Restricted Security the restrictions on which
prevent transfer to the redeeming Unitholder), to the extent of whole shares,
and cash from the Capital Account equal to the value of the fractional shares
(and shares of any non-transferable Restricted Security, as discussed above) to
which such tendering Unitholder is entitled, such distribution being herein
referred to as an "In Kind Distribution". An In Kind Distribution will be made
by the Trustee only by distribution of Securities to the account of the
Unitholder's bank or broker-dealer at The Depository Trust Company and upon
receipt of proper delivery instructions from the Unitholder. The Trustee shall
have no liability for any loss or depreciation resulting from delay in receipt
of such instructions. If funds in the Capital Account are insufficient for the
required cash distribution to the tendering Unitholder, the Trustee shall sell
Securities as provided above.
The Trustee may in its discretion, and shall when so directed by the
Sponsor in writing, suspend the right of redemption or postpone the date of
payment of the Redemption Price for more than seven calendar days following the
day on which tender for redemption is made (1) for any period during which the
New York Stock Exchange, Inc. is closed other than customary weekend and
holiday closings; (2) for any period during which (as determined by the
Commission by rule, regulation or order) (i) trading on the New York Stock
Exchange, Inc. is restricted or (ii) an emergency exists as a result of which
disposal by the Trust Fund of the Securities is not reasonably practicable or
it is not reasonably practicable to fairly determine in accordance herewith the
value of the Securities for the purposes of any Trust Fund Evaluation; or (3)
for such other periods as the Commission may by order permit.
Not later than the close of business on the day of tender of a Unit
for redemption by a Unitholder other than the Sponsor, the Trustee shall notify
the Sponsor of such tender. The Sponsor shall have the right to purchase such
Unit by notifying the Trustee of its election to make such purchase as soon as
practicable thereafter but in no event subsequent to the close of business on
the second Business Day after the day on which such Unit was tendered for
redemption. Such purchase shall be made by payment for such Unit by the Sponsor
to the Unitholder not later than the close of business on the Redemption Date
of an amount not less than the Redemption Value which would otherwise be
payable by the Trustee to such Unitholder. So long as the Sponsor is
maintaining a bid in the secondary market for the Units, the Sponsor will so
repurchase any Unit tendered to the Trustee for redemption.
Neither the Sponsor nor the Trustee shall be liable or responsible in
any way for depreciation or loss incurred by reason of any sale of Securities
made pursuant to this Section 5.02.
Notwithstanding the foregoing provisions of this Section 5.02, in the
event that the Sponsor does not elect to purchase any Unit tendered to the
Trustee for redemption, or in the event that a Unit is being tendered by the
Sponsor for redemption, the Trustee is hereby irrevocably authorized in its
discretion, but shall have no obligation, in lieu of redeeming Units tendered
for redemption, to sell such Units in the over-the-counter market for the
account of tendering Unitholders at prices which will return to the
<PAGE>
Unitholders proceeds in an amount, net after deducting brokerage commissions,
transfer taxes and other charges, equal to or in excess of the Redemption Value
which such Unitholders would otherwise be entitled to receive on redemption
pursuant to this Section 5.02. The Trustee shall pay to the Unitholders the net
proceeds of any such sale on or before the Redemption Date.
ARTICLE VI
Transfer, Interchange or Replacement of Units
Section 6.01. Transfer and Interchange of Units. A Unit may be
transferred by the registered holder thereof by presentation of transfer
instructions, and surrender of the Certificate evidencing such Unit, if any, at
the unit investment trust office of the Trustee, properly endorsed or
accompanied by such documents as the Trustee deems necessary to evidence the
authority of the person making such transfer and executed by the registered
Unitholder or his authorized attorney. Such signature must be guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("STAMP") or
such other signature guarantee program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee. Such transfer shall thereupon be made
on the records of the Trustee and, if appropriate, a new registered Certificate
or Certificates for the same number of Units of the same Trust Fund shall be
issued in exchange and substitution therefor. The Certificates issued pursuant
to this Indenture are interchangeable for one or more other Certificates in an
equal aggregate number of Units and all Certificates issued shall be issued in
denominations of one Unit or any multiple thereof as may be requested by the
Unitholder and deemed appropriate by the Trustee. The Trustee may deem and
treat the person in whose name any Unit shall be registered upon the books of
the Trustee as the owner of such Unit for all purposes hereunder, and the
Trustee shall not be affected by any notice to the contrary, nor be liable to
any person or in any way for so deeming and treating the person in whose name
any Unit shall be so registered. The transfer books maintained by the Trustee
for the purposes of this Section 6.01 shall be closed in connection with the
termination of the Trust Fund pursuant to Article IX hereof.
A sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any such transfer or interchange shall be
paid to the Trustee. A Certificateholder may be required to pay $2.00 (or such
other amount as may be specified by the Trustee and approved by the Sponsor)
for each new Certificate issued on any such transfer or interchange.
All Certificates canceled pursuant to this Indenture, other than those
endorsed for transfer, may be destroyed by the Trustee.
Section 6.02. Replacement of Certificates. In case any Certificate
shall become mutilated or be destroyed, stolen or lost, the Trustee shall
execute and deliver a new Certificate in exchange and substitution therefor
upon the Certificateholder's furnishing the Trustee with proper identification
and
<PAGE>
satisfactory indemnity, complying with such other reasonable regulations and
conditions as the Trustee may prescribe and paying such expenses as the Trustee
may incur, provided however, that if the Trust Fund has terminated or is in the
process of termination, the Trustee, in lieu of issuing such new Certificate,
may, upon the terms and conditions set forth herein, make the distributions set
forth in Section 9.01 hereof. Any mutilated Certificate shall be duly
surrendered and canceled before any replacement Certificate shall be issued in
exchange and substituted therefor. Upon issuance of any duplicate Certificate
pursuant to this Section 6.02, the Certificate claimed to have been lost,
stolen or destroyed shall become null and void and of no effect, and any bona
fide purchaser thereof shall have only such rights as are afforded under
Article 8 of the Uniform Commercial Code to a holder presenting a Certificate
for transfer in the case of any overissue.
Section 6.03. Form of Certificate. Each Certificate shall be in fully
registered form, shall be numbered serially for identification, shall be
executed in facsimile by the Sponsor and manually by an authorized signatory of
the Trustee, shall be dated the date of execution and delivery by the Trustee
and shall represent a fractional undivided interest in the Trust Fund, the
numerator of which fraction shall be the number of Units set forth on the face
of such Certificate and the denominator of which shall be the total number of
Units of undivided interest outstanding at any such time.
<PAGE>
ARTICLE VII
Sponsor
Section 7.01. Liability of Sponsor and Indemnification.
(a) The Sponsor shall be under no liability to the Trust or the
Unitholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Indenture, or for errors in judgment or
for depreciation or loss incurred by reason of the purchase or sale of any
Securities, provided, however, that this provision shall not protect the
Sponsor against any liability to which it would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder. The Sponsor may rely in good faith on any paper, order, notice,
list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft
or any other document of any kind prima facie properly executed and submitted
to it by the Trustee, the Trustee's counsel or any other person for any matters
arising hereunder (including the determination as to whether any Security is a
Restricted Security). The Sponsor shall in no event be deemed to have assumed
or incurred any liability, duty or obligation to any Unitholder or the Trustee
other than as expressly provided for herein.
(b) The Sponsor may employ agents and shall not be answerable for the
default or misconduct of any such agents if selected with reasonable care. The
fees of any such agents shall be an expense of the Trust Fund reimbursable to
the Sponsor as provided in Section 7.02.
(c) The Trust Fund shall pay and hold the Sponsor harmless from and
against any loss, liability or expense incurred in acting as Sponsor of the
Trust other than by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder, including the costs and
expenses of the defense against any claim or liability in the premises. The
Sponsor shall not be under any obligation to appear in, prosecute or defend any
legal action which in its opinion may involve it in any expense or liability,
provided, however, that the Sponsor may in its discretion undertake any such
action which it may deem necessary or desirable in respect of this Indenture
and the rights and duties of the parties hereto and the interests of the
Unitholders hereunder and, in such event, the legal expenses and costs of any
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund and shall be paid directly by the Trustee out of
the Income and Capital Accounts as provided by Section 3.04.
(d) None of the provisions of this Indenture shall be deemed to
protect or purport to protect the Sponsor against any liability to the Trust
Fund or to the Unitholders to which the Sponsor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
<PAGE>
of its duties, or by reason of the Sponsor's reckless disregard of its
obligations and duties under this Indenture.
