As filed with the Securities and Exchange Commission on March 3, 1998
Registration No. 333-44589
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
Amendment No. 1 to
FORM S-6
For Registration Under the Securities Act
of 1933 of Securities of Unit Investment
Trusts Registered on Form N-8B-2
---------------------
<TABLE>
<S> <C> <C>
Schwab Trusts, Schwab Ten Trust, 1998 Series A
B. NAME OF DEPOSITORS:
Charles Schwab & Co., Inc. Reich & Tang Distributors, Inc.
C. COMPLETE ADDRESS OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
Charles Schwab & Co., Inc. Reich & Tang Distributors, Inc.
101 Montgomery Street 600 Fifth Avenue
San Francisco, California 94104 New York, New York 10020
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
COPY OF COMMENTS TO:
FRANCES COLE, ESQ. PETER J. DEMARCO MICHAEL R. ROSELLA, Esq.
Charles Schwab & Co., Inc. Reich & Tang Distributors, Inc. Battle Fowler LLP
101 Montgomery Street 600 Fifth Avenue 75 East 55th Street
San Francisco, California 94104 New York, New York 10020 New York, New York 10022
(212) 856-6858
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
An indefinite number of Units of Schwab Trusts, Schwab Ten Trust, 1998
Series A is being registered under the Securities Act of 1933 pursuant
to Section 24(f) of the Investment Company Act of 1940, as amended, and
Rule 24f-2 thereunder.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES BEING
REGISTERED:
Indefinite
G. AMOUNT OF FILING FEE:
No filing fee required.
H. APPROPRIATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration
Statement.
/X/ Check if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
</TABLE>
606976.4
<PAGE>
INSERT LOGO
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1998 SERIES A
The Trust is a unit investment trust designated Schwab Ten Trust, 1998 Series A
(the "Trust"). The Sponsors are Charles Schwab & Co., Inc. and Reich & Tang
Distributors, Inc. The objective of the Trust is to maximize total return
through a combination of capital appreciation and current dividend income. The
Sponsors cannot give any assurance that the Trust's objective can be achieved.
The Trust seeks to achieve its objective by attempting to outperform the Dow
Jones Industrial Average ("DJIA") by investing in a portfolio of the ten common
stocks which, out of the thirty stocks comprising the DJIA, have the highest
dividend yield (the "Strategic Ten"), determined as of two business days prior
to the Initial Date of Deposit. The Strategic Ten strategy is commonly referred
to as the "dogs of the Dow." The name "Dow Jones Industrial Average" is the
property of Dow Jones & Company, Inc., which is not affiliated with the Sponsors
and has not participated in any way in the creation of the Trust or in the
selection of the stocks included in the Trust and has not reviewed or approved
any information included in this Prospectus. Dow Jones & Company, Inc. has not
granted to the Trust or the Sponsors a license to use the Dow Jones Industrial
Average. The value of the Units of the Trust will fluctuate with fluctuations in
the value of the underlying Securities in the Trust. Therefore, Unitholders who
sell their Units prior to termination of the Trust may receive more or less than
their original purchase price upon sale. No assurance can be given that
dividends will be paid or that the Units will appreciate in value. The Trust
will terminate approximately one year after the Initial Date of Deposit. The
minimum purchase is 100 Units for individual purchasers, and 25 Units for
purchases by custodial accounts or Individual Retirement Accounts, self-employed
retirement plans (formerly Keogh Plans), pension funds and other tax-deferred
retirement plans.
This Prospectus consists of two parts. Part A contains the Summary of Essential
Information including descriptive material relating to the Trust and the
Statement of Financial Condition of the Trust. Part B contains general
information about the Trust. Part A may not be distributed unless accompanied by
Part B. Please read and retain both parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED MARCH 3, 1998
A-1
687791.1
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION AS OF MARCH 2, 1998:*
<S> <C>
INITIAL DATE OF DEPOSIT: March 3, 1998 TRUSTEE: The Chase Manhattan Bank
AGGREGATE VALUE OF SECURITIES.......................... $149,662 TRUSTEE'S FEE: $.86 per 100 Units outstanding
AGGREGATE VALUE OF SECURITIES ORGANIZATIONAL EXPENSES***: $1.03 per 100
PER 100 UNITS....................................... $1,000.00 Units
NUMBER OF UNITS........................................ 14,966 OTHER FEES AND EXPENSES: $.16 per 100 Units
FRACTIONAL UNDIVIDED INTEREST IN outstanding
TRUST SECURITIES.................................... 1/14,966 SPONSORS: Charles Schwab & Co., Inc. and Reich &
PUBLIC OFFERING PRICE PER 100 UNITS Tang Distributors, Inc.
Aggregate Value of Securities in AGENT FOR SPONSORS: Reich & Tang Distributors,
Trust ............................................ $149,662 Inc.
Divided By 14,966 Units (times 100) Public SPONSORS' PORTFOLIO SUPERVISORY,
Offering Price per 100 Units**+..................... $1,000.00 BOOKKEEPING AND ADMINISTRATIVE FEE:
SPONSORS' REPURCHASE PRICE AND Maximum of $.25 per 100 Units outstanding (see
REDEMPTION PRICE PER "Trust Expenses and Charges" in Part B).
100 UNITS++......................................... $987.50 RECORD DATES: June 15 and December 15
EVALUATION TIME: 4:00 p.m. New York Time (or DISTRIBUTION DATES: June 30 and December 31
earlier close of the New York Stock Exchange). ROLLOVER NOTIFICATION DATE****:
MINIMUM INCOME OR PRINCIPAL February 23, 1999 or another date as determined by the
DISTRIBUTION: $1.00 per 100 Units Sponsors.
LIQUIDATION PERIOD: Beginning seven days prior MONTHLY DEFERRED SALES CHARGE
to the Mandatory Termination Date. PAYMENT DATES: The first business day of each
MINIMUM VALUE OF TRUST: The Trust may be month commencing June 1, 1998.
terminated if the value of the Trust is less than 40% SEMI-ANNUAL DEFERRED SALES CHARGE
of the aggregate value of the Securities at the PAYMENT DATES: June 30, 1998 and
completion of the Deposit Period. December 31, 1998.
MANDATORY TERMINATION DATE: The earlier
of April 15, 1999 or the disposition of the last Security
in the Trust.
</TABLE>
<TABLE>
<S> <C> <C>
Schwab Account/Strategic Ten
Schwab Fee-Based Accounts: Investors:
CUSIP NUMBERS: Cash: 808523203 Cash: 808523187 Cash: 808523161
Reinvestment: 808523211 Reinvestment: 808523195 Reinvestment: 808523179
</TABLE>
- ------------------
* The business day prior to the Initial Date of Deposit. The Initial Date
of Deposit is the date on which the Trust Agreement was signed and the deposit
of Securities with the Trustee made.
** A maximum Deferred Sales Charge of $12.50 per 100 Units (1.25% of the
Initial Public Offering Price) will be paid through deductions subsequent to the
Initial Date of Deposit as described under "Deferred Sales Charge". See "Public
Offering-Discounts" in Part B for a description of reduced deferred sales
charges for certain investors. (See "Public Offering - Offering Price".) On a
repurchase or redemption of Units before the last Deferred Sales Charge Payment
Date, any remaining Deferred Sales Charge payments will be deducted from the
proceeds. Units purchased pursuant to the
A-2
687791.1
<PAGE>
Reinvestment Plan are subject to that portion of the Deferred Sales Charge
remaining at the time of reinvestment (see "Reinvestment Plan").
*** The Trust (and therefore the Unitholders) will bear all or a portion of
its organizational costs, which include the following: the cost of preparing and
printing the registration statement, the trust indenture and the closing
documents; registering units with the SEC and the States; and the initial audit
of the Trust. See "Trust Expenses" in Part B. These figures are based upon the
assumption that the Trust will reach a size of 5,000,000 Units as estimated by
the Sponsors; organizational expenses per 100 Units may vary with the actual
size of the Trust.
**** If a Unitholder ("Rollover Unitholder") so specifies on or prior to
the Rollover Notification Date, the Rollover Unitholder's terminating
distribution will be reinvested in an available series of the Schwab Ten Trust,
if offered (see "Trust Administration--Trust Termination").
+ On the Initial Date of Deposit there will be no cash in the Income or
Principal Accounts. Anyone purchasing Units after such date will have included
in the Public Offering Price a pro rata share of any cash in such Accounts.
++ This figure reflects deduction of the maximum Deferred Sales Charge of
$12.50 per 100 Units; the actual amount deducted upon redemption of Units will
depend upon the Deferred Sales Charge applicable to the redeeming Unitholder.
Any redemptions of 2,500 Units or more may, upon request by a redeeming
Unitholder, be made in kind. The Trustee will forward the distributed securities
to the Unitholder's broker-dealer account at The Depository Trust Company in
book-entry form. See "Liquidity--Trustee Redemption" in Part B.
A-3
687791.1
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
<S> <C> <C> <C> <C> <C> <C>
This Fee Table is intended to help you to understand the costs and expenses that
you will bear directly or indirectly. See "Public Offering and Trust Expenses
and Charges." Although each Series has a term of only one year, and is a unit
investment trust rather than a mutual fund, this information is presented to
permit a comparison of fees, assuming the principal amount and distributions are
rolled over each year into a new Series subject only to the Deferred Sales
Charge and trust expenses.
- -----------------------------------------------------------------------------------------------------------------------------------
Unitholder Transaction Expenses Maximum Reduced
Deferred Sales Charge Deferred Sales
--------------------- Charge+
--------------
As a % of Amount As a % of Amount
Initial per Initial per
Offering Price 100 Units Offering Price 100 Units
Deferred Sales Charge per Year ..................................... 1.25%* $ 12.50 1.00%** $10.00
----- ------- ----- ------
Maximum Sales Charge Imposed Per Year on Reinvested Dividends....... 1.25%*** $12.50 1.00%*** $10.00
===== ====== ===== ======
Estimated Annual Fund Operating Expenses Amount Amount
As a % of per As a % of per
Net Assets 100 Units Net Assets 100 Units
---------- --------- ---------- ---------
Trustee's Fee....................................................... .086% $.86 .086% $.86
Organizational Expenses............................................. .103% 1.03 .103% 1.03
Other Operating Expenses............................................ .016% .16 .016% .16
Portfolio Supervision, Bookkeeping and Administrative Fees..... .025% .25 .025% .25
----- ---- ----- ---
Total.......................................................... .230% $2.30 .230% $2.30
===== ===== ===== =====
Examples
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Maximum Deferred Sales Charge Example: Cumulative Expenses Paid for Period:
------------------------------------------
1 year 3 years
------ -------
An investor would pay the following expenses on a $1,000 investment, assuming the Trust $15 $41
operating expense ratio of .230% and a 5% annual return on the investment throughout
the periods........................................................................
Reduced Deferred Sales Charge Example: Cumulative Expenses Paid for Period:
------------------------------------------
1 year 3 years
------ -------
An investor would pay the following expenses on a $1,000 investment, assuming the Trust $12 $34
operating expense ratio of .230% and a 5% annual return on the investment throughout
the periods........................................................................