Section 7.02. Compensation of Sponsor. The Sponsor may make additions
and deletions to the list referred to in Section 5.02 and shall conduct regular
quarterly reviews to determine whether or not to recommend the disposition of
Securities pursuant to the procedures under this Indenture. In addition, the
Sponsor shall perform such other reviews and procedures as it may deem
necessary for the Sponsor to give the consents and directions required by this
Indenture. As compensation for providing supervisory services, the Sponsor
shall receive, at the times specified in Section 3.04, against a statement or
statements therefor submitted to the Trustee, an aggregate annual fee in the
amount set forth in the Trust Indenture, but in no event shall such
compensation when combined with all compensation received from other Trust
Funds exceed the Sponsor's cost for performing such services. Such fee may be
increased by the Sponsor from time to time, without the consent or approval of
any Unitholder or the Trustee, by amounts not exceeding in total the
proportionate increase, during the period from the date of such Trust Indenture
to the date of any such increase, in consumer prices as published either under
the classification "All Services Less Rent" in the Consumer Price Index
published by the United States Department of Labor or, if such index is no
longer published, a similar index as determined by the Trustee and the Sponsor.
The Sponsor shall also receive, at the times set forth in Section
3.04, reimbursement for any and all expenses and disbursements incurred
hereunder, including legal and auditing expenses, in connection with such
action as the Sponsor in its discretion may deem necessary at any and all times
to undertake in order to protect the Trust Fund and the rights and interests of
the Unitholders pursuant to the terms of this Indenture.
Section 7.03. Liability. The Sponsor, or the Sponsors jointly and
severally if there be more than one, shall be liable in accordance herewith for
the obligations imposed upon and undertaken by any Sponsor hereunder, provided
that, without in any way affecting or diminishing such liability, each Sponsor
shall indemnify the other Sponsors and hold the other Sponsors harmless from
and against any and all costs, expenses and liabilities (including attorneys'
fees) which such other Sponsors may suffer or incur as a result of or by reason
of any act or failure to act hereunder on the part of the indemnifying Sponsor.
At all times prior to the termination of the Trust Fund, in the event there be
more than one Sponsor and while such Sponsors shall continue to act jointly
hereunder, there shall be maintained on file with the Trustee a power of
attorney executed in favor of one Sponsor by the other Sponsors constituting
and appointing the non-executing Sponsor the true and lawful agent and
attorney-in-fact of the executing Sponsors to execute and deliver for and on
behalf of the executing Sponsors any and all notices, opinions, certificates,
lists, demands, directions, instruments or other documents provided or
permitted to be executed or delivered by any Sponsor hereunder or to take any
other action in respect hereof. Such power of attorney shall continue in effect
as to each executing Sponsor until written notice
<PAGE>
of revocation thereof has been given by such executing Sponsor to the Trustee.
Prior to receipt of such notice of revocation the Trustee shall be entitled to
rely conclusively upon such power of attorney as authorizing the non-executing
Sponsor to give any notice, opinion, certificate, list, demand, direction,
instrument or any other document provided for or permitted hereunder or to take
any other action in respect hereof on behalf of the executing Sponsors as to
which such power of attorney is in effect.
Section 7.04. Discharge of Sponsor.
(a) If there be more than one Sponsor, in the event that any Sponsor
shall fail to undertake or perform any of the duties which by the terms of this
Indenture are required to be undertaken or performed by it and such failure
shall continue for 30 calendar days after notice to all Sponsors from the
Trustee, or if any Sponsor shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the property of any Sponsor
shall be appointed or any public officer shall take charge or control of any
Sponsor or its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then such Sponsor shall forthwith be and be deemed
to be discharged forever as a Sponsor hereunder and thereupon the other Sponsor
shall act hereunder without the necessity of any other or further action on
their part or on the part of the Trustee.
(b) In the event that the power of attorney referred to in Section
7.03 above shall be revoked by written notice given by an executing Sponsor and
it shall not be replaced within one Business Day by another power of attorney
conforming with the requirements of Section 7.03, the Sponsors shall be deemed
to have been unable to reach agreement with respect to action to be taken
jointly by them hereunder and there upon the non-executing Sponsor shall
execute within one Business Day an instrument discharging the executing Sponsor
and thereupon such Sponsor shall be and shall be deemed to be discharged
forever as Sponsor hereunder and thereupon the other Sponsors shall act
hereunder without the necessity of any other or further action on their part or
on the part of the Trustee.
(c) Notwithstanding the discharge of a Sponsor in accordance with this
Section 7.04, such Sponsor shall continue to be fully liable in accordance with
the provisions hereof in respect of action taken or refrained from under this
Indenture by such Sponsors before the date of such discharge, or by the
remaining Sponsor before or after the time of such discharge as fully and to
the same extent as if no discharge had occurred.
Section 7.05. Certain Matters Regarding Succession. The covenants,
provisions and agreements herein contained shall in every case be binding upon
any successor to the business of any Sponsor. In the event of the death,
resignation or withdrawal of any partner of any successor Sponsor which may be
a partnership, a partner so dying, resigning or withdrawing shall be relieved
of all further liability hereunder if at the time of such death, resignation or
withdrawal such Sponsor maintains a net worth (determined in accordance with
generally accepted accounting principles) of at least $2,000,000. In the
<PAGE>
event of any assignment by any Sponsor to a successor corporation or
partnership as permitted by the next following sentence, such Sponsor and, if
such Sponsor is a partnership, its partners, shall be relieved of all further
liability under this Indenture. Any Sponsor may transfer all or substantially
all of its assets to a corporation or partnership which carries on the business
of such Sponsor, if at the time of such transfer such successor duly assumes
all the obligations of such Sponsor under this Indenture.
Section 7.06. Resignation of Sponsor. (a) If there be more than one
Sponsor and if at any time any Sponsor desires to resign its position as a
Sponsor hereunder and if at such time one of the other Sponsors maintains a net
worth (determined in accordance with generally accepted accounting principles)
of at least $2,000,000 and the other Sponsor or Sponsors are agreeable to such
resignation, the Sponsor desiring to resign may resign by delivering to the
Trustee an instrument executed by such resigning Sponsor and consented to by
the remaining Sponsors, and upon such delivery, the resigning Sponsor shall be
discharged and shall no longer be liable in any manner hereunder except as to
acts or omissions occurring prior to such delivery and the remaining Sponsors
shall thereupon perform all duties and be entitled to all rights under this
Indenture; provided, however, that concurrently with or subsequent to such
resignation, the remaining Sponsors and the Trustee may appoint a new Sponsor
to act with the remaining Sponsors and to assume the duties of the resigning
Sponsor by an instrument executed by the remaining Sponsors, the Trustee and
the new Sponsor. Such new Sponsor shall not be under any liability hereunder
for acts or omissions prior to the execution of such instrument.
(b) If at any time there is only one Sponsor acting hereunder and such
Sponsor desires to resign its position as Sponsor hereunder, it may resign by
delivering to the Trustee an instrument of resignation executed by such
Sponsor. Such resignation shall not be or become effective or valid for any
purpose whatsoever unless prior to or concurrently with the delivery thereof
(i) the Trustee shall have appointed a successor Sponsor or Sponsors to assume,
with such compensation from the Trust Fund as the Trustee may deem reasonable
under the circumstances, the duties and obligations of the resigning Sponsor
hereunder by an instrument of appointment and assumption executed by the
Trustee and the successor Sponsor or Sponsors or (ii) in accordance with
Section 8.01(f) hereof, the Trustee shall have determined to terminate this
Indenture and the Trust Fund created thereby and liquidate the Trust Fund. Any
such successor Sponsor shall be satisfactory to the Trustee and, at the time of
appointment, shall have a net worth of at least $2,000,000 (determined in
accordance with generally accepted accounting principles). Upon effective
resignation hereunder, the resigning Sponsor shall be discharged and shall no
longer be liable in any manner hereunder except as to acts or omissions prior
to such delivery and the successor Sponsor or Sponsors shall thereupon perform
all duties and be entitled to all rights as a Sponsor under this Indenture. The
successor Sponsor or Sponsors shall not be under any liability hereunder for
occurrences or omissions prior to the execution of such instrument.
Section 7.07. Notice to Unitholders. Notice of the discharge or
resignation of any Sponsor and of any appointment of a successor Sponsor or
Sponsors under Section 7.06 shall be mailed by the Trustee to each Unitholder
of record.
<PAGE>
ARTICLE VIII
Trustee
Section 8.01. General Matters Relating to Trustee. The Trustee shall
be named in the Trust Indenture.
(a) All moneys deposited with or received by the Trustee hereunder
shall be held by it without interest in trust as part of the Trust Fund until
required to be disbursed in accordance with the provisions of this Indenture
and such moneys will be segregated by separate recordation on the trust ledger
of the Trustee so long as such practice preserves a valid preference under
applicable law, or if such preference is not so preserved the Trustee shall
handle such moneys in such other manner as shall constitute the segregation and
holding thereof in trust within the meaning of the Investment Company Act of
1940.
(b) The Trustee shall be under no liability for any action taken in
good faith on any appraisal, paper, order, list, demand, request, consent,
affidavit, notice, opinion, direction, endorsement, assignment, resolution,
draft or other document whether or not of the same kind, prima facie properly
executed, or for the disposition of moneys or Securities pursuant to this
Indenture or in respect of any valuation which it is required to make or is
required or permitted to have made by others under this Indenture or otherwise;
provided, however, that this provision shall not protect the Trustee against
any liability to which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties hereunder,
and the Trustee may construe any of the provisions of this Indenture insofar as
the same may appear to be ambiguous or inconsistent with any other provisions
hereof, and any construction of any such provisions hereof by the Trustee in
good faith shall be binding upon the parties hereto and the Unitholders.
(c) The Trustee shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Indenture or for the due
execution hereof by the Sponsor or for the form, character, genuineness,
sufficiency, value or validity of any Securities (except that the Trustee shall
be responsible for the exercise of due care in determining the genuineness of
Contract Securities delivered to it) or for or in respect of the validity or
sufficiency of the Certificate (except for the due execution thereof by the
Trustee), or for the due execution thereof by the Sponsor, and the Trustee
shall in no event assume or incur any liability, duty or obligation to any
Unitholder or to the Sponsor, other than as expressly provided for herein. The
Trustee shall not be responsible for or in respect of the validity of any
signature by or on behalf of the Sponsor.
(d) The Trustee shall not be under any obligation to appear in,
prosecute or defend any action, which in its opinion may involve it in any
expense or liability unless it shall be furnished with such
<PAGE>
reasonable security and indemnity against such expense or liability as it
may require, and any pecuniary cost of the Trustee from such actions shall be
deductible from and a charge against the Income and Capital Accounts. The
Trustee shall in its discretion undertake such action as it may deem necessary
at any and all times to protect the Trust Fund and the rights and interests of
the Unitholders pursuant to the terms of this Indenture, provided, however,
that the expenses and costs of such actions, undertakings or proceedings shall
be reimbursable to the Trustee from the Income and Capital Accounts.
(e) The Trustee may employ agents, attorneys, accountants and auditors
and shall not be answerable for the default or misconduct of any such agents,
attorneys, accountants or auditors if such agents, attorneys, accountants or
auditors shall have been selected with reasonable care. Unless otherwise
directed by the Sponsor, the accounts of the Trust Fund shall be examined not
less frequently than annually by independent certified public accountants
designated from time to time by the Sponsor, and the report of such accountants
shall be furnished by the Trustee to Unitholders upon request. So long as the
Sponsor is maintaining a secondary market for Units, the Sponsor shall bear any
audit expense which exceeds $.50 per such number of Units having an initial
value of $1,000, unless the Trustee has been advised that all of such expenses
are permitted by the Commission to be deducted from the Trust Fund. The Trustee
shall not be liable in respect of any action taken or suffered under this
Indenture in good faith, in accordance with an opinion of counsel, including
any action taken in reliance upon an opinion of counsel as to whether any
Securities are Restricted Securities. The fees and expenses charged by such
agents, attorneys, accountants or auditors shall constitute an expense of the
Trustee reimbursable from the Income and Capital Accounts as set forth in
Section 3.04 hereof.
(f) If at any time there is only one Sponsor acting hereunder and such
Sponsor shall fail to undertake or perform any of the duties which by the terms
of this Indenture are required by it to be undertaken or performed, or such
Sponsor shall become incapable of acting, or if a court having jurisdiction in
the premises shall enter a decree or order for relief in respect of such
Sponsor in an involuntary case, or such Sponsor shall commence a voluntary
case, under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for such Sponsor or for any substantial part
of its property shall be appointed or such Sponsor shall make any general
assignment for the benefit of creditors or shall generally fail to pay its
debts as they become due, then in any such case, the Trustee may do any one or
more of the following: (1) appoint a successor Sponsor or Sponsors which shall
act hereunder in all respects in place of such Sponsor and which may be
compensated, at rates deemed by the Trustee to be reasonable under the
circumstances, by deduction from the Income Account or, to the extent funds are
not available in such account, from the Capital Account but no such deduction
shall be made exceeding such reasonable amount as the Commission may prescribe
in accordance with Section 26(a)(2)(C) of the Investment Company Act of 1940;
(2) act hereunder in its own absolute discretion without appointing any
successor Sponsor and receive additional compensation at rates
<PAGE>
determined as provided in clause (1); or (3) terminate this Indenture and the
Trust created hereby and liquidate the Trust Fund in the manner provided in
Section 9.01.
(g) If the value of the Trust Fund as shown by any Trust Fund
Evaluation shall be less than the Discretionary Liquidation Amount specified in
the Trust Indenture, the Trustee may in its discretion, and shall if so
directed by the Sponsor, terminate this Indenture and the Trust created hereby
and liquidate the Trust Fund all in the manner provided by Section 9.01.
(h) In no event shall the Trustee be personally liable for any taxes
or other governmental charges imposed upon or in respect of the Securities or
upon the interest thereon. The Trustee shall be reimbursed and indemnified out
of the Income and Capital Accounts for all such taxes and charges, for any tax
or charge imposed against the Trustee as trustee of the Trust Fund and for any
expenses, including counsel fees, interest, penalties and additions to tax,
which the Trustee may sustain or incur with respect to such taxes or charges.
(i) Notwithstanding any provision of this Indenture to the contrary,
except as set forth in Section 3.04(c), 7.02 and 8.01(f), no payment to the
Sponsor or to any principal underwriter (as defined in the Investment Company
Act of 1940) for the Trust Fund or to any affiliated person (as so defined) or
agent of the Sponsor or such underwriter shall be allowed by the Trustee as an
expense except for payment of such reasonable amounts as the Commission may
prescribe as compensation for performing bookkeeping and other administrative
services of a character normally performed by the Trustee.
(j) The Trustee in its individual or any other capacity may become an
owner or pledgee of, or be an underwriter or dealer in respect of, securities
of the same issue as, or other securities issued by the issuer (or an affiliate
of such issuer) of, any Securities at any time held as part of the Trust Fund
and may deal in any manner with the same or with the issuer (or an affiliate of
the issuer) with the rights and powers as if it were not the Trustee hereunder.
(k) The Trust may include a letter or letters of credit for the
purchase of Securities or Contract Securities issued by the Trustee in its
individual capacity for the account of the Sponsor and the Trustee may
otherwise deal with the Sponsor with the same rights and powers as if it were
not the Trustee hereunder.
Section 8.02. Books and Records. The Trustee shall keep proper books
of record and account of all the transactions under this Indenture at its
office including, as agent of the Sponsor, a record of the name and address of,
and the Units (indicating whether they are evidenced by Certificates or in
uncertificated form) issued by the Trust Fund and held or beneficially owned by
every Unitholder, and such books and records shall be open to inspection by any
Unitholder at reasonable times during business hours of the Trustee, except as
they may pertain to another holder's account.
<PAGE>
Section 8.03. Reports to Securities and Exchange Commission and
Others. The Trustee shall make such annual or other reports, make such
elections and file such tax returns as the Sponsor directs or as may from time
to time be required under any applicable state or Federal statute or rule or
regulation thereunder, and in particular, if the Trust Fund has elected to be
taxed as a Regulated Investment Company, for the continuing qualification of
the Trust Fund as a Regulated Investment Company under the Code. In the case of
a Regulated Investment Company, the Trust's taxable year shall be set forth in
the Trust Indenture. Nothing contained herein shall obligate the Trustee to
maintain the registration of the Units or Trust on a current basis.
Section 8.04. Indenture and List of Securities on File. The Trustee
shall keep a certified copy or duplicate original of this Indenture on file at
its office available for inspection by any Unitholder at reasonable times
during its usual business hours, and the Trustee shall keep and so make
available for inspection a current list of the Securities.
Section 8.05. Compensation of Trustee. The Trustee shall receive at
the times set forth in Section 3.04 as compensation for performing the usual,
ordinary, normal and recurring services under this Indenture during the
preceding month an amount equal to the amount per month specified in the Trust
Indenture per Unit outstanding at any time during such month. The computation
of such compensation shall be made on the basis of the largest number of Units
outstanding at any time during such month; such rate may be increased by the
Trustee from time to time, without the consent or approval of any Unitholder or
the Sponsor by amounts not exceeding the total of the proportionate increase,
during the period from the date of such Trust Indenture to the date of any such
increase, in consumer prices as published either under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor or, if such Index is no longer published, a similar index
as determined by the Trustee and the Sponsor.
The Trustee shall also receive, at the times set forth in Section
3.04, reimbursement for any and all expenses and disbursements incurred
hereunder, including legal, evaluating and auditing expenses and additional
compensation for any extraordinary services performed hereunder, which
extraordinary services shall include but not be limited to all costs and
expenses incurred by the Trustee in making any annual or other reports or
filing tax returns pursuant to Section 8.03; provided, however, that the amount
of any such charge which has not been finally determined as of any Distribution
Date may be estimated and any necessary adjustments shall be made on the
succeeding Distribution Date.
The Trustee shall be indemnified from the Trust Fund and held harmless
against any loss, liability or expense incurred without gross negligence, bad
faith or willful misconduct on the part of such Trustee arising out of or in
connection with the acceptance or administration of this Trust, including the
costs and expenses of defending itself against any claim or liability in the
premises.