</TABLE>
The Examples assume reinvestment of all dividends and distributions and utilizes
a 5% annual rate of return. For purposes of the Examples, the Deferred Sales
Charge imposed on reinvestment of dividends is not reflected until the year
following payment of the dividend; the cumulative expenses would be higher if
sales charges on reinvested dividends were reflected in the year of
reinvestment. The Examples should not be considered a representation of past or
future expenses or annual rate of return; the actual expenses and annual rate of
return may be more or less than those assumed for purposes of the Examples.
- ------------------
* The actual fee is a total of $12.50 per 100 Units, irrespective of
purchase or redemption price, deducted in installments over the life of the
Trust, commencing June 1, 1998. If a Holder sells or redeems Units before all of
these deductions have been made, the balance of the Deferred Sales Charge will
be deducted from the proceeds of sale or redemption. If the Unit price exceeds
$10 per Unit, the Deferred Sales Charge will be less than 1.25%; if the Unit
price is less than $10 per Unit, the Deferred Sales Charge will exceed 1.25%.
** The actual fee is a total of $10.00 per 100 Units, irrespective of
purchase or redemption price, deducted in installments over the life of the
Trust, commencing June 1, 1998. If a Holder sells or redeems Units before all of
these deductions have been made, the balance of the Deferred Sales Charge will
be deducted from the proceeds of sale or redemption. If the Unit price exceeds
$10 per Unit, the Deferred Sales Charge will be less than 1.00%; if the Unit
price is less than $10 per Unit, the Deferred Sales Charge will exceed 1.00%.
See "Public Offering-Discounts" in Part B for a description of which investors
will be eligible for this reduced Deferred Sales Charge.
*** Reinvested dividends will be subject only to the Deferred Sales Charge
remaining at the time of reinvestment (see "Reinvestment Plan" in this Part A).
+ The Deferred Sales Charge is subject to a further reduction to $8.00
per 100 Units (.80% of the Initial Offering Price) under certain circumstances
(see "Public Offering-Discounts" in Part B).
A-4
687791.1
<PAGE>
OBJECTIVE. The objective of the Trust is to maximize total return through
capital appreciation and current dividend income. The Trust seeks to achieve its
objective by attempting to outperform the Dow Jones Industrial Average ("DJIA")
(which is not affiliated with the Sponsors) by creating a portfolio that follows
the investment strategy of investing in the ten (10) common stocks which, out of
the thirty stocks comprising the DJIA, have the highest dividend yield (the
"Strategic Ten"), determined as of two business days prior to the Initial Date
of Deposit. The Trust's portfolio will be comprised of these ten (10) stocks.
The Trust's assets will be allocated in approximately equal amounts among the
Strategic Ten. For the actual percentage of each stock in the portfolio, see
"Portfolio" herein. (Also, see "The Trust - Objective" and "The Trust The
Securities" in Part B.) As used herein, the term "highest dividend yield" means
the yield for each Security calculated by annualizing the last quarterly or
semi-annual ordinary dividend distributed on that Security and dividing the
result by the market value of that Security as of two business days prior to the
Initial Date of Deposit. This rate is historical, and there is no assurance that
any dividends will be declared or paid in the future on the Securities in the
Trust. The Trust may not exceed the DJIA in any one year; however, historically,
long term cumulative returns from this strategy has outperformed the DJIA. As
used herein, the term "Securities" means the common stocks initially deposited
in the Trust and described in "Portfolio" in Part A and any additional common
stocks acquired and held by the Trust pursuant to the provisions of the
Indenture. Further, the Securities may appreciate or depreciate in value,
dependent upon the full range of economic and market influences affecting
corporate profitability, the financial condition of issuers and the price of
equity securities in general and the Securities in particular. Therefore, there
is no guarantee that the objective of the Trust will be achieved.
PORTFOLIO. The Portfolio contains 10 issues of common stock. 100% of the issues
are represented by the Sponsor's contracts to purchase. Based upon the principal
business of each issuer and current market values, the following industries are
represented in the Portfolio: Auto Manufacturing, 9.99%; Banking and Finance,
9.99%; Chemical, 9.99%; Consumer Products, 10.01%; Manufacturing, 9.99%; Oil,
20.01%; Paper and Forest Products, 10.00%; Photography, 10.01%; and
Telecommunications, 10.01%.
PUBLIC OFFERING PRICE. The Public Offering Price per 100 Units of the Trust is
equal to the aggregate value of the underlying Securities (the price at which
they could be directly purchased by the public assuming they were available) in
the Trust divided by the number of Units outstanding times 100. The Deferred
Sales Charge of $12.50 per 100 Units (the "Deferred Sales Charge") will be
payable in installments over the life of the Trust. The price of a single Unit,
or any multiple thereof, is calculated by dividing the Public Offering Price per
100 Units by 100 and multiplying by the number of Units. Any cash held by the
Trust will be added to the Public Offering Price. For additional information
regarding the Public Offering Price, repurchase and redemption of Units and
other essential information regarding the Trust, see the "Summary of Essential
Information." The Public Offering Price per Unit may vary on a daily basis in
accordance with fluctuations in the aggregate value of the underlying
Securities. The price to be paid by each investor will be computed as of the
date the Units are purchased. (See "Public Offering" in Part B.)
DEFERRED SALES CHARGE. The Deferred Sales Charge will be deducted as follows:
for every Unitholder, a monthly charge of $.80 per 100 Units will be deducted
from the Principal Account in ten monthly installments commencing on June 1,
1998 ($8.00 total) (the "Monthly Charge"); and for Unitholders bearing the
Deferred Sales Charge of $12.50 or $10.00 per 100 Units, a semi-annual charge of
$2.25 or $1.00, respectively, per 100 Units will be deducted from distributions
from the Income Account in two semi-annual installments on June 30, 1998 and
December 31, 1998 ($4.50 or $2.00 total) (the "Semi-Annual Charge"). See "Public
Offering-Discounts" in Part B for a description of reduced deferred sales
charges for certain investors. This deferred method of payment keeps more of the
Unitholders' money invested over a longer period of time. (See "Public Offering
- - Offering Price" in Part B.)
ESTIMATED NET ANNUAL DISTRIBUTIONS. The estimated net annual distributions to
Unitholders (based on the most recent annualized quarterly or semi-annual
ordinary dividend distributed with respect to the Securities and based on the
payment of the maximum Deferred Sales Charge, which includes a deduction of
$4.50 per 100 Units from the Income
A-5
687791.1
<PAGE>
Account) as of two business days prior to the Initial Date of Deposit per 100
Units was $19.64. This estimate will vary with changes in the Trust's fee and
expenses, actual dividends received, and with the sale of Securities. There is
no assurance that the estimated net annual dividend distributions will be
realized in the future.
DISTRIBUTIONS. Dividend distributions, if any, will be made on the Distribution
Dates to all Unitholders of record on the appropriate Record Date. For the
specific dates representing the Distribution Dates and Record Dates, see
"Summary of Essential Information" in Part A. The final distribution will be
made within a reasonable period of time after the termination of the Trust. (See
"Rights of Unitholders--Distributions" in Part B.) Unitholders may elect to
automatically reinvest distributions (other than the final distribution in
connection with the termination of the Trust), into additional Units of the
Trust, which are subject to the remainder of the Deferred Sales Charge. See
"Reinvestment Plan" in Part B.
MARKET FOR UNITS. The Sponsors, although not obligated to do so, intend to
maintain a secondary market for the Units and to continuously offer to
repurchase the Units of the Trust both during and after the initial public
offering. The secondary market repurchase price will be based on the market
value of the Securities in the Trust portfolio and will be the same as the
redemption price less the remaining portion of the Deferred Sales Charge. (See
"Liquidity--Sponsors Repurchase" for a description of how the secondary market
repurchase price will be determined.) If a market is not maintained a Unitholder
will be able to redeem his Units with the Trustee (see "Liquidity--Trustee
Redemption" in Part B). As a result, the existence of a liquid trading market
for these Securities may depend on whether dealers will make a market in these
Securities. There can be no assurance of the making or the maintenance of a
market for any of the Securities contained in the portfolio of the Trust or of
the liquidity of the Securities in any markets made. In addition, the Trust may
be restricted under the Investment Company Act of 1940 from selling Securities
to the Sponsors. The price at which the Securities may be sold to meet
redemptions and the value of the Units will be adversely affected if trading
markets for the Securities are limited or absent.
TERMINATION. During the seven-day period prior to the Mandatory Termination Date
(the "Liquidation Period"), Securities will begin to be sold in connection with
the termination of the Trust and all Securities will be sold or distributed by
the Mandatory Termination Date. The Trustee may utilize the services of the
Sponsors for the sale of all or a portion of the Securities in the Trust. Any
brokerage commissions received by the Sponsors from the Trust in connection with
such sales will be in accordance with applicable law. The Sponsors will
determine the manner, timing and execution of the sales of the underlying
Securities. The Sponsors will attempt to sell the Securities as quickly as they
are able during the Liquidation Period without, in their judgment, materially
adversely affecting the market price of the Securities, but all of the
Securities will in any event be disposed of by the end of the Liquidation
Period. The Sponsors do not anticipate that the period will be longer than seven
days, and it could be as short as one day, depending on the liquidity of the
Securities being sold.
Unitholders may elect one of the three options in receiving their terminating
distributions: (1) to receive their pro rata share of the underlying Securities
in-kind, if they own at least 2,500 Units, (2) to receive cash upon the
liquidation of their pro rata share of the underlying Securities or (3) to
invest the amount of cash they would have received upon the liquidation of their
pro rata share of the underlying Securities in units of a future series of
Schwab Ten Trust (the "New Trust") (if one is offered) at a reduced deferred
sales charge (see "Rollover Option"). See "Trust Administration--Trust
Termination" in Part B for a description of how to select a termination
distribution option. Unitholders who have not chosen to receive
distributions-in- kind will be at risk to the extent that the market value of
the Securities declines prior to their being sold during the Liquidation Period;
for this reason the Sponsors will be inclined to sell the Securities in as short
a period as they can without materially adversely affecting the price of the
Securities. Because the Sponsor can start selling the Securities on April 9,
1999, Unitholders whose purchase of Units settles after April 8, 1998, will have
no assurance of realizing mid-term capital gains (see "Tax Status" in Part B).
Unitholders should consult their own tax advisers in this regard.
ROLLOVER OPTION. Unitholders may elect to roll over their terminating
distributions into the next available New Trust at a reduced deferred sales
charge. Rollover Unitholders must make this election on or prior to the Rollover
Notification
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687791.1
<PAGE>
Date. Upon making this election, a Unitholder's Units will be redeemed and the
proceeds will be reinvested in units of the next available New Trust. See "Trust
Administration--Trust Termination" in Part B for details to make this election.
RISK CONSIDERATIONS. An investment in Units of the Trust should be made with an
understanding of the risks inherent in an investment in any of the Securities,
including, for common stocks, the risk that the financial condition of the
issuers of the Securities may become impaired or that the general condition of
the stock market may worsen (both of which may contribute directly to a decrease
in the value of the Securities and thus in the value of the Units). Investors
should consider the greater risk of the Trust's concentration and the effect on
their investment versus a more diversified portfolio and should compare returns
available on less concentrated portfolios before making an investment decision.