<PAGE>
The Trustee's normal and extraordinary compensation and reimbursement
of the above-mentioned expenses and losses shall be charged by the Trustee
against the Income and Capital Accounts in accordance with Section 3.04. If the
balances in the Income and Capital Accounts shall be insufficient to provide
for amounts payable pursuant to this Section 8.05, the Trustee shall have the
power to sell Securities in the manner provided in Section 5.02 hereof. The
Trustee shall not be liable or responsible in any way for depreciation or loss
incurred by reason of any sale of Securities made pursuant to this Section
8.05. Any moneys payable to the Trustee shall be secured by a prior lien on the
Trust Fund.
Section 8.06. Resignation, Discharge or Removal of Trustee; Successor.
(a) The Trustee may resign and be discharged of the Trust created by this
Indenture by executing an instrument in writing resigning as such Trustee,
filing the same with the Sponsor, not less than sixty calendar days before the
date specified in such instrument when, subject to Section 8.06(c), such
resignation is to take effect. Upon receiving such notice of resignation, the
Sponsor shall use its best efforts promptly to appoint a successor Trustee
(which may, in the case of a removed Co-Trustee, be one or more of the
remaining Co-Trustees) in the manner and meeting the qualifications hereinafter
provided, by written instrument or instruments delivered to such resigning
Trustee and the successor Trustee. Notice of such appointment of a successor
Trustee shall be mailed promptly after acceptance of such appointment by the
successor Trustee to each Unitholder then of record. In case at any time the
Trustee shall not meet the requirements set forth in Section 8.07 hereof, or
shall become incapable of acting, or if a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the Trustee in
an involuntary case, or the Trustee shall commence a voluntary case, under any
applicable bankruptcy, insolvency, or other similar law now or hereafter in
effect, or any receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the Trustee or for any substantial part of its
property shall be appointed or the Trustee shall make any general assignment
for the benefit of creditors or shall generally fail to pay its debts as they
become due, or if for any other reason the Sponsor shall determine in good
faith that the replacement of the Trustee is in the best interests of the
Unitholders, the Sponsor may remove the Trustee and appoint a successor Trustee
(which may, in the case of a removed Co-Trustee, be one or more of the
remaining Co-Trustees) by written instrument or instruments delivered to the
Trustee so removed and the successor Trustee provided that a notice of such
removal and appointment of a successor Trustee shall be mailed by the successor
Trustee promptly after acceptance of such appointment to each Unitholder then
of record. The Unitholders of 51% of the Units may remove the Trustee at any
time by written instrument or instruments delivered to the Trustee and Sponsor;
the Sponsor shall thereupon use its best efforts to appoint a successor Trustee
(which may, in the case of a removed Co-Trustee, be one or more of the
remaining Co-Trustees) in the manner hereinabove provided. If there shall be
two or more Co-Trustees hereunder, and any Co-Trustee shall resign or be
removed in accordance with this Section 8.06(a), the Sponsor may remove any or
all of the remaining Co-Trustees and appoint a successor Trustee or two or
more successor Co-Trustees in the manner hereinabove provided.
<PAGE>
(b) In case at any time the Trustee shall resign and no successor
Trustee shall have been appointed within thirty calendar days after notice of
resignation has been received by the Sponsor, the retiring Trustee may
forthwith apply to a court of competent jurisdiction for the appointment of a
successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor Trustee.
(c) Any successor Trustee appointed hereunder shall execute and
acknowledge to the Sponsor and the retiring Trustee an instrument accepting
such appointment hereunder and such successor Trustee without any further act,
deed or conveyance shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder with like effect as if it were
originally named a Trustee herein and shall be bound by all the terms and
conditions of this Indenture. Upon the request of such successor Trustee, the
retiring Trustee shall, upon payment of all amounts due the retiring Trustee,
execute and deliver an instrument acknowledged by it transferring to such
successor Trustee all the rights and powers of the retiring Trustee; and the
retiring Trustee shall transfer, deliver and pay over to the successor Trustee
all Securities and moneys at the time held by it hereunder, if any, together
with all necessary instruments of transfer and assignment of other documents
properly executed as necessary to effect such transfer and such other records
or copies thereof maintained by the retiring Trustee in the administration
hereof as may be requested by the successor Trustee and shall there upon be
discharged from all duties and responsibilities under this Indenture. Any
resignation or removal of a Trustee and appointment of a successor Trustee
pursuant to this Section 8.06 shall become effective upon such acceptance of
appointment by the successor Trustee.
(d) Any corporation into which a Trustee hereunder may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which such Trustee hereunder shall be a party, shall be the
successor Trustee under this Indenture without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
anything herein, or in any agreement relating to such merger or consolidation,
by which any such Trustee may seek to retain certain powers, rights and
privileges theretofore obtaining for any period of time following such merger
or consolidation, to the contrary notwithstanding.
(e) In any circumstance in which the Sponsor may appoint a successor
Trustee pursuant to Section 8.06(a), the Sponsor may alternatively, at its
option, in the manner provided in Section 8.06(a) for the appointment of a
successor Trustee, appoint two or more successor Co-Trustees. Upon execution
and acknowledgment by each successor Co-Trustee of an instrument accepting such
appointment in the manner set forth in Section 8.06(c), without any further
act, deed or conveyance, such successor Co-Trustee shall become vested with all
the rights, powers, duties and obligations of the predecessor Trustee hereunder
with like effect as if originally named a Trustee herein and shall be bound by
all the terms and conditions of this Indenture. The word "Trustee" as used in
this Indenture shall be deemed to include
<PAGE>
any and all Co-Trustees appointed pursuant hereto. Notwithstanding any
provision hereof (including without limitation Section 8.01(e)), the
obligations of the Co-Trustees hereunder shall be joint and several and the
Co-Trustees shall be jointly liable for the acts of one another in connection
with the performance of their duties hereunder.
Section 8.07. Qualification of Trustee. The Trustee and any successor
Trustee shall be a banking association or corporation organized and doing
business under the laws of the United States, or any state thereof, having at
all times an aggregate capital, surplus, and undivided profits of not less than
$5,000,000.00.
ARTICLE IX
Termination
Section 9.01. Procedure Upon Termination. This Indenture and the Trust
created hereby shall terminate upon the Mandatory Termination Date set forth in
the Trust Indenture or upon the maturity, sale or other disposition as the case
may be of the last Security held hereunder unless sooner terminated as
hereinbefore specified and may be terminated at any time by written instrument
executed by the Sponsor and consented to (as provided in Section 10.01) by
Unitholders owning 51% of the Units then outstanding under this Indenture, or
if the value of the Trust Fund is less than the Discretionary Liquidation
Amount specified in the Trust Indenture.
On the date set forth in the Trust Indenture prior to the Mandatory
Termination Date, the Trustee shall begin to sell the Securities held in the
Trust pursuant to instructions from the Sponsor. In the event that the Sponsor
does not so direct, Securities having the greatest amount of capital
appreciation shall be sold first. Equity Securities having the greatest amount
of capital appreciation will be sold first and in a manner to effectuate
orderly sales and minimal market impact as directed by the Sponsor.
Written notice of any termination shall be given by the Trustee to
each Unitholder specifying the time or times at which the Certificateholders
may surrender their Certificates for cancellation and the date determined by
the Trustee upon which the transfer books of the Trustee, maintained pursuant
to Section 6.01, shall be closed. Within a reasonable period of time after such
termination the Trustee shall, subject to any applicable provisions of law,
sell all of the Securities not already sold then held, if any, and shall:
(a) deduct from the Income Account or, to the extent that
funds are not available in such account, from the Capital Account, and
pay to itself individually an amount equal to the sum of (1) its
accrued compensation for its ordinary services, (2) any compensation
due to it for its
<PAGE>
extraordinary services and (3) any other expenses, disbursements and
unreimbursed advances as provided herein;
(b) deduct from the Income Account or, to the extent that
funds are not available in such account, from the Capital Account, an
amount equal to the unpaid fees and expenses of the Sponsor, if any,
including registration charges, expenses of registering the Trust or
Trust Units under various state laws as required, printing costs,
attorneys' fees, auditing costs and other miscellaneous out-of-pocket
expenses, as certified by the Sponsor, incurred in keeping the
registration of the Units and the Trust on a current basis pursuant to
Section 10.03, provided, however, that no portion of such amount shall
be deducted or paid unless the payment thereof from the Trust is at
that time lawful;
(c) deduct from the Income Account or, to the extent that
funds are not available from such account, from the Capital Account
any amounts which it, in its sole discretion, shall deem requisite to
be deposited in the Reserve Account to provide for any applicable
taxes or other governmental charges that may be payable out of the
Trust Fund;
(d) distribute to each holder of Units in uncertificated
form, and to each holder of Units evidenced by Certificates upon
surrender for cancellation of his Certificate or Certificates, if
applicable, such holder's interest in the balances of the Income and
Capital Accounts, and, on the conditions set forth in Section 3.03
hereof, the Reserve Account; and
(e) together with such distribution to each Unitholder as
provided for in paragraph (d), furnish to each such Unitholder a final
statement as of the date of the computation of the amount
distributable to Unitholders.