The portfolio of the Trust is fixed and not "managed" by the Sponsors. Investors
should note that since the Portfolio of the Trust will be determined as of two
business days prior to the Initial Date of Deposit, any changes in the
components of the DJIA or the Strategic Ten following such determination will
not cause a change in the composition of the Portfolio. Since the Trust will not
sell Securities in response to ordinary market fluctuation, but only (except for
certain extraordinary circumstances) at the Trust's termination or to meet
redemptions, the amount realized upon the sale of the Securities may not be the
highest price attained by an individual Security during the life of the Trust.
In connection with the deposit of Additional Securities subsequent to the
Initial Date of Deposit, if cash (or a letter of credit in lieu of cash) is
deposited with instructions to purchase Securities, to the extent the price of a
Security increases or decreases between the deposit and the time the Security is
purchased, Units may represent less or more of that Security and more or less of
the other Securities in the Trust. In addition, brokerage fees incurred in
purchasing Securities with cash deposited with instructions to purchase the
Securities will be an expense of the Trust. Price fluctuations during the period
from the time of deposit to the time the Securities are purchased, and payment
of brokerage fees, will affect the value of every Unitholder's Units and the
income per Unit received by the Trust.
The Sponsors cannot give any assurance that the business and investment
objectives of the issuers of the Securities will correspond with or in any way
meet the limited term objective of the Trust. (See "Risk Considerations" in Part
B of this Prospectus.)
REINVESTMENT PLAN. Unitholders may elect to automatically reinvest their
distributions, if any (other than the final distribution in connection with the
termination of the Trust) into additional units of the Trust, subject only to
any remaining deductions of the Deferred Sales Charge. See "Reinvestment Plan"
in Part B for details on how to enroll in the Reinvestment Plan.
UNDERWRITING. Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco,
California 94104, will act as Underwriter for all of the Units of the Schwab Ten
Trust, 1998 Series A. Units of the Trust shall be distributed exclusively by the
Underwriter to its customers (see "Public Offering--Distribution of Units" in
Part B).
A-7
687791.1
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<TABLE>
<CAPTION>
SCHWAB TEN TRUST,
1998 SERIES A
STATEMENT OF FINANCIAL CONDITION AS OF MARCH 2, 1998
ASSETS
<S> <C>
Investment in Securities--Sponsors' Contracts to Purchase
Underlying Securities Backed by Letter of Credit (cost $149,662)(Note 1)... $149,662
Organizational Costs (Note 2)..................................................... 51,500
--------
Total............................................................................. $201,162
========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND INTEREST OF UNITHOLDERS
<S> <C>
Accrued Liabilities (Note 2)...................................................... $51,500
-------
Interest of Unitholders - Units of Fractional
Undivided Interest Outstanding (1998 Series A: 14,966 Units).............. 149,662
--------
Total............................................................................. $201,162
========
Net Asset Value per Unit (3)...................................................... $ 10.00
========
</TABLE>
- -------------------------
Notes to Statement of Financial Condition:
The preparation of financial statements in accordance with generally
accepted accounting principles requires Trust management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
(1) Schwab Ten Trust, 1998 Series A (the "Trust") is a unit investment
trust created under the laws of the State of New York and registered under the
Investment Company Act of 1940. The objective of the Trust, jointly sponsored by
Charles Schwab & Co., Inc. and Reich & Tang Distributors, Inc. (the "Sponsors")
is to maximize total return through capital appreciation and current dividend
income. An irrevocable letter of credit issued by BankBoston, N.A. in an amount
of $200,000 has been deposited with the Trustee for the benefit of the Trust to
cover the purchases of Securities. Aggregate cost to the Trust of the Securities
listed in the Portfolio of Investments is determined by the Trustee on the basis
set forth under "Public Offering--Offering Price" as of 4:00 p.m. on March 2,
1998. The Trust will terminate on April 15, 1999 or can be terminated earlier
under certain circumstances as further described in the Prospectus.
(2) Organizational costs incurred by the Trust have been deferred and
will be amortized on a straight line basis over the life of the Trust. The Trust
will reimburse the Sponsors for actual organizational costs incurred.
(3) The maximum Deferred Sales Charge of $12.50 per 100 Units (1.25% of
the Initial Public Offering Price) will be paid by Monthly and Semi-Annual
Charges subsequent to the Initial Date of Deposit. If Units are redeemed prior
to the last Deferred Sales Charge payment date, the remaining amount of the
Deferred Sales Charge applicable to such Units will be payable at the time of
redemption. Based on projected total assets of $50,000,000, the estimated
maximum total Deferred Sales Charge would be $625,000. To the extent that
Unitholders pay a reduced Deferred Sales Charge or the Trust is larger or
smaller, the estimate may vary.
A-8
687791.1
<PAGE>
SCHWAB TEN TRUST,
1998 SERIES A
PORTFOLIO OF INVESTMENTS
AS OF MARCH 2, 1998
<TABLE>
<CAPTION>
Market
Value of Cost of
Stocks as a Securities
Number Percentage Current Market to the
Portfolio of Ticker of the Dividend Value Per Trust
No. Shares Name of Issuer (1) Symbol Trust (2) Yield(3) Share (4)
----- -------- ------------------ ------ --------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stocks:
1. 246 AT&T Corporation T 10.01% 2.17% $60.8750 $14,975
2. 181 Chevron Corporation CHV 10.00 2.80 82.6875 14,966
3. 239 E.I. du Pont de Nemours & Company DD 9.99 2.01 62.5625 14,953
4. 222 Eastman Kodak Company EK 10.01 2.61 67.5000 14,985
5. 235 Exxon Corporation XON 10.01 2.58 63.7500 14,981
6. 211 General Motors Corporation GM 9.99 2.82 70.8750 14,955
7. 310 International Paper Company IP 10.00 2.08 48.2500 14,958
8. 121 J.P. Morgan & Company JPM 9.99 3.07 123.5625 14,951
9. 168 Minnesota Mining & Manufacturing MMM 9.99 2.38 89.0000 14,952
Company
10. 345 Philip Morris Companies, Inc. MO 10.01 3.69 43.4375 14,986
------ -------
Total Investment in Securities 100.00% 149,662
====== =======
</TABLE>
FOOTNOTES TO PORTFOLIO OF INVESTMENTS
(1) Contracts to purchase the Securities were entered into on March 2, 1998.
All such contracts are expected to be settled on or about the First
Settlement Date of the Trust which is expected to be March 6, 1998.
(2) Based on the cost of the Securities to the Trust.
(3) Current Dividend Yield for each security was calculated by annualizing
the last quarterly or semi-annual ordinary dividend received on the
security and dividing the result by its market value as of the close of
trading on March 2, 1998.
(4) Evaluation of Securities by the Trustee was made on the basis of closing
sales prices at the Evaluation Time on March 2, 1998. The Sponsors'
Purchase Price and related Loss was $149,821 and $159, respectively.
The accompanying notes form an integral part of the Financial Statements.
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REPORT OF INDEPENDENT AUDITORS
THE UNITHOLDERS, SPONSORS AND TRUSTEE
SCHWAB TEN TRUST, 1998 SERIES A
We have audited the accompanying statement of Financial Condition of
Schwab Ten Trust, 1998 Series A, including the Portfolio of Investments, as of
March 2, 1998. This financial statement is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation with The Chase Manhattan Bank, Trustee, of an irrevocable letter of
credit deposited for the purchase of securities, as shown in the financial
statement as of March 2, 1998. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the financial position of Schwab Ten Trust,
1998 Series A, at March 2, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
March 2, 1998
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[INSERT LOGO]
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1998 SERIES A
PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY
PART A
THE TRUST
ORGANIZATION. Schwab Ten Trust consists of a "unit investment trust"
designated as set forth in Part A. The Trust was created under the laws of the
State of New York pursuant to a Trust Indenture and Agreement (the "Trust
Agreement"), dated the Initial Date of Deposit, among Charles Schwab & Co., Inc.
and Reich & Tang Distributors, Inc., as Sponsors, and The Chase Manhattan Bank,
as Trustee.
On the Initial Date of Deposit, the Sponsors deposited with the Trustee
common stock, including funds and delivery statements relating to contracts for
the purchase of certain such securities (collectively, the "Securities") with an
aggregate value as set forth in Part A and cash or an irrevocable letter of
credit issued by a major commercial bank in the amount required for such
purchases. Thereafter the Trustee, in exchange for the Securities so deposited,
delivered to the Sponsors certificates evidencing the ownership of all Units of
the Trust. The Sponsors have a limited right to substitute other securities in
the Trust portfolio in the event of a failed contract. See "The
Trust--Substitution of Securities." The Sponsors may also, in certain
circumstances, direct the Trustee to dispose of certain Securities if the
Sponsors believe that, because of market or credit conditions, or for certain
other reasons, retention of the Security would be detrimental to Unitholders.
See "Trust Administration--Portfolio Supervision."
As of the Initial Date of Deposit, a "Unit" represents an undivided
fractional interest in the Securities of the Trust as is set forth in the
"Summary of Essential Information." As additional Units are issued by the Trust
as a result of the deposit of Additional Securities, as described below, the
aggregate value of the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each Unit will be
decreased. To the extent that any Units are redeemed by the Trustee, the
fractional undivided interest or pro rata share in such Trust represented by
each unredeemed Unit will increase, although the actual interest in such Trust
represented by such fraction will remain unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by Unitholders, which may
include the Sponsors, or until the termination of the Trust Agreement.
DEPOSIT OF ADDITIONAL SECURITIES. With the deposit of the Securities in
the Trust on the Initial Date of Deposit, the Sponsors established a
proportionate relationship among the initial aggregate value of specified
Securities in the Trust. During the 90 days subsequent to the Initial Date of
Deposit (the "Deposit Period"), the Sponsors may deposit additional Securities
in the Trust that are substantially similar to the Securities already deposited
in the Trust ("Additional Securities"), contracts to purchase Additional
Securities or cash (or a bank letter of credit in lieu of cash) with
instructions to purchase Additional Securities, in order to create additional
Units, maintaining to the extent practicable the original
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proportionate relationship of the number of shares of each Security in the Trust
portfolio on the Initial Date of Deposit. These additional Units, which will
result in an increase in the number of Units outstanding, will each represent,
to the extent practicable, an undivided interest in the same number and type of
securities of identical issuers as are represented by Units issued on the
Initial Date of Deposit. It may not be possible to maintain the exact original
proportionate relationship among the Securities deposited on the Initial Date of
Deposit because of, among other reasons, purchase requirements, changes in
prices, or unavailability of Securities. The composition of the Trust portfolio
may change slightly based on certain adjustments made to reflect the disposition
of Securities and/or the receipt of a stock dividend, a stock split or other
distribution with respect to such Securities, including Securities received in
exchange for shares or the reinvestment of the proceeds distributed to
Unitholders. Deposits of Additional Securities in the Trust subsequent to the
Deposit Period must replicate exactly the existing proportionate relationship
among the number of shares of Securities in the Trust portfolio. Substitute
Securities may be acquired under specified conditions when Securities originally
deposited in the Trust are unavailable (see "The Trust--Substitution of
Securities" below).
OBJECTIVE. The objective of the Trust is to maximize total return through
capital appreciation and current dividend income. The Trust seeks to achieve its
objective by attempting to outperform the Dow Jones Industrial Average ("DJIA")
(which is not affiliated with the Sponsors) by creating a portfolio that follows
the investment strategy of investing in the ten (10) common stocks which, out of
the thirty (30) common stocks comprising the DJIA, have the highest dividend
yield (the "Strategic Ten"), determined as of two business days prior to the
Initial Date of Deposit. The Strategic Ten strategy is commonly referred to as
the "dogs of the Dow." The Trust's portfolio will be comprised of these ten (10)
stocks. The Trust's assets will be allocated in approximately equal amounts
among the Strategic Ten. For the actual percentage of each stock in the
portfolio, see "Portfolio" in Part A. (Also see "The Trust - Objective" and "The
Trust - The Securities" in Part B.) As used herein, the term "highest dividend
yield" means the yield for each Security calculated by annualizing the last
quarterly or semi-annual ordinary dividend distributed on that Security and
dividing the result by the market value of that Security as of two business days
prior to the Initial Date of Deposit. This rate is historical, and there is no
assurance that any dividends will be declared or paid in the future on the
Securities in the Trust. As used herein, the term "Securities" means the common
stocks initially deposited in the Trust and described in "Portfolio" in Part A
and any additional common stocks acquired and held by the Trust pursuant to the
provisions of the Indenture.
Investing in stocks comprising the DJIA with the highest dividend yields
may be effective in achieving the Trust's investment objective because regular
dividends are common for established companies and dividends have accounted for
a substantial portion of the total return on thirty common stocks comprising the
DJIA. There can be no assurance that the dividend rates will be maintained.
Reduction or elimination of a dividend could adversely affect the stock price as
well. Purchasing a portfolio of these stocks as opposed to one or two stocks can
achieve a more diversified holding. There is only one investment decision
instead of ten. An investment in the Trust can be cost-efficient, avoiding the
odd-lot costs of buying small quantities of securities directly. An investment
in a number of companies with high dividends relative to their stock prices is
designed to increase the Trust's potential for higher returns. The Trust's
return will consist of a combination of capital appreciation and current
dividend income. The Trust will terminate in approximately one year, at which
time investors may choose to either receive the distributions in kind (if they
own at least 2,500 Units), in cash or reinvest in a subsequent series of the
Schwab Ten Trust (if available) at a reduced deferred sales charge. Further, the
Securities may appreciate or depreciate in value, dependent upon the full range
of economic and market influences affecting corporate profitability, the
financial condition of issuers and the prices of equity securities in general
and the Securities in particular. Investors should note that the Trust's
selection criteria were applied to the Securities two business days prior to the
Initial Date of Deposit. Since the Sponsors may deposit additional Securities in
connection with the sale of additional Units, the yields on these Securities may
change subsequent to the Initial Date of Deposit. Therefore, there is no
guarantee that the objective of the Trust will be achieved.
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THE SECURITIES. Each of the Securities has been taken from the Dow Jones
Industrial Average ("DJIA"). The DJIA comprises 30 common stocks chosen by the
editors of The Wall Street Journal as representative of the broad market and of
American industry. The companies are major factors in their industries and their
stocks are widely held by individuals and institutional investors. Changes in
the components of the DJIA are made entirely by the editors of The Wall Street
Journal without consultation with the companies, the stock exchange or any
official agency. For the sake of continuity, changes are made rarely. Most
substitutions have been the result of mergers, but from time to time, changes
may be made to achieve a better representation. The components of the DJIA may
be changed at any time for any reason. Any changes in the components of the DJIA
after the date of this Prospectus will not cause a change in the identity of the
common stocks included in the Trust's portfolio, including any Additional
Securities deposited in the Trust. The Trust is not considered to be
"concentrated" in a particular category or industry.
The first DJIA, consisting of 12 stocks, was published in The Wall Street
Journal in 1896. The list grew to 20 stocks in 1916 and to 30 stocks on October
1, 1928. For two periods of 17 consecutive years each, there were no changes to
the list: March 1939 - July 1956 and June 1959 - August 1976. The DJIA last
changed on March 17, 1997.
Stocks Currently Comprising the DJIA
AT&T Corporation International Business Machines Corporation
Allied Signal International Paper Company
Aluminum Company of America Johnson & Johnson
American Express Company J.P. Morgan & Company, Inc.
Boeing Company McDonald's Corporation
Caterpillar Inc. Merck & Company, Inc.
Chevron Corporation Minnesota Mining & Manufacturing Company
Coca-Cola Company Phillip Morris Companies, Inc.
E.I. du Pont de Nemours & Company Proctor & Gamble Company
Eastman Kodak Company Sears, Roebuck & Company
Exxon Corporation Travelers Group Inc.
General Electric Company Union Carbide Corporation
General Motors Corporation United Technologies Corporation
Goodyear Tire & Rubber Company Wal-Mart Stores, Inc.
Hewlett-Packard Company Walt Disney Company
The yield for each Security was calculated by annualizing the last
quarterly or semi-annual ordinary dividend distributed and dividing the result
by the market value of the Security as of two business days prior to the Initial
Date of Deposit. This formula (an objective determination) served as the basis
for the Sponsors' selection of the Strategic Ten. The companies represented in
the Trust are some of the most well-known and highly capitalized companies in
America. The Securities were selected irrespective of any research
recommendation by the Sponsors. Investing in the stocks of the DJIA may be
effective as well as conservative because regular dividends are common for
established companies and dividends have accounted for a substantial portion of
the total return on stocks of the group of stocks comprising the DJIA.
Although the Schwab Ten Trust was not available until this year, during
the last 21 years, the strategy of investing in approximately equal values of
the ten highest yielding stocks each year generally would have yielded a higher
total return than an investment in all 30 stocks which make up the DJIA. The
following table shows the hypothetical performance of investing approximately
equal amounts in the Strategic Ten at the beginning of each year and rolling
over the proceeds. The total returns do not reflect sales charges, brokerage and
transaction costs, commissions or taxes and, therefore, will be different from
actual investment results. These results represent past performance of the
Strategic Ten and should not be considered indicative of future results of the
Trust. The Trust's annual total return may not exceed the DJIA in any one year;
however, historically, long term cumulative total returns from these strategies
has outperformed the cumulative returns of
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the DJIA. The Strategic Ten underperformed the DJIA in certain years. Also,
investors in the Trust may not realize as high a total return as on a direct
investment in the Strategic Ten since the Trust has sales charges and expenses
and may not be fully invested at all times. Unit prices fluctuate with the value
of the underlying stocks, and there is no assurance that dividends on these
stocks will be paid or that the Units will appreciate in value.
The following table compares the actual performance of the DJIA and
approximately equal values of the Strategic Ten Strategy in each of the past 22
years, as of December 31 in each of these years:
COMPARISON OF TOTAL RETURNS(1)
Dow Jones
Industrial
Year Ended Strategic Ten(2) Average (DJIA)
---------- ------------- --------------
1976 34.80% 22.70%
1977 0.90 -12.70
1978 -0.10 2.70
1979 12.40 10.50
1980 27.20 21.50
1981 5.00 -3.40
1982 23.60 25.80
1983 38.70 25.70
1984 7.60 1.10
1985 29.50 32.80
1986 32.10 26.90
1987 6.10 6.00
1988 22.90 16.00
1989 26.50 31.70
1990 -7.60 -0.40
1991 39.30 23.90
1992 7.90 7.40
1993 27.30 16.80
1994 4.10 4.90
1995 36.70 36.40
1996 27.90 28.90
1997 21.90 24.90
- --------------------------------
(1) Total Return represents the sum of Appreciation and Actual Dividend Yield.
(i) Appreciation for the Strategic Ten and the DJIA is calculated by
subtracting the opening market value of these Strategic Ten or DJIA stocks,
respectively, as of the first trading day on the New York Stock Exchange in
a given year from the market value of those stocks as of the last trading
day in that year, and dividing the result by the market value of the stocks
as of the first trading day in that year. (ii) Actual Dividend Yield for
the Strategic Ten is calculated by adding the total dividends received on
the stocks in the year and dividing the result by the market value of the
stocks as of the first trading day in that year. Actual Dividend Yield for
the DJIA is calculated by taking the total dividends credited to the DJIA
and dividing the result by the opening value of the DJIA as of the first
trading day in that year. Total return does not take into consideration any
sales charges, commissions, expenses or taxes.
(2) The Strategic Ten in any given year were selected by ranking the dividend
yields for each of the stocks in the DJIA as of the beginning of that year,
based upon an annualization of the last quarterly or semi-annual regular
dividend distribution (which would have been declared in the preceding
year) divided by that stock's market value on the first trading day on the
New York Stock Exchange in that year.
These results represent past performance and should not be considered
indicative of future results of the Trust. Unit prices may fluctuate with
the value of the underlying stocks, and there is no assurance that
dividends on these stock will be paid or that the Units will appreciate in
value.
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The contracts to purchase Securities deposited initially in the Trust are
expected to settle in three business days, in the ordinary manner for such
Securities. Settlement of the contracts for Securities is thus expected to take
place prior to the settlement of purchase of Units on the Initial Date of
Deposit.
SUBSTITUTION OF SECURITIES. In the event of a failure to deliver any
Security that has been purchased for the Trust under a contract ("Failed
Securities"), the Sponsors are authorized under the Trust Agreement to direct
the Trustee to acquire other securities ("Substitute Securities") to make up the
original corpus of the Trust.
The Substitute Securities must be purchased within 20 days after the sale
of the portfolio Security or delivery of the notice of the failed contract.
Where the Sponsors purchase Substitute Securities in order to replace Failed
Securities, (i) the purchase price may not exceed the purchase price of the
Failed Securities and (ii) the Substitute Securities must be substantially
similar to the Failed Securities. Such selection may include or be limited to
Securities previously included in the portfolio of the Trust. No assurance can
be given that the Trust will retain its present size and composition for any
length of time.
The Trustee shall notify all Unitholders of the acquisition of the
Substitute Security, within five days thereafter, and the Trustee shall, on the
next Distribution Date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the Trust of the Failed
Security exceeded the cost of the Substitute Security. In the event no
reinvestment is made, the proceeds of the sale of Securities will be distributed
to Unitholders as set forth under "Rights of Unitholders--Distributions." In
addition, if the right of substitution shall not be utilized to acquire
Substitute Securities in the event of a failed contract, the Sponsors will cause
to be refunded the sales charge attributable to such Failed Securities to all
Unitholders, and distribute the principal and dividends, if any, attributable to
such Failed Securities on the next Distribution Date. The proceeds from the sale
of a Security or the exercise of any redemption or call provision will be
distributed to Unitholders except to the extent such proceeds are applied to
meet redemptions of Units. (See "Liquidity--Trustee Redemption.")
RISK CONSIDERATIONS
FIXED PORTFOLIO. The value of the Units will fluctuate depending on all
of the factors that have an impact on the economy and the equity markets. These
factors similarly impact the ability of an issuer to distribute dividends.