Section 9.02. Notice to Holders of Units Evidenced by Certificates. In
the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the time specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the liquidating distribution with respect thereto. If
within one year after the second notice all the Certificates shall not have
been surrendered for cancellation, the Trustee may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates and the cost
thereof shall be paid out of the moneys and other assets which remain in trust
hereunder.
Section 9.03. Moneys to Be Held in Trust Without Interest. The Trustee
shall be under no liability with respect to moneys in the Income, Capital and
Reserve Accounts upon termination, except to hold the same in trust without
interest. If permitted by applicable Federal securities laws and
<PAGE>
regulations, de minimis balances remaining after the distribution provided in
Section 9.01(d) representing the excess of funds retained for estimated
expenses payable after the termination over the expenses actually paid may be
applied to any overdraft in other trust funds sponsored by the Sponsor arising
from a similar cause.
Section 9.04. Dissolution of Sponsor Not to Terminate. The dissolution
of the Sponsor, or any Sponsors, if there are more than one, shall not operate
to terminate this Indenture insofar as the duties and obligations of the
Trustee are concerned.
<PAGE>
ARTICLE X
Miscellaneous Provisions
Section 10.01. Amendment and Waiver. This Indenture may be amended
from time to time by the Sponsor and the Trustee without the consent of any of
the Unitholders (a) to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision contained herein; (b) to change any provision hereof as may be
required by the Commission or any successor governmental agency exercising
similar authority; (c) to add or change any provision as may be necessary or
advisable for the continuing qualification of the Trust Fund as a grantor trust
or as a Regulated Investment Company under the Code where applicable; or (d) to
make such other provisions in regard to matters or questions arising hereunder
as shall not materially adversely affect the interests of the Unitholders.
This Indenture may also be amended from time to time by the Sponsor
and the Trustee (or the performance of any of the provisions of this Indenture
may be waived) with the consent of Unitholders owning 51% of the Units at the
time outstanding under this Indenture for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in any manner the rights of the Unitholders;
provided, however, that no such amendment or waiver shall (i) reduce a
Unitholder's interest in the Trust Fund without the consent of such Unitholder
or (ii) reduce the aforesaid percentage of Units, the holders of which are
required to consent to any such amendment, without the consent of all the
Unitholders then outstanding.
The Trustee shall furnish written notification of the substance of any
material amendment promptly after the execution thereof to each Unitholder then
of record. Notice of other amendments shall be included in the annual report
described in Section 3.05.
It shall not be necessary for the consent of Unitholders under this
Section 10.01 or under Section 9.01 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Unitholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
Section 10.02. Initial Costs. (a) The initial costs incurred by the
Sponsor and the Trustee in connection with the organization and establishment
of the Trust (the "Initial Costs") shall be paid by the Trust, or if paid for
by the Trustee initially, shall be reimbursed by the Trust to the Trustee in
accordance with Sections 3.04(b) and 8.05.
<PAGE>
(b) Initial Costs to be charged to the Trust include, but are not
limited to (1) the costs of the initial preparation, typesetting and execution
of the registration statement, prospectuses (including preliminary
prospectuses), the Trust Indenture and other legal documents relating to the
establishment of the Trust, and the costs of submitting such documents in
electronic format to the Commission, (2) Commission and state Blue Sky
registration fees for the initial registration of Trust Units, (3) the cost of
the initial audit of the Trust, (4) the legal costs incurred by the Sponsor and
the Trustee related to any and all of the foregoing, and (5) other
out-of-pocket expenses related to any and all of the foregoing.
(c) Costs and expenses incurred in the marketing and selling of Trust
Units, shall not be borne by the Trust but shall be paid for by the Sponsor.
Such costs and expenses include but are not limited to (1) any expenses
incurred in the printing of prospectuses (including preliminary prospectuses),
(2) the preparation and printing of brochures and other advertising or
marketing materials, including any legal costs incurred in the review thereof,
and (3) any other selling or promotional costs or expenses.
(d) Promptly after the Initial Date of Deposit, upon written
certification to the Trustee, the Sponsor shall receive reimbursement for any
of the Initial Costs set forth in subsection (b) above which are payable from
the Trust but which were paid for by the Sponsor, without profit. The Trustee
shall advance out of its own funds such reimbursement, provided, however, that
the Trustee shall be entitled to be reimbursed without interest out of the
Trust Fund for any and all amounts advanced by it pursuant to this Section
10.02(d), in the manner set forth in the following paragraph.
(e) The Trustee shall reimburse itself for the advances made pursuant
to subsection (b) monthly from funds on hand in the Income Account or, to the
extent funds are not available in such Account, from the Capital Account, in
the amount deemed to have then accrued as provided in the following sentence
(less prior payments on account of such advances, if any), and the provisions
of Section 8.05 with respect to reimbursement of disbursements for Trust
expenses, including, without limitation, the lien in favor of the Trustee
therefor and the authority to sell Securities as needed to fund such
reimbursement, shall apply to the payment of the expenses and the amounts
advanced pursuant to this Section. For the purposes of the preceding sentence
and the addition provided in addition clause (4) of Section 5.01, the expenses
borne by the Trust pursuant to this Section shall be deemed to have been paid
on the date of the Trust Indenture and to accrue at a daily rate over the time
period specified for the amortization by the Sponsor pursuant to Section 5.01;
provided, however, that nothing herein shall be deemed to prevent, and the
Trustee shall be entitled to, full reimbursement for any advances made pursuant
to this Section no later than the termination of the Trust. For purposes of
this Section 10.02 the Trustee may rely on the written estimates of such
expenses provided by the Sponsor pursuant to Section 5.01.
Section 10.03. Registration (Current) of Units and Trust Fund. If the
Sponsor shall maintain a market in the Units, the Sponsor shall, if required by
applicable law, keep the registration of the Units
<PAGE>
and the Trust Fund on a current basis with the Commission and under the
applicable securities laws of such states as the Sponsor may select.
Registration charges, Blue Sky fees, printing costs, attorney's fees, and other
miscellaneous out-of-pocket expenses incurred pursuant to this Section 10.03
and related to all Units shall be borne by the Trust only to the extent and in
the manner provided for by Section 3.04(d). To the extent that such expenses
cannot be borne by the Trust, they shall be borne by the Sponsor. The Sponsor
shall be under no obligation to maintain a market in the Units and, if it shall
maintain such a market, it may cease to do so immediately at any time and from
time to time and without notice. The Sponsor shall do all things that may be
necessary or required to comply with this provision and the Trustee shall not
incur any liability or be under any obligation in connection therewith.
Section 10.04. Certain Matters Relating to Unitholders. (a) The death
or incapacity of any Unitholder shall not operate to terminate this Indenture
or the Trust Fund, nor entitle his legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of the Trust Fund, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them. Each Unitholder expressly
waives any right he may have under any rule of law, or the provisions of any
statute, or otherwise, to require the Trustee at any time to account, in any
manner other than as expressly provided in this Indenture, in respect of the
Securities or moneys from time to time received, held and applied by the
Trustee hereunder.
(b) No Unitholder shall have any right to vote except as provided in
Sections 9.01 and 10.01 or in any manner otherwise to control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth or contained in the terms of the Certificate be
construed so as to constitute the Unitholders from time to time as partners or
members of an association; nor shall any Unitholder ever be under any liability
to any third person by reason of any action taken by the parties to this
Indenture, or for any other cause whatsoever.
Section 10.05. New York Law to Govern. This Indenture is delivered in
the State of New York, and all laws or rules of construction of such State
shall govern the rights of the parties hereto and the Unitholders and the
interpretation of the provisions hereof. This Indenture shall be deemed
effective when it is executed by the Sponsor and the Trustee.
Section 10.06. Notices. Any notice, demand, direction or instruction
to be given to the Sponsor hereunder shall be in writing and shall be duly
given if mailed or delivered to the Sponsor, to the attention of Mr. Robert E.
Holley, Unit Trust Department, PaineWebber Incorporated, 1200 Harbor Boulevard,
Weehawken, New Jersey 07087, or at such other address as shall be specified by
the Sponsor to the other parties hereto in writing. Any notice, demand,
direction or instruction to be given to the Trustee shall be in writing and
shall be duly given if mailed or delivered to the Trustee at its address
specified in the Trust Indenture, or such other address as shall be specified
to the other parties hereto by the
<PAGE>
Trustee in writing. Any notice to be given to a Unitholder shall be duly given
if mailed or delivered to each Unitholder at the address of such holder
appearing on the registration books of the Trustee.
Section 10.07. Severability. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Indenture and shall in no way affect the validity or
enforceability of the other provisions of this Indenture or of the Certificates
or the rights of the holders thereof or of Unitholders.
Section 10.08. Separate and Distinct Series. Each Series of The
PaineWebber Equity Trust to which this Indenture shall be applicable shall, for
all financial and administrative purposes, be considered separate and distinct
from every other Series, and the assets of one Series shall not be commingled
with the assets of another Series nor shall the expenses of any one Series be
charged against any other Series.