Unlike a managed investment company in which there may be frequent changes in
the portfolio of securities based upon economic, financial and market analyses,
securities of a unit investment trust, such as the Trust, are not subject to
such frequent changes based upon continuous analysis. All the Securities in the
Trust are liquidated during a seven-day period at the termination of the
approximately one-year life of the Trust. Since the Trust will not sell
Securities in response to ordinary market fluctuation, but only at the Trust's
termination or upon the occurrence of certain events (See "Trust Administration
- - Portfolio Supervision") the amount realized upon the sale of the Securities
may not be the highest price attained by an individual Security during the life
of the Trust. Some of the Securities in the Trust may also be owned by other
clients of the Sponsors and their affiliates. However, because these clients may
have differing investment objectives, the Sponsors may sell certain Securities
from those accounts in instances where a sale by the Trust would be
impermissible, such as to maximize return by taking advantage of market
fluctuations. Investors should consult with their own financial advisers prior
to investing in the Trust to determine its suitability. (See "Trust
Administration--Portfolio Supervision" below.)
ADDITIONAL SECURITIES. Investors should be aware that in connection with
the creation of additional Units subsequent to the Initial Date of Deposit, the
Sponsors may deposit Additional Securities, contracts to purchase Additional
Securities or cash (or letter of credit in lieu of cash) with instructions to
purchase Additional Securities, in each instance maintaining the original
proportionate relationship, subject to adjustment under certain circumstances,
of the numbers of
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shares of each Security in the Trust. To the extent the price of a Security
increases or decreases between the time cash is deposited with instructions to
purchase the Security and the time the cash is used to purchase the Security,
Units may represent less or more of that Security and more or less of the other
Securities in the Trust. In addition, brokerage fees (if any) incurred in
purchasing Securities with cash deposited with instructions to purchase the
Securities will be an expense of the Trust. Price fluctuations between the time
of deposit and the time the Securities are purchased, and payment of brokerage
fees, will affect the value of every Unitholder's Units and the Income per Unit
received by the Trust. In particular, Unitholders who purchase Units during the
initial offering period would experience a dilution of their investment as a
result of any brokerage fees paid by the Trust during subsequent deposits of
Additional Securities purchased with cash deposited. In order to minimize these
effects, the Trust will try to purchase Securities as near as possible to the
Evaluation Time or at prices as close as possible to the prices used to evaluate
Trust Units at the Evaluation Time. In addition, subsequent deposits to create
additional Units will not be fully covered by the deposit of a bank letter of
credit. In the event that the Sponsors do not deliver cash in consideration for
the additional Units delivered, the Trust may be unable to satisfy its contracts
to purchase the Additional Securities without the Trustee selling underlying
Securities. Therefore, to the extent that the subsequent deposits are not
covered by a bank letter of credit, the failure of the Sponsors to deliver cash
to the Trust, or any delays in the Trust receiving such cash, would have
significant adverse consequences for the Trust.
COMMON STOCK. Since the Trust contains common stocks of domestic issuers,
an investment in Units of the Trust should be made with an understanding of the
risks inherent in any investment in common stocks including the risk that the
financial condition of the issuers of the Securities may become impaired or that
the general condition of the stock market may worsen (both of which may
contribute directly to a decrease in the value of the Securities and thus in the
value of the Units). Additional risks include risks associated with the right to
receive payments from the issuer which is generally inferior to the rights of
creditors of, or holders of debt obligations or preferred stock issued by the
issuer. Holders of common stocks have a right to receive dividends only when,
if, and in the amounts declared by the issuer's board of directors and to
participate in amounts available for distribution by the issuer only after all
other claims on the issuer have been paid or provided for. By contrast, holders
of preferred stocks usually have the right to receive dividends at a fixed rate
when and as declared by the issuer's board of directors, normally on a
cumulative basis. Dividends on cumulative preferred stock must be paid before
any dividends are paid on common stock and any cumulative preferred stock
dividend which has been omitted is added to future dividends payable to the
holders of such cumulative preferred stock. Preferred stocks are also usually
entitled to rights on liquidation which are senior to those of common stocks.
For these reasons, preferred stocks generally entail less risk than common
stocks.
Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Further, unlike debt securities which typically have a stated
principal amount payable at maturity (which value will be subject to market
fluctuations prior thereto), common stocks have neither fixed principal amount
nor a maturity and have values which are subject to market fluctuations for as
long as the common stocks remain outstanding. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the common stocks
in the Trust thus may be expected to fluctuate over the life of the Trust to
values higher or lower than those prevailing on the Initial Date of Deposit.
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LEGISLATION. From time to time Congress considers proposals to reduce the
rate of the dividends-received deduction which is available to certain
corporations. Enactment into law of a proposal to reduce the rate would
adversely affect the after-tax return to investors who can take advantage of the
deduction. Although recent legislation has established a reduced tax rate of 20%
for capital gains realized by individual investors who have held assets for more
than 18 months, this rate will generally not be available for Unitholders
because the term of the Trust is approximately one year. Investors are urged to
consult their own tax advisers. Further, at any time after the Initial Date of
Deposit, legislation may be enacted, with respect to the Securities in the Trust
or the issuers of the Securities. Changing approaches to regulation,
particularly with respect to the environment, or with respect to the petroleum
or tobacco industries, may have a negative impact on certain companies
represented in the Trust. There can be no assurance that future legislation,
regulation or deregulation will not have a material adverse effect on the Trust
or will not impair the ability of the issuers of the Securities to achieve their
business goals.
LEGAL PROCEEDINGS AND LITIGATION. At any time after the Initial Date of
Deposit, legal proceedings may be initiated on various grounds, or legislation
may be enacted, with respect to the Securities in the Trust or to matters
involving the business of the issuer of the Securities. There can be no
assurance that future legal proceedings or legislation will not have a material
adverse impact on the Trust or will not impair the ability of the issuers of the
Securities to achieve their business and investment goals.
GENERALLY. There is no assurance that any dividends will be declared
or paid in the future on the Securities. Investors should be aware that there is
no assurance that the Trust's objective will be achieved.
PUBLIC OFFERING
OFFERING PRICE. In calculating the Public Offering Price, the aggregate
value of the Securities and any cash held to purchase Securities is divided by
the number of Units outstanding. The aggregate value of the Securities is
determined in good faith by the Trustee on each "Business Day" as defined in the
Indenture in the following manner: because the Securities are listed on a
national securities exchange, this evaluation is based on the closing sale
prices on that exchange as of the Evaluation Time (unless the Trustee deems
these prices inappropriate as a basis for valuation). If the Trustee deems these
prices inappropriate as a basis for evaluation, then the Trustee may utilize, at
the Trust's expense, an independent evaluation service or services to ascertain
the values of the Securities. The independent evaluation service shall use any
of the following methods, or a combination thereof, which it deems appropriate:
(a) on the basis of current bid prices for comparable securities, (b) by
appraising the value of the Securities on the bid side of the market or by such
other appraisal deemed appropriate by the Trustee or (c) by any combination of
the above, each as of the Evaluation Time.
The sales charge consists of a Deferred Sales Charge of $12.50 per
100 Units (1.25% of the Initial Public Offering Price). The Deferred Sales
Charge will be paid through ten monthly deductions from the Principal Account of
the Trust of $.80 commencing on June 1, 1998 and two semi-annual deductions from
distributions from the Income Account of $2.25 each on June 30, 1998 and
December 31, 1998. If the amount of the distribution from the Income Account is
insufficient to pay the Semi-Annual Charge, any unpaid amount shall be further
deferred and deducted from proceeds due to Unitholders upon termination. If the
amount available in the Principal Account of the Trust is insufficient to pay
the Monthly Charge, the Trustee shall sell Securities selected by the Sponsors
sufficient to pay such amounts. If the Public Offering Price paid by an investor
exceeds $10.00 per 100 Units, the Deferred Sales Charge will be less than 1.25%;
if the Public Offering Price paid by an investor is less than $10.00 per 100
Units, the Deferred Sales Charge will exceed 1.25%. To the extent the entire
Deferred Sales Charge has not been so deducted at the time of repurchase or
redemption of the Units, any unpaid amount will be deducted from the proceeds or
in calculating an in kind distribution. However, any remaining Deferred Sales
Charge will be refunded by the Sponsors when Units of any Schwab Ten Trust held
at the time of the death (including the death of
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a single joint tenant with rights of survivorship) or disability (as defined in
the Internal Revenue Code of 1986) of a Holder are repurchased or redeemed. The
Sponsors may require receipt of satisfactory proof of the death or disability
before releasing the portion of the proceeds representing the amount waived.
Units purchased pursuant to the Reinvestment Plan are subject only to any
remaining Deferred Sales Charge deductions (see "Reinvestment Plan").
DISCOUNTS. Employees (and their immediate families) of Charles Schwab &
Co., Inc., and Reich & Tang Distributors, Inc. (and their affiliates) and of the
special counsel to the Sponsors may, pursuant to employee benefit arrangements,
purchase Units of the Trust at a price equal to the aggregate value of the
underlying securities in the Trust during the initial offering period, divided
by the number of Units outstanding plus a reduced Deferred Sales Charge of
$10.00 per 100 Units (1.00% of the Initial Public Offering Price). Such
arrangements result in less selling effort and selling expenses than sales to
employee groups of other companies. Resales or transfers of Units purchased
under the employee benefit arrangements may only be made through the Sponsors'
secondary market, so long as it is being maintained.
Units may be purchased in the primary or secondary market at the Public
Offering Price plus a reduced Deferred Sales Charge of $10.00 per 100 Units by
investors who purchase Units through registered investment advisers, certified
financial planners and registered broker-dealers who have agreements with
Charles Schwab & Co., Inc. ("Schwab Financial Advisor") or by investors in any
unit investment trust with an investment strategy based upon the Strategic Ten
that have purchased their investment within a two year period prior to the date
of this Prospectus who can purchase Units of the Trust in an amount not greater
in value than the amount of said investment made during this two year period
("Strategic Ten Investors"). Such Strategic Ten Investors who purchase Units of
the Trust through a Schwab Financial Advisor, may purchase Units in the primary
or secondary market at the Public Offering Price plus a Deferred Sales Charge of
$8.00 per 100 Units (.80% of the Initial Public Offering Price), if available in
the secondary market. The reduced Deferred Sales Charge of $10.00 per 100 Units
will be paid through ten monthly deductions of $.80 commencing June 1, 1998 and
the semi-annual deductions of $1.00 each on June 30, 1998 and December 31, 1998.
The reduced Deferred Sales Charge of $8.00 per 100 Units will only be subject to
the monthly charge described above.
DISTRIBUTION OF UNITS. During the initial offering period and thereafter
to the extent additional Units continue to be offered by means of this
Prospectus, Units will be distributed by the Sponsors at the Public Offering
Price. The initial offering period is thirty days after each deposit of
Securities in the Trust and the Sponsors may extend the initial offering period
for successive thirty-day periods.
The Sponsors intend to qualify the Units for sale in substantially all
States.
SPONSORS' PROFITS. The Sponsors will receive a combined gross
underwriting commission equal to up to $12.50 per 100 Units or 1.25% of the
Initial Public Offering Price per 100 Units (equivalent to 1.266% of the net
amount invested in the Securities). Additionally, the Sponsors may realize a
profit on the deposit of the Securities in the Trust representing the difference
between the cost of the Securities to the Sponsors and the cost of the
Securities to the Trust. (See "Portfolio of Investments.") All or a portion of
the Securities initially deposited in the Trust may have been acquired through
the Sponsors.