Section 10.09. Counterparts. These Standard Terms and Conditions of
Trust may be executed in counterparts, and by each party on separate
counterparts, each of which as so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument, and it shall not be necessary in making proof of these Standard
Terms and Conditions of Trust as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these Standard
Terms and Conditions of Trust dated as of May 1, 1998 to be duly executed.
PAINEWEBBER INCORPORATED
Sponsor
By:
Name: Robert E. Holley
Title: Vice President
SEAL
ATTEST:
Assistant Secretary
THE CHASE MANHATTAN BANK
By:
Name:
Title:
SEAL
ATTEST:
Title:
<PAGE>
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On this __ day of May, 1998 before me personally appeared Robert E.
Holley, to me known, who being by me duly sworn, said that he is a Senior Vice
President of PaineWebber Incorporated, one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
By
-----------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: SS.:
COUNTY OF NEW YORK )
On this __ day of May, 1998, before me personally appeared ________
and ________ to me known, who being by me duly sworn, said that each is a
____________ of The Chase Manhattan Bank one of the corporations described in
and which executed the foregoing instrument; that each knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation and that each signed his/her name thereto by like authority.
- ------------------------------
Notary Public
[NOTARY]
[SEAL]
My Commission Expires:
------------------------
<PAGE>
Exhibit 99.A2
THE PAINEWEBBER EQUITY TRUST,
REIT SERIES 1
TRUST INDENTURE AND AGREEMENT
Dated as of May 27, 1998
Incorporating
Standard Terms and Conditions of Trust
Dated as of May 1, 1998,
Between
PAINEWEBBER INCORPORATED,
as Depositor
and
THE CHASE MANHATTAN BANK
as Trustee
<PAGE>
THIS TRUST INDENTURE AND AGREEMENT dated as of May 27, 1998 between
PaineWebber Incorporated, as Depositor and The Chase Manhattan Bank, as
Trustee, which sets forth certain of its provisions in full and incorporates
other of its provisions by reference to a document entitled "Standard Terms and
Conditions of Trust" dated as of May 1, 1998, among the parties hereto
(hereinafter called the "Standard Terms"), such provisions as are set forth in
full and such provisions as are incorporated by reference constituting a single
instrument.
W I T N E S S E T H T H A T :
WHEREAS, the parties hereto have heretofore or concurrently herewith
entered into the Standard Terms in order to facilitate creation of a series of
securities issued under a unit investment trust pursuant to the provisions of
the Investment Company Act of 1940 and the laws of the State of New York, each
of which series will be composed of redeemable securities representing
undivided interests in a trust fund composed of publicly traded common or
preferred stocks issued by domestic companies, and, in certain cases,
interest-bearing United States Treasury Obligations ("Treasury Obligations");
and
WHEREAS, the parties now desire to create the First trust of the
aforesaid series;
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Depositor and the Trustee agree as follows:
Section 1. Incorporation of Standard Terms and Conditions of Trust.
Subject to the provisions of Sections 2 of this Trust Indenture and Agreement
set forth below, all of the provisions of the Standard Terms incorporated by
reference in their entirety and shall be deemed to be a part of this instrument
as fully to all intents and purposes as though said provisions had been set
forth in full in this instrument. Unless otherwise stated, section references
shall refer to sections in the Standard Terms.
Section 2. Specific Terms of this Series. The following terms are
hereby agreed to for this series of The PaineWebber Equity Trust, which series
shall be known and designated as "The PaineWebber Equity Trust, REIT Series 1".
A. The Securities deposited pursuant to Section 2.02(e) are listed in
Schedule A annexed hereto.
B. (1) The aggregate number of Units outstanding on the date hereof
for this Series is 10,000.
(2) The initial fractional undivided interest represented by each
Unit of this series shall be 1/10,0000th of the Trust Fund. A receipt
evidencing the ownership of this total number of Units outstanding on the date
hereof is being delivered by the Trustee to the Depositor.
<PAGE>
B. The term "Capital Account Record Date" shall mean December 10, 1998
and annually thereafter and the term "Income Account Record Date" shall mean
July 10, 1998 and monthly thereafter; provided, however, that with respect to a
distribution required by Section 2.02(b), the Record Date shall be the last
business day of the month during which the contract to purchase the Security
fails.
Record Date shall also include such date or dates determined by the
Sponsor and the Trustee as necessary or desirable and in the best interest of
the Unitholders for federal or state tax purposes, or for other purposes
(hereinafter a "Special Record Date") which date may replace a regularly
scheduled Record Date if such regularly scheduled Record Date is within 30 days
of a Special Record Date.
C. (1) The term "Capital Account Distribution Date" shall mean
December 25, 1998, and annually thereafter. (2) The term "Income Account
Distribution Date" shall mean July 25, 1998 and monthly thereafter, except that
the Trustee may declare a Record Date of December 31 in any year for a
Distribution Date of January 20 of the following year, if required for
compliance with the rules and regulations governing regulated investment
companies. With respect to a distribution required by Section 2.02(b), the
Distribution Date shall be twenty days after the Record Date with respect
thereto.
In the event a Special Record Date is declared, Distribution Date
shall also include such Date as is determined by the Sponsor and the Trustee to
be the Distribution Date in respect of such Special Record Date.
D. The Discretionary Liquidation Amount shall be fifty per centum
(50%) of the aggregate value of the Securities originally deposited on the date
hereof and subsequently deposited pursuant to any Supplemental Indenture
pursuant to Section 2.02.
E. The Mandatory Termination Date shall be June 30, 2001. Unless
advised to the contrary by the Sponsor, the date on which the Trustee shall
begin to sell equity Securities in accordance with Section 9.01 shall be
June 10, 2001. The Trustee will honor redemptions tendered to the Trustee not
later than the Valuation Time on June 9, 2001.
F. The Trustee's annual compensation as referred to in Section 8.05
shall be $.01575 per Unit computed monthly based on the largest number of Units
outstanding during the preceding month.
G. The Sponsor's annual compensation pursuant to Section 7.02 shall be
computed as $00.00 per Unit, based on the largest number of Units outstanding
in a calendar year.
<PAGE>
H. The balance in the Capital Account below which no distribution need
be made, as referred to in Section 3.04, is $0.75 per Unit Outstanding.
I. The amount specified in Section 5.02 relating to "In Kind
Distributions" shall be $500,000.
J. The Trustee's address pursuant to Section 10.06 is: The Chase
Manhattan Bank, 4 New York Plaza, New York, New York 10004, Attention: Unit
Trust Division.
K. Subsection (c) of Section 3.02 shall be amended to add the
following paragraph at the conclusion thereof:
The Sponsor may, in lieu of depositing additional Securities or
contracts for the purchase of additional Securities, provide the Trustee a
written agreement (the "Delivery Agreement"), which may be included in the
Supplemental Indenture relating to such deposit, (i) to deliver "free" the
additional Securities identified in the Delivery Agreement not later than the
first Record Date for distributions from the Income Account and (ii) to
maintain with the Trustee, as collateral security for such undertaking, an
irrevocable letter of credit or cash, or combination thereof, in an amount not
less than 120% of the value, as determined under Section 4.01 on each Business
Day, of the then undelivered Securities identified in the Delivery Agreement.
The Sponsor shall deliver to the Trustee the collateral security specified in
the preceding sentence not later than the Valuation Time on the date of the
Delivery Agreement and on any Business Day on which an increase in the security
is required pursuant to such sentence. The undelivered Securities identified in
the Delivery Agreement shall be treated as Contract Securities for purposes of
the computation of the Trust Fund Evaluation. The Cash Component with respect
to Securities delivered pursuant to the Delivery Agreement shall be computed as
of the date the Securities are delivered to the Trustee. In the event the
Sponsor shall fail to deliver Securities in accordance with the Delivery
Agreement, the Trustee shall (i) credit the funds then held as collateral
security to the Capital Account and (ii) distribute the same in the manner
provided for Failed Contract Securities for which no Replacement Securities are
to be purchased.
L. Section 3.01 of the Standard Terms is amended to add the following
sentence at the conclusion thereof:
"The Trustee shall credit to the Income Account any distribution on Securities
which is not identified, at the time of receipt, as a return of principal, and
shall administer such funds in accordance with the provisions for funds
credited to the Income Account hereunder, regardless of whether the issuer of
such Securities may subsequently characterize the distributed funds in such
manner as would require them to be credited to the Capital Account, provided,
however, that the Trustee shall file tax reports and returns for the Trust Fund
reflecting distributions as characterized by the issuer of the Security."