During the initial offering period and thereafter to the extent
additional Units continue to be offered by means of this Prospectus, the
Sponsors may also realize profits or sustain losses as a result of fluctuations
after the Initial Date of Deposit in the aggregate value of the Securities and
hence in the Public Offering Price received by the Sponsors for the Units. Cash,
if any, made available to the Sponsors prior to settlement date for the purchase
of Units may be used in the Sponsors' business subject to the limitations of 17
CFR 240.15c3-3 under the Securities Exchange Act of 1934 and may be of benefit
to the Sponsors.
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Both upon acquisition of Securities and termination of the Trust, the
Trustee may utilize the services of the Sponsors for the purchase or sale of all
or a portion of the Securities in the Trust. The Sponsors may receive brokerage
commissions from the Trust in connection with such purchases and sales in
accordance with applicable law.
In maintaining a market for the Units (see "Sponsors Repurchase") the
Sponsors will realize profits or sustain losses in the amount of any difference
between the price at which they buy Units and the price at which they resell
such Units.
RIGHTS OF UNITHOLDERS
BOOK-ENTRY UNITS. Ownership of Units of the Trust will not be evidenced
by certificates. All evidence of ownership of the Units will be recorded in
book-entry form at The Depository Trust Company ("DTC") through an investor's
brokerage account. Units held through DTC will be deposited by the Sponsors with
DTC in the Sponsors' DTC account and registered in the nominee name CEDE &
COMPANY. Individual purchases of beneficial ownership interest in the Trust will
be made in book-entry form through DTC. Ownership and transfer of Units will be
evidenced and accomplished directly and indirectly only by book-entries made by
DTC and its participants. DTC will record ownership and transfer of the Units
among DTC participants and forward all notices and credit all payments received
in respect of the Units held by the DTC participants. Beneficial owners of Units
will receive written confirmation of their purchase and sale from Charles Schwab
& Co., Inc. Transfers, and the requirements therefor, will be governed by the
applicable procedures of DTC and the Unitholder's agreement with the DTC
participant in whose name the Unitholder's Units are registered on the transfer
records of DTC.
DISTRIBUTIONS. Dividends received by the Trust are credited by the
Trustee to an Income Account for the Trust. Other receipts, including the
proceeds of Securities disposed of, are credited to a Principal Account for the
Trust.
Distributions to each Unitholder from the Income Account are computed as
of the close of business on each Record Date for the following Distribution Date
and consist of an amount substantially equal to such Unitholder's pro rata share
of the income credited to the Income Account, less expenses. Distributions from
the Principal Account of the Trust (other than amounts representing failed
contracts, as previously discussed) will be computed as of each Record Date, and
will be made to the Unitholders of the Trust on or shortly after the
Distribution Date. Proceeds representing principal received from the disposition
of any of the Securities between a Record Date and a Distribution Date which are
not used for redemptions of Units will be held in the Principal Account and not
distributed until the next Distribution Date. Persons who purchase Units between
a Record Date and a Distribution Date will receive their first distribution on
the second Distribution Date after such purchase.
As of each Record Date, the Trustee will deduct from the Income Account
of the Trust, and, to the extent funds are not sufficient therein, from the
Principal Account of the Trust, amounts necessary to pay the expenses of the
Trust (as determined on the basis set forth under "Trust Expenses and Charges").
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of the Trust. Amounts so withdrawn
shall not be considered a part of such Trust's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
accounts. In addition, the Trustee may withdraw from the Income and Principal
Accounts such amounts as may be necessary to cover redemptions of Units.
Distributions of amounts necessary to pay the Deferred Sales Charge will be made
from the Principal Account to the extent of the Monthly Charge of $.80 per 100
Units for all Unitholders and from distributions made from the Income Account to
the extent of the Semi-Annual Charge of either $2.25 or $1.00 per 100 Units for
those Unitholders paying Deferred Sales Charges of $12.50 and $10.00,
respectively, per 100 Units, to an account maintained by the Trustee for
purposes of satisfying investors' sales charge obligations.
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The dividend distribution per 100 Units, if any, cannot be anticipated
and may be paid as Securities are redeemed, exchanged or sold, or as expenses of
the Trust fluctuate. No distribution need be made from the Income Account or the
Principal Account unless the balance therein is an amount sufficient to
distribute $1.00 per 100 Units.
RECORDS. The Trustee shall furnish Unitholders in connection with each
distribution a statement of the amount being distributed from the Income and
Principal Account, respectively, expressed in each case as a dollar amount per
100 Units. Within a reasonable time after the end of each calendar year, the
Trustee will furnish to each person who at any time during the calendar year was
a Unitholder of record, a statement showing (a) as to the Income Account:
dividends, interest and other cash amounts received, amounts paid for purchases
of Substitute Securities and redemptions of Units, if any, deductions for the
Deferred Sales Charge, applicable taxes and fees and expenses of the Trust, and
the balance remaining after such distributions and deductions, expressed both as
a total dollar amount and as a dollar amount representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year; (b)
as to the Principal Account: the Securities disposed of and the net proceeds
received therefrom, deductions for payment of disposition of any Securities and
the net proceeds received therefrom, deductions for the Deferred Sales Charge,
payments of applicable taxes and fees and expenses of the Trust, amounts paid
for purchases of Substitute Securities and redemptions of Units, if any, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year; (c) a
list of the Securities held, a list of Securities purchased, sold or otherwise
disposed of during the calendar year and the number of Units outstanding on the
last business day of such calendar year; (d) the Redemption Price per 100 Units
based upon the last computation thereof made during such calendar year; and (e)
amounts actually distributed to Unitholders during such calendar year from the
Income and Principal Accounts, separately stated, of the Trust, expressed both
as total dollar amounts and as dollar amounts representing the pro rata share of
each 100 Units outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by Unitholders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee, including records of the names and addresses of
Unitholders, Units held, a current list of Securities in the portfolio and a
copy of the Trust Agreement.
TAX STATUS
The following is a general discussion of certain of the Federal income
tax consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code").
In rendering the opinion set forth below, Battle Fowler LLP has examined
the Agreement, the final form of Prospectus dated the date hereof (the
"Prospectus") and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness of
the facts set forth therein. In the Opinion of Battle Fowler LLP, special
counsel for the Sponsors, under existing law:
1. The Trust will be classified as a grantor trust for Federal
income tax purposes and not as a partnership or association taxable as a
corporation. Classification of the Trust as a grantor trust will cause
the Trust not to be subject to Federal income tax, and will cause the
Unitholders of the Trust to be treated for Federal income tax purposes as
the owners of a pro rata portion of the assets of the Trust. All income
received by the Trust will be treated as income of the Unitholders in the
manner set forth below.
2. The Trust is not subject to the New York Franchise Tax on
Business Corporations or the New York City General Corporation Tax. For a
Unitholder who is a New York resident, however, a pro rata portion of all
or part of
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the income of the Trust will be treated as income of the Unitholder under
the income tax laws of the State and City of New York. Similar treatment
may apply in other states.
3. During the 90-day period subsequent to the initial issuance
date, the Sponsors reserve the right to deposit Additional Securities
that are substantially similar to those establishing the Trust. This
retained right falls within the guidelines promulgated by the Internal
Revenue Service ("IRS") and should not affect the taxable status of the
Trust.
A taxable event will generally occur with respect to each Unitholder when
the Trust disposes of a Security (whether by sale, exchange or redemption) or
upon the sale, exchange or redemption of Units by such Unitholder. The price a
Unitholder pays for its Units, including sales charges, is allocated among its
pro rata portion of each Security held by the Trust (in proportion to the fair
market values thereof on the date the Unitholder purchases his Units) in order
to determine its initial cost for his pro rata portion of each Security held by
the Trust.
For Federal income tax purposes, a Unitholder's pro rata portion of
dividends paid with respect to a Security held by a Trust is taxable as ordinary
income to the extent of the issuing corporation's current and accumulated
"earnings and profits" as provided in Section 316 of the Code. A Unitholder's
pro rata portion of dividends paid on such Security that exceed such current and
accumulated earnings and profits will first reduce a Unitholder's tax basis in
such Security, and to the extent that such dividends exceed a Unitholder's tax
basis in such Security will generally be treated as capital gain.
A Unitholder's portion of gain, if any, upon the sale, exchange or
redemption of Units or the disposition of Securities held by the Trust will
generally be considered a capital gain and will be mid-term if the Unitholder
has held his Units for more than one year but not more than 18 months. Mid-term
capital gains are generally taxed at the same rates applicable to ordinary
income, although non-corporate Unitholders who realize mid-term capital gains
may be subject to a reduced tax rate of 28% on such gains, rather than the
"regular" maximum tax rate of 39.6%. Although recent legislation has established
a reduced tax rate of 20% for capital gains realized by non-corporate investors
who have held assets for more than 18 months, this rate will generally not be
available for Unitholders who are not eligible, or do not elect, to receive
their pro rata share of the Securities in-kind because the term of the Trust is
approximately one year. Tax rates may increase prior to the time when
Unitholders may realize gains from the sale, exchange or redemption of the Units
or Securities.
A Unitholder's portion of loss, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital loss and will be long-term if the Unitholder has held his
Units for more than one year. Capital losses are deductible to the extent of
capital gains; in addition, up to $3,000 of capital losses ($1,500 in the case
of married individuals filing separately) recognized by non-corporate
Unitholders may be deducted against ordinary income.
Under Section 67 of the Code and the accompanying Regulations, a
Unitholder who itemizes his deductions may also deduct his pro rata share of the
fees and expenses of the Trust, but only to the extent that such amounts,
together with the Unitholder's other miscellaneous deductions, exceed 2% of his
adjusted gross income. The deduction of fees and expenses may also be limited by
Section 68 of the Code, which reduces the amount of itemized deductions that are
allowed for individuals with incomes in excess of certain thresholds.
After the end of each calendar year, the Trustee will furnish to each
Unitholder an annual statement containing information relating to the dividends
received by the Trust on the Securities, the gross proceeds received by the
Trust from the disposition of any Security, and the fees and expenses paid by
the Trust. The Trustee will also furnish annual information returns to each
Unitholder and to the Internal Revenue Service.
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A corporation that owns Units will generally be entitled to a 70%
dividends received deduction with respect to such Unitholder's pro rata portion
of dividends that are taxable as ordinary income to Unitholders which are
received by the Trust from a domestic corporation under Section 243 of the Code
or from a qualifying foreign corporation under Section 245 of the Code (to the
extent the dividends are taxable as ordinary income, as discussed above) in the
same manner as if such corporation directly owned the Securities paying such
dividends. However, a corporation owning Units should be aware that Sections 246
and 246A of the Code impose additional limitations on the eligibility of
dividends for the 70% dividends received deduction. These limitations include a
requirement that stock (and therefore Units) must generally be held at least 46
days (as determined under Section 246(c) of the Code) during the 90-day period
beginning on the date that is 45 days before the date on which the stock becomes
ex-dividend. Moreover, the allowable percentage of the deduction will be reduced
from 70% if a corporate Unitholder owns certain stock (or Units) the financing
of which is directly attributable to indebtedness incurred by such corporation.
As discussed in the section "Termination", each Unitholder may have three
options in receiving its termination distributions, which are (i) to receive its
pro rata share of the underlying Securities in kind, (ii) to receive cash upon
liquidation of its pro rata share of the underlying Securities, or (iii) to
invest the amount of cash he would receive upon the liquidation of its pro rata
share of the underlying Securities in units of a future series of the Trust (if
one is offered). There are special tax consequences should a Unitholder choose
option (i), the exchange of the Unitholder's Units for a pro rata portion of
each of the Securities held by the Trust plus cash. Treasury Regulations provide
that gain or loss is recognized when there is a conversion of property into
property that is materially different in kind or extent. In this instance, the
Unitholder may be considered the owner of an undivided interest in all of the
Trust's assets. By accepting the pro rata share of the number of Securities of
the Trust, in partial exchange for its Units, the Unitholder should be treated
as merely exchanging its undivided pro rata ownership of Securities held by the
Trust into sole ownership of a proportionate share of Securities. As such, there
should be no material difference in the Unitholder's ownership, and therefore
the transaction should be tax free to the extent the Securities are received.
Alternatively, the transaction may be treated as an exchange that would qualify
for nonrecognition treatment to the extent the Unitholder is exchanging his
undivided interest in all of the Trust's Securities for his proportionate number
of shares of the underlying Securities. In either instance, the transaction
should result in a non-taxable event for the Unitholder to the extent Securities
are received. However, there is no specific authority addressing the income tax
consequences of an in-kind distribution from a grantor trust.
Entities that generally qualify for an exemption from Federal income tax,
such as many pension trusts, are nevertheless taxed under Section 511 of the
Code on "unrelated business taxable income." Unrelated business taxable income
is income from a trade or business regularly carried on by the tax-exempt entity
that is unrelated to the entity's exempt purpose. Unrelated business taxable
income generally does not include dividend or interest income or gain from the
sale of investment property, unless such income is derived from property that is
debt-financed or is dealer property. A tax-exempt entity's dividend income from
the Trust and gain from the sale of Units in the Trust or the Trust's sale of
Securities is not expected to constitute unrelated business taxable income to
such tax-exempt entity unless the acquisition of the Unit itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
Prospective investors are urged to consult their own tax advisers
concerning the Federal, state, local and any other tax consequences of the
purchase, ownership and disposition of Units prior to investing in the Trust.
RETIREMENT PLANS. This Trust may be well suited for purchase by
Individual Retirement Accounts ("IRAs"), Keogh plans, pension funds and other
qualified retirement plans. Generally, capital gains and income received in each
of the foregoing plans are exempt from Federal taxation. Except with respect to
certain IRAs known as Roth IRAs, distributions from such plans are generally
treated as ordinary income but may, in some cases, be eligible for special 5 or
10 year averaging or tax-deferred rollover treatment. Five year averaging will
not apply to distributions after December 31, 1999.
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Ten year averaging has been preserved in very limited circumstances. Holders of
Units in IRAs, Keogh plans and other tax-deferred retirement plans should
consult their plan custodian as to the appropriate disposition of distributions.
Investors considering participation in any such plan should review specific tax
laws related thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan. Such plans are
offered by brokerage firms, including Charles Schwab & Co., Inc., and other
financial institutions. Fees and charges with respect to such plans may vary.
Before investing in the Trust, the trustee or investment manager of an
employee benefit plan (e.g., a pension or profit sharing retirement plan) should
consider among other things (a) whether the investment is prudent under the
Employee Retirement Income Security Act of 1974 ("ERISA"), taking into account
the needs of the plan and all of the facts and circumstances of the investment
in the Trust; (b) whether the investment satisfies the diversification
requirement of Section 404(a)(1)(C) of ERISA; and (c) whether the assets of the
Trust are deemed "plan assets" under ERISA and the Department of Labor
regulations regarding the definition of "plan assets."
LIQUIDITY
SPONSORS REPURCHASE. The Sponsors may, under certain circumstances, as a
service to Unitholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). Factors which the Sponsors will consider
in making a determination will include the number of Units of all Trusts which
they have in inventory, their estimate of the salability and the time required
to sell such Units and general market conditions. For example, if in order to
meet redemptions of Units the Trustee must dispose of Securities, and if such
disposition cannot be made by the redemption date (three calendar days after
tender), the Sponsors may elect to purchase such Units. Such purchase shall be
made by payment to the Unitholder's brokerage account not later than the close
of business on the redemption date of an amount equal to the Redemption Price on
the date of tender less any unpaid Deferred Sales Charge.
Unitholders who wish to dispose of their Units should inquire of the
Sponsors as to current market prices prior to making a tender for redemption.
The aggregate value of the Securities will be determined by the Trustee on a
daily basis and computed on the basis set forth under "Trustee Redemption." The
Sponsors do not guarantee the enforceability, marketability or price of any
Securities in the Portfolio or of the Units. The Sponsors may discontinue the
repurchase of redemption requests if the supply of Units exceeds demand, or for
other business reasons. The date of repurchase is deemed to be the date on which
redemption requests are received in proper form by Charles Schwab & Co., Inc.,
except for redemption requests received after 4 P.M., New York Time when Units
will be deemed to have been repurchased on the next business day. In the event a
market is not maintained for the Units, a Unitholder may be able to dispose of
Units only by tendering them to the Trustee for redemption.
Units purchased by the Sponsors in the secondary market may be reoffered
for sale by the Sponsors at a price based on the aggregate value of the
Securities in the Trust subject to the remaining Deferred Sales Charge plus a
pro rata portion of amounts, if any, in the Income and Principal Accounts. Any
Units that are purchased by the Sponsors in the secondary market also may be
redeemed by the Sponsors if they determine such redemption to be in their best
interest.
TRUSTEE REDEMPTION. At any time prior to the Evaluation Time on the
business day preceding the commencement of the Liquidation Period (approximately
one year from the Date of Deposit), or on the date of any earlier termination of
the Trust, Units may also be tendered to the Trustee for redemption upon payment
of any relevant tax by contacting Charles Schwab & Co., Inc. In certain
instances, additional documents may be required, such as a trust instrument,
certificate of corporate authority, certificate of death or appointment as
executor, administrator or guardian. At
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the present time there are no specific taxes related to the redemption of Units.
No redemption fee will be charged by the Sponsors or the Trustee. Units redeemed
by the Trustee will be canceled.
Within three business days following a tender for redemption, the
Unitholder will be entitled to receive an amount for each Unit tendered equal to
the Redemption Price per Unit computed as of the Evaluation Time set forth under
"Summary of Essential Information" in Part A on the date of tender less any
unpaid Deferred Sales Charge. The "date of tender" is deemed to be the date on
which Units are received by the Trustee, except that with respect to Units
received after the close of trading on the New York Stock Exchange (4:00 p.m.
Eastern Time), the date of tender is the next day on which such Exchange is open
for trading, and such Units will be deemed to have been tendered to the Trustee
on such day for redemption at the Redemption Price computed on that day.
The Redemption Price per Unit is the pro rata share of the Unit in the
Trust determined by the Trustee on the basis of (i) the cash on hand in the
Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust as determined by the Trustee, less (a) amounts
representing taxes or other governmental charges payable out of the Trust, (b)
the accrued expenses of the Trust and (c) cash allocated for the distribution to
Unitholders of record as of a Record Date prior to the evaluation being made.
The Trustee may determine the value of the Securities in the Trust in the
following manner: because the Securities are listed on a national securities
exchange, this evaluation is based on the closing sale prices on that exchange.
Unless the Trustee deems these prices inappropriate as a basis for evaluation or
if there is no such closing purchase price, then the Trustee may utilize, at the
Trust's expense, an independent evaluation service or services to ascertain the
values of the Securities. The independent evaluation service shall use any of
the following methods, or a combination thereof, which it deems appropriate: (a)
on the basis of current bid prices for comparable securities, (b) by appraising
the value of the Securities on the bid side of the market or (c) by any
combination of the above.
In connection with each redemption the Sponsors will direct the Trustee
to redeem Units in accordance with the procedures set forth in either (a) or (b)
below.
(a) A Unitholder will receive his redemption proceeds in cash.
Amounts paid on redemption allocable to the Unitholder's interest in the
Income Account shall be withdrawn from the Income Account, or, if the
balance therein is insufficient, from the Principal Account. All other
amounts paid on redemption shall be withdrawn from the Principal Account.
The Trustee is empowered to sell Securities in order to make funds
available for redemptions. Such sales, if required, could result in a
sale of Securities by the Trustee at a loss. To the extent Securities are
sold, the size and diversity of the Trust will be reduced. The Securities
to be sold will be selected by the Trustee in order to maintain, to the
extent practicable, the proportionate relationship among the number of
shares of each stock. Provision is made in the Indenture under which the
Sponsors may, but need not, specify minimum amounts in which blocks of
Securities are to be sold in order to obtain the best price for the
Trust. While these minimum amounts may vary from time to time in
accordance with market conditions, the Sponsors believe that the minimum
amounts which would be specified would be approximately 100 shares for
readily marketable Securities.
Any Unitholder tendering 2,500 Units or more of the Trust for
redemption may request by written notice submitted at the time of tender
from the Trustee in lieu of a cash redemption a distribution of shares of
Securities and cash in an amount and value equal to the Redemption Price
Per Unit as determined as of the evaluation next following tender. To the
extent possible, in kind distributions ("In Kind Distributions") shall be
made by the Trustee through the distribution of each of the Securities in
book-entry form to the Unitholder's broker-dealer account at The
Depository Trust Company. An In Kind Distribution will be reduced by
customary transfer and registration charges. The tendering Unitholder
will receive his pro rata number of whole shares of each of the
Securities comprising the Trust portfolio and cash from the Income and
Principal Accounts equal to the balance of the Redemption Price to which
the tendering
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Unitholder is entitled. A Unitholder who elects to receive In Kind
Distributions may incur brokerage or other transaction costs in
converting the Securities so distributed into cash subsequent to their
receipt of the Securities from the Trust. If funds in the Principal
Account are insufficient to cover the required cash distribution to the
tendering Unitholder, the Trustee may sell Securities in the manner
described above.
The Trustee is irrevocably authorized in its discretion, if the
Sponsors do not elect to purchase a Unit tendered for redemption or if
the Sponsors tender a Unit for redemption, in lieu of redeeming such
Unit, to sell such Unit in the over-the-counter market for the account of
the tendering Unitholder at prices which will return to the Unitholder an
amount in cash, net after deducting brokerage commissions, transfer taxes
and other charges, equal to or in excess of the Redemption Price for such
Unit. The Trustee will pay the net proceeds of any such sale to the
Unitholder on the day he would otherwise be entitled to receive payment
of the Redemption Price.
(b) The Trustee will redeem Units in kind by an in kind
distribution to The Chase Manhattan Bank as the Distribution Agent. A
Unitholder will be able to receive in kind an amount per Unit equal to
the Redemption Price per Unit as determined as of the day of tender. In
Kind Distributions to Unitholders will take the form of whole shares of
Securities. Cash will be distributed by the Distribution Agent in lieu of
fractional shares. The whole shares, fractional shares and cash
distributed to the Distribution Agent will aggregate an amount equal to
the Redemption Price per Unit.