M. The text of Section 3.04 shall be deleted and the following text
shall be inserted in its place:
"Section 3.04. Certain Deductions and Distributions. Each month the
Trustee shall satisfy itself as to the adequacy of the Reserve Account, making
any further credits thereto as may appear appropriate in accordance with
Section 3.03 and shall then:
(a) deduct from the Income Account or, to the extent such
funds are not available in such Account, from the Capital Account, and
pay to itself individually the amounts that it is at the time entitled
to receive pursuant to Sections 8.01 and 8.05 on account of its
services theretofore performed and expenses, losses and liabilities
theretofore incurred, if any;
(b) deduct from the Income Account or, to the extent funds
are not available in such account, from the Capital Account, and pay
to itself individually an amount equal to the portion of the advance
for the Initial Costs specified in Section 10.02(b) for which it is
then entitled to reimbursement pursuant to such section;
<PAGE>
(c) deduct from the Income Account or, to the extent funds
are not available in such Account, from the Capital Account, and pay
to the Sponsor or successor Sponsor the amount that it is entitled to
receive pursuant to Sections 7.02 and 8.01(f); and
(d) to the extent that the Trustee has been advised that
costs incurred in keeping the registration of Units and the Trust on a
current basis are permitted to be deducted at that time by the
Securities and Exchange Commission, deduct from the Income Account, or
to the extent funds are not available in such Account, from the
Capital Account, an amount equal to the unpaid fees and expenses
incurred in keeping the registration statement current as provided in
Section 10.03.
Any amounts that the Trustee has paid pursuant to (c) above in excess
of the amount to which the Sponsor is entitled pursuant to Section 7.02, shall
be returned to the Trust and distributed on the next Distribution Date to
Unitholders of record on the preceding Record Date.
On each Income Account Distribution Date with respect to Income
Account Distributions ("Income Distributions"), and on each annual Distribution
Date with respect to Capital Account Distributions ("Capital Distributions") or
within a reasonable period of time thereafter, the Trustee shall distribute by
check mailed to each Unitholder of record at the close of business on the
preceding Record Date at his address appearing on such Record Date on the
registration books of the Trustee or by such other means as may be mutually
agreed upon by the Trustee and the Unitholder, such Unitholder's pro rata share
of the balance of the Income and/or Capital Accounts, as the case may be,
computed as of such Record Date in the manner set forth below, provided,
however, that the Trustee, if so directed with respect to distributions from
the Income Account and the Capital Account in a writing signed by the Sponsor
on behalf of Unitholders electing the reinvestment plan offered in the
Prospectus (the "Reinvestment Plan") and received by the Trustee at least ten
days prior to the Record Date for the first distribution to which such notice
is to apply, use such distributions to purchase Units from the Sponsor, which
may be Units held by the Sponsor or additional Units created pursuant to the
provisions of Section 2.02, for the accounts of such Unitholders under the
terms and conditions set forth in the Prospectus. Only whole Units shall be
purchased pursuant to this Section 3.04.
The Trustee shall, as of each Income Account Record Date, compute and
report to the Sponsor the per-Unit amount of the monthly income distribution to
be made on the next following Distribution Date (the "Monthly Income
Distribution") by (i) estimating the annual income of the Trust Fund for the
ensuing twelve months (by reference to the most recent distributions made on
Securities and any information received by the Trustee with respect to future
dividends or other income), (ii) deducting therefrom the estimated costs and
expenses to be incurred during the twelve-month period for which such income
has been estimated and (iii) dividing the amount so obtained by the result by
twelve (12) multiplied by the number of Units outstanding on such Record Date.
However, unless the Trustee or
<PAGE>
the Sponsor determines that the Monthly Income Distribution should be reduced
as provided hereafter, the amount of the Monthly Income Distribution shall be
the amount computed by the Trustee on the most recent prior, or concurrently
occurring, Quarterly Computation Date (such "Quarterly Computation Date" being
the first Income Account Record Date and each Record Date occurring at
three-month intervals thereafter). The Trustee shall adjust the amount of the
Monthly Income Distribution computed on each Quarterly Computation Date to
reconcile, over the ensuing three Monthly Income Distributions, any variance
between net income and distributions made during the preceding three months.
Notwithstanding the foregoing, the Trustee may reduce the amount of any Monthly
Income Distribution in the event the Trustee or the Sponsor determines that
such reduction is necessary to avoid, or to respond to, a significant
discrepancy between estimated and actual net income.
In the event the amount on deposit in the Income Account of the Trust
Fund on a Distribution Date is not sufficient for the payment of the amount of
income to be distributed on the basis of the above computation, the Trustee
shall advance out of its own funds and cause to be deposited in and credited to
the Income Account such amount as may be required to permit payment of the
income distribution to be made on such Distribution Date and shall be entitled
to be reimbursed out of the income subsequently received, without interest, on
the first Income Account Record Date following the date of such advance on
which such reimbursement may be made without reducing the cash balance of the
Income Account to an amount less than that required for the next ensuing
distribution. The Trustee shall be deemed to be the beneficial owner of the
dividends or other income received by the Trust Fund to the extent of all
amounts advanced by it pursuant to this paragraph, and such advances shall be
considered a lien on the Trust Fund prior to the interest of Unitholders.
The Unitholders distribution from the Capital Account shall be an
amount substantially equal to the Unitholder's pro rata share of the cash
balance of the Capital Account (but not including cash required to purchase
Contract Securities or held for reinvestment in Replacement Securities
purchased pursuant to Section 3.15) computed as of the close of business on the
preceding Capital Account Record Date, provided, however, that the Trustee
shall not be required to make a distribution from the Capital Account unless
the cash balance on deposit therein available for distribution shall be
sufficient to distribute at least that amount per Unit stated in the Trust
Indenture.
The amounts to be distributed to each Unitholder shall be that pro
rata share of the cash balances of the Income and Capital Accounts of the Trust
Fund, computed as provided above, as shall be represented by the Units owned by
such Unitholder as evidenced by the record books of the Trustee as
<PAGE>
of the applicable Record Date. In computing the distribution to be made to any
Unitholder, fractions of one cent shall be omitted.
In the event a Unitholder of a particular series of any Trust fund is
also a Unitholder of one or more other series of a trust for which the Trustee
is the trustee and for which the Sponsor is the sole depositor, and such
Unitholder has not elected to participate in the Reinvestment Plan, then the
Trustee shall consolidate in one check the distribution required to be made to
a Unitholder hereunder with all other distributions required to be made on such
Distribution Date to such Unitholder pursuant to the indenture governing such
other series; provided that an appropriate statement of distribution be
furnished therewith as required by the applicable Trust Indenture."
N. The following sentence shall be added at the conclusion of the
first paragraph of Section 4.01:
"Notwithstanding any contrary provision of this paragraph, the Trustee
shall, unless the Sponsor shall otherwise direct, evaluate any Restricted
Security which is the subject of a registration rights agreement or other
similar agreement at the last reported sales price of the comparable security
of the same issuer listed on a national securities exchange (and if such
comparable security is listed on more than one exchange, at the last reported
sales price on the exchange where such security is principally traded.) In the
event that there is no comparable security listed on a national securities
exchange for such Restricted Security, the Trustee shall designate an appraisal
service as provided for in this Indenture, which appraisal service shall
consider the factors provided in this Section 4.01 for the purpose of valuing
such Restricted Security."
<PAGE>
IN WITNESS WHEREOF, PaineWebber Incorporated has caused this Trust
Indenture and Agreement to be executed by one of its Vice Presidents and its
corporate seal to be hereto affixed and attested by one of its Assistant
Secretaries, and The Chase Manhattan Bank has caused this Trust Indenture to be
executed by one of its Vice Presidents and its corporate seal to be hereto
affixed and attested by one of its Assistant Secretaries or Assistant
Treasurers, all as of the date first above written.
PAINEWEBBER INCORPORATED
as Depositor and Sponsor
SEAL By
-------------------------------
Senior Vice President
Attest:
May 26, 1998
- --------------------------
Secretary
<PAGE>
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 27th day of May, 1998 before me personally appeared
Robert E. Holley, to me known, who being by me duly sworn, said that he is a
Senior Vice President of PaineWebber Incorporated, one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation, and that he signed his name thereto by like authority.
-----------------------------------
Notary Public
<PAGE>
THE CHASE MANHATTAN BANK
By:
--------------------------------
Title:
-----------------------------
SEAL
Attest:
- -----------------------------
Title:
<PAGE>
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 27th day of May, 1998 before me personally appeared , to me
known, who being by me duly sworn, said that he/she is a of The Chase Manhattan
Bank, one of the corporations described in and which executed the foregoing
instrument; that he/she knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation, and that he/she signed
his/her name thereto by like authority.
-----------------------------------
Notary Public
<PAGE>
SCHEDULE A
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)
- -------------- ----------- ------------------
<S> <C> <C>
Alexandria Real Estate Equities, Inc. (9.1%) 442 $ 13,646.75
Camden Property Trust (3.0%) ................ 152 4,493.50
Chateau Communities, Inc. (2.0%) ............ 104 2,990.00
Colonial Properties Trust (3.1%) ............ 153 4,647.38
Cornerstone Realty Income Trust, Inc. (7.5%) 978 11,247.00
EastGroup Properties, Inc. (2.0%) ........... 155 2,993.44
FelCor Suite Hotels, Inc. (3.2%) ............ 141 4,802.81
Gables Residential Trust (1.5%) ............. 83 2,246.19
Home Properties of New York, Inc. (7.2%) ... 409 10,812.94
Kimco Realty Corporation (7.6%) ............. 299 11,399.38
Liberty Property Trust (2.5%) ............... 144 3,762.00
The Macerich Company (12.5%) ................ 698 18,758.75
Mack-Cali Realty Corporation (9.0%) ........ 369 13,514.63
Post Properties, Inc. (3.7%) ................ 137 5,531.38
PS Business Parks, Inc. (6.2%) .............. 384 9,312.00
Realty Income Corporation (1.2%) ............ 69 1,794.00
Shurgard Storage Centers, Inc. (2.0%) ...... 106 2,981.25
Simon DeBartolo Group, Inc. 12.7%) .......... 581 19,060.09
Storage USA, Inc. (2.0%) .................... 82 3,008.38
Sun Communities, Inc. (2.0%)................. 90 2,998.13
------------------
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
$10.00.
<PAGE>
Exhibit 99.2
May 27, 1998
PaineWebber Inc.
1200 Harbor Boulevard
Weehawken, New Jersey 07087
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Re: PaineWebber Equity Trust,
REIT Series 1
-------------------------
Ladies and Gentlemen:
We have served as counsel for PaineWebber Incorporated as sponsor and
depositor (the "Sponsor") of PaineWebber Equity Trust, REIT Series 1
(hereinafter referred to as the "Trust") in connection with the issuance by the
Trust of an indefinite number of units of fractional undivided interest in the
Trust (hereinafter referred to as the "Units").
In this regard, we have examined executed originals or copies of the
following:
<PAGE>
(a) The Restated Certificate of Incorporation, as amended, and
the By-Laws of the Sponsor, as amended, certified by the Secretary of
the Sponsor on the date hereof;
(b) Resolutions of the Board of Directors of the Sponsor adopted
on December 3, 1971 relating to the Trust and the sale of the Units,
certified by the Secretary of the Sponsor on the date hereof;
(c) Resolutions of the Executive Committee of the Sponsor adopted
on September 24, 1984, certified by the Secretary of the Sponsor on
the date hereof;
(d) Powers of Attorney as set forth in the certificate of the
Secretary of the Sponsor dated the date hereof;
(e) The Registration Statement on Form S-6 (File No. 333-38255)
filed with the Securities and Exchange Commission (the "Commission")
in accordance with the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder
(collectively, the "1933 Act") and amendments thereto including
Amendment No. 2 ("Amendment No. 2") proposed to be filed on May 27,
1998 (the "Registration Statement");
(f) The Notification of Registration of the Trust filed with the
Commission under the Investment Company Act of 1940, as amended
(collectively, the "1940 Act") on Form N-8A, as amended, (the "1940
Act Notification");
(g) The registration of the Trust filed with the Commission under
the 1940 Act on Form N-8B-2 (File No. 811-3722), as amended (the "1940
Act Registration);
(h) The prospectus included in Amendment No. 2 (the
"Prospectus");
(i) The Standard Terms and Conditions of the Trust dated as of
May 1, 1998, between the Sponsor and The Chase Manhattan Bank (the
"Trustee") (the "Standard Terms");
(j) The Trust Indenture dated as of May 27, 1998 between the
Sponsor and the Trustee (the "Trust Indenture" and, collectively with
the Standard Terms, the "Indenture and Agreement");
<PAGE>
(k) The Closing Memorandum dated May 27, 1998, between the
Sponsor and the Trustee (the "Closing Memorandum");
(l) Officers Certificates required by the Closing Memorandum;
(m) The form of certificate of ownership for units (the
"Certificate") to be issued under the Indenture and Agreement; and
(n) Such other pertinent records and documents as we have deemed
necessary.
With your permission, in such examination, we have assumed the
following: (a) the authenticity of original documents and the genuineness of
all signatures; (b) the conformity to the originals of all documents submitted
to us as copies; (c) the truth, accuracy, and completeness of the information,
representations, and warranties contained in the records, documents,
instruments and certificates we have reviewed; (d) except as specifically
covered in the opinions set forth below, the due authorization, execution, and
delivery on behalf of the respective parties thereto of documents referred to
herein and the legal, valid, and binding effect thereof on such parties; and
(e) the absence of any evidence extrinsic to the provisions of the written
agreement(s) between the parties that the parties intended a meaning contrary
to that expressed by those provisions. However, we have not examined the
securities deposited pursuant to the Indenture and Agreement (the "Securities")
nor the contracts for the Securities.
We express no opinion as to matters of law in jurisdictions other than
the laws of the State of New York (except "Blue Sky" laws) and the federal laws
of the United States, except to the extent necessary to render the opinion as
to the Sponsor and the Indenture and Agreement in paragraphs (i) and (iii)
below with respect to Delaware law. As you know we are not licensed to practice
law in the State of Delaware, and our opinion in paragraph (i) and (iii) as to
Delaware law is based solely on review of the official statutes of the State of
Delaware.
Based upon such examination, and having regard for legal
considerations which we deem relevant, we are of the opinion that:
(i) The Sponsor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full corporate
power to conduct its business as described in the Prospectus;
(ii) The Sponsor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
<PAGE>
(iii) The Indenture and Agreement has been duly authorized, executed
and delivered by the Sponsor and, assuming the due authorization, execution and
delivery by the Trustee, is a valid and binding agreement of the Sponsor,
enforceable against the Sponsor in accordance with its terms;
(iv) The Trust has been duly formed and is validly existing as an
investment trust under the laws of the State of New York and has been duly
registered under the Investment Company Act of 1940;
(v) The terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(vi) The consummation of the transactions contemplated under the
Indenture and Agreement and the fulfillment of the terms thereof will not be in
violation of the Sponsor's Restated Certificate of Incorporation, as amended,
or By-Laws, as amended and will not conflict with any applicable laws or
regulations applicable to the Sponsor in effect on the date hereof;
(vii) The Certificates to be issued by the Trust, when duly executed
by the Sponsor and the Trustee in accordance with the Indenture and Agreement,
upon delivery against payment therefor as described in the Registration
Statement and Prospectus will constitute fractional undivided interests in the
Trust enforceable against the Trust in accordance with their terms, will be
entitled to the benefits of the Indenture and Agreement and will be fully paid
and non-assessable; and
(viii) While the Registration Statement has not yet become effective
we have no reason to believe that such Registration Statement will not become
effective within 30 days after the date hereof.
In addition, we have participated in conferences with representatives
of the Sponsor, the Trustee, the Trust's accountants and others concerning the
Registration Statement and the Prospectus and have considered the matters
required to be stated therein and the statements contained therein, although we
have not independently verified the accuracy, completeness or fairness of such
statements. Based upon and subject to the foregoing, nothing has come to our
attention to cause us to believe that the Registration Statement, as of the
date hereof, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that the Prospectus, as of the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that we have not been requested to and do not
make any comment in this paragraph with respect to the financial statements,
<PAGE>
schedules and other financial and statistical information contained in the
Registration Statement or the Prospectus).
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or other laws relating to or
affecting the enforcement of creditors' rights generally;
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
(c) general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement and the Prospectus.
Very truly yours,
CARTER, LEDYARD & MILBURN
KHM:def
<PAGE>
Exhibit 99.C1
May 27, 1998
PaineWebber Incorporated
1200 Harbor Boulevard
Weehawken, New Jersey 07087
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Ladies & Gentlemen:
As counsel for PaineWebber Incorporated (the "Depositor"), we have
examined an executed copy of the Trust Indenture and Agreement dated as of May
27, 1998 (the "Indenture") and Standard Terms and Conditions of Trust, dated as
of May 1, 1998 (the "Agreement"), both between the Depositor, and The Chase
Manhattan Bank as Trustee. The Indenture established a trust called The
PaineWebber Equity Trust, REIT Series 1 (the "Trust") into which the Depositor
deposited certain stocks (the "Securities"), and moneys to be held by the
Trustee upon the terms and conditions set forth in the Indenture and Agreement.
Under the Indenture, units were issued on the Initial Date of Deposit
representing units of fractional undivided interest in the Trust (the "Units").
Based upon the foregoing and upon an examination of such other
documents and an investigation of such other pertinent records and documents
and matters of law as we have deemed necessary, we are of the opinion that,
under existing statutes and decisions:
<PAGE>
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 or payment at maturity) or when the
Unitholder redeems or sells its Unit or redeems its Unit for cash. For purposes
of determining gain or loss, 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 Unitholder's 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.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-38255) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Very truly yours,
CARTER, LEDYARD & MILBURN
KHM:def
<PAGE>
Exhibit 99.C2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment to the Registration Statement of our
report dated May 27, 1998 relating to the Statement of Financial Condition of
The PaineWebber Equity Trust, REIT Series 1, including the Schedule of
Investments, included herein, and to the reference made to us under the caption
"Independent Auditors" in the Prospectus.
ERNST & YOUNG LLP
May 27, 1998
New York, New York