Distributions in kind on redemption of Units shall be held by the
Distribution Agent, whom each Unitholder shall be deemed to have
designated as his agent upon purchase of a Unit, for the account, and for
disposition in accordance with the instructions of, the tendering
Unitholder as follows:
(i) The Distribution Agent shall sell the In Kind Distribution as
of the close of business on the date of tender or as soon thereafter as
possible and remit to the Unitholder not later than seven calendar days
thereafter the net proceeds of sale, after deducting brokerage
commissions and transfer taxes, if any, on the sale unless the tendering
Unitholder requests a distribution of the Securities as set forth in
paragraph (ii) below. The Distribution Agent may sell the Securities
through the Sponsors, and the Sponsors may charge brokerage commissions
on those sales.
(ii) If the tendering Unitholder requests distribution in kind and
tenders in excess of 2,500 Units, the Distribution Agent shall sell any
portion of the In Kind Distribution represented by fractional interests
in shares in accordance with the foregoing and distribute the net cash
proceeds plus any other distributable cash to the tendering Unitholder
together with book-entry credit to the account of the Unitholder's bank
or broker-dealer at DTC representing whole shares of each of the
Securities comprising the In Kind Distribution.
The 2,500 Unit threshold will not apply to redemptions in kind in
connection with a rollover at the termination of the Trust.
The portion of the Redemption Price which represents the
Unitholder's interest in the Income Account shall be withdrawn from the
Income Account to the extent available. The balance paid on any
redemption, including dividends receivable on stocks trading ex-dividend,
if any, shall be drawn from the Principal Account to the extent that
funds are available for such purpose. To the extent Securities are
distributed in kind to the Distribution Agent, the size of the Trust will
be reduced. Sales by the Distribution Agent may be required at a time
when Securities would not otherwise be sold and might result in lower
prices than might otherwise be realized. The Redemption Price received by
a tendering Unitholder may be more or less than the purchase price
originally paid by such Unitholder, depending on the value of the
Securities in the Portfolio at the time of redemption.
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The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on that Exchange is restricted or during which
(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit. The Trustee and the Sponsors are not liable to any person
or in any way for any loss or damage which may result from any such suspension
or postponement.
A Unitholder who wishes to dispose of his Units should inquire of his
broker in order to determine if there is a current secondary market price in
excess of the Redemption Price.
TRUST ADMINISTRATION
PORTFOLIO SUPERVISION. The Trust is a unit investment trust and is not a
managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes in a portfolio of securities on the basis of
economic, financial and market analyses. The Portfolio of the Trust, however,
will not be managed and therefore the adverse financial condition of an issuer
will not necessarily require the sale of its Securities from the portfolio.
Although the portfolio of the Trust is regularly reviewed, because of the
formula employed in selecting the Strategic Ten, it is unlikely that the Trust
will sell any of the Securities other than to satisfy redemptions of Units, or
to cease buying Additional Securities in connection with the issuance of
additional Units. However, the Trust Agreement provides that the Sponsors may
direct the disposition of Securities upon the occurrence of certain events
including: (1) default in payment of amounts due on any of the Securities; (2)
institution of certain legal proceedings; (3) default under certain documents
materially and adversely affecting future declaration or payment of amounts due
or expected; (4) determination of the Sponsors that the tax treatment of the
Trust as a grantor trust would otherwise be jeopardized; or (5) decline in price
as a direct result of serious adverse credit factors affecting the issuer of a
Security which, in the opinion of the Sponsors, would make the retention of the
Security detrimental to the Trust or the Unitholders. Furthermore, the Trust
will likely continue to hold a Security and purchase additional shares
notwithstanding its ceasing to be included among the Strategic Ten or even its
deletion from the DJIA.
In addition, the Trust Agreement provides as follows:
(a) If a default in the payment of amounts due on any Security
occurs pursuant to provision (1) above and if the Sponsors fail to give
immediate instructions to sell or hold that Security, the Trustee, within
30 days of that failure by the Sponsors, shall sell the Security.
(b) It is the responsibility of the Sponsors to instruct the
Trustee to reject any offer made by an issuer of any of the Securities to
issue new securities in exchange and substitution for any Security
pursuant to a recapitalization or reorganization. If any exchange or
substitution is effected notwithstanding such rejection, any securities
or other property received shall be promptly sold unless the Sponsors
direct that it be retained.
(c) Any property received by the Trustee after the Initial Date of
Deposit as a distribution on any of the Securities in a form other than
cash or additional shares of the Securities shall be promptly sold unless
the Sponsors direct that it be retained by the Trustee. The proceeds of
any disposition shall be credited to the Income or Principal Account of
the Trust.
(d) The Sponsors are authorized to increase the size and number of
Units of the Trust by the deposit of Additional Securities, contracts to
purchase Additional Securities or cash or a letter of credit with
instructions to purchase Additional Securities in exchange for the
corresponding number of additional Units from time to time subsequent to
the
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Initial Date of Deposit, provided that the original proportionate
relationship among the number of shares of each Security established on
the Initial Date of Deposit is maintained to the extent practicable. The
Sponsors may specify the minimum numbers in which Additional Securities
will be deposited or purchased. If a deposit is not sufficient to acquire
minimum amounts of each Security, Additional Securities may be acquired
in the order of the Security most under-represented immediately before
the deposit when compared to the original proportionate relationship. If
Securities of an issue originally deposited are unavailable at the time
of the subsequent deposit, the Sponsors may (i) deposit cash or a letter
of credit with instructions to purchase the Security when it becomes
available, or (ii) deposit (or instruct the Trustee to purchase) either
Securities of one or more other issues originally deposited or a
Substitute Security.
TRUST AGREEMENT AND AMENDMENT. The Trust Agreement may be amended by the
Trustee and the Sponsors without the consent of any of the Unitholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor governmental
agency; or (3) to make such other provisions in regard to matters arising
thereunder as shall not adversely affect the interests of the Unitholders.
The Trust Agreement may also be amended in any respect, or performance of
any of the provisions thereof may be waived, with the consent of investors
holding 66 2/3% of the Units then outstanding for the purpose of modifying the
rights of Unitholders; provided that no such amendment or waiver shall reduce
any Unitholder's interest in the Trust without his consent or reduce the
percentage of Units required to consent to any such amendment or waiver without
the consent of the holders of all Units. The Trust Agreement may not be amended,
without the consent of the holders of all Units in the Trust then outstanding,
to increase the number of Units issuable or to permit the acquisition of any
Securities in addition to or in substitution for those initially deposited in
such Trust, except in accordance with the provisions of the Trust Agreement. The
Trustee shall promptly notify Unitholders, in writing, of the substance of any
such amendment.
TRUST TERMINATION. The Trust Agreement provides that the Trust shall
terminate as of the Evaluation Time on the business day preceding the
Liquidation Period or upon the earlier maturity, redemption or other
disposition, as the case may be, of the last of the Securities held in such
Trust and in no event is it to continue beyond the Mandatory Termination Date.
If the value of the Trust shall be less than the minimum amount set forth under
"Summary of Essential Information" in Part A, the Trustee may, in its
discretion, and shall, when so directed by the Sponsors, terminate the Trust.
The Trust may also be terminated at any time with the consent of investors
holding 100% of the Units then outstanding. When directed by the Sponsors, the
Trustee shall utilize the services of the Sponsors for the sale of all or a
portion of the Securities in the Trust, and in so doing, the Sponsors will
determine the manner, timing and execution of the sales of the underlying
Securities. Any brokerage commissions received by the Sponsors from the Trust in
connection with such sales will be in accordance with applicable law. In the
event of termination, written notice thereof will be sent by the Trustee to all
Unitholders. Such notice will provide Unitholders with the following three
options by which to receive their pro rata share of the net asset value of the
Trust and requires their election of one of the three options by notifying the
Trustee by returning a properly completed election request (to be supplied to
Unitholders at least 30 days prior to the commencement of the Liquidation
Period):
1. A Unitholder who owns at least 2,500 Units and whose interest in
the Trust would entitle him to receive at least one share of each
underlying Security will have his Units redeemed on commencement of the
Liquidation Period by distribution of the Unitholder's pro rata share of
the net asset value of the Trust on such date distributed in kind to the
extent represented by whole shares of underlying Securities and the
balance in cash within three business days following the commencement of
the Liquidation Period. Unitholders subsequently selling such distributed
Securities will incur brokerage costs when disposing of such Securities.
Unitholders should consult their own tax adviser in this regard;
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2. to receive in cash such Unitholder's pro rata share of the net
asset value of the Trust derived from the sale by the Sponsors as the
agents of the Trustee of the underlying Securities over the Liquidation
Period. The Unitholder's pro rata share of its net assets of the Trust
will be distributed to such Unitholder within three days of the
settlement of the trade of the last Security to be sold; and/or
3. to invest such Unitholder's pro rata share of the net assets of
the Trust derived from the sale by the Sponsors as agents of the Trustee
of the underlying Securities in units of a subsequent series of the
Schwab Ten Trust (the "New Series") provided one is offered. It is
expected that a special redemption and liquidation will be made of all
Units of this Trust held by a Unitholder (a "Rollover Unitholder") who
affirmatively notifies the Trustee by the Rollover Notification Date set
forth in the "Summary of Essential Information" for the Trust in Part A.
In the event that the Sponsors determine that such a redemption and
subsequent investment in a New Series by a Rollover Unitholder may be
effected under applicable law in a manner that will not result in the
recognition of either gain or loss for U.S. federal income tax purposes
with respect to any Securities that are included in the portfolio of the
New Series ("Duplicated Securities"), Unitholders will be notified at
least 30 days prior to the commencement of the Liquidation Period of the
procedures and process necessary to facilitate such tax treatment. The
Units of a New Series will be purchased by the Unitholder within three
business days of the settlement of the trade for the last of the
Unitholder's Securities to be sold. Such purchaser will be entitled to a
reduced deferred sales charge upon the purchase of units of the New
Series. It is expected that the terms of the New Series will be
substantially the same as the terms of the Trust described in this
Prospectus, and that similar options with respect to the termination of
such New Series will be available. The availability of this option does
not constitute a solicitation of an offer to purchase Units of a New
Series or any other security. A Unitholder's election to participate in
this option will be treated as an indication of interest only. At any
time prior to the purchase by the Unitholder of units of a New Series
such Unitholder may change his investment strategy and receive, in cash,
the proceeds of the sale of the Securities. An election of this option
will not prevent the Unitholder from recognizing taxable gain or loss
(except in the case of a loss, if and to the extent the New Series is
treated as substantially identical to the Trust) as a result of the
liquidation, even though no cash will be distributed to pay any taxes.
Unitholders should consult their own tax advisers in this regard.
Unitholders who do not make any election will be deemed to have elected
to receive the termination distribution in cash (option number 2).
The Sponsors have agreed that to the extent they effect the sales of
underlying securities for the Trustee in the case of the second and third
options such sales will be free of brokerage commissions. The Sponsors, on
behalf of the Trustee, will sell, unless prevented by unusual and unforeseen
circumstances, such as, among other reasons, a suspension in trading of a
Security, the close of a stock exchange, outbreak of hostilities and collapse of
the economy, as quickly as practicable, but all of the Securities will in any
event be disposed of by the end of the Liquidation Period. The Redemption Price
Per Unit upon the settlement of the last sale of Securities during the
Liquidation Period will be distributed to Unitholders in redemption of such
Unitholders' interest in the Trust.
Depending on the amount of proceeds to be invested in Units of the New
Series and the amount of other orders for Units in the New Series, the Sponsors
may purchase a large amount of securities for the New Series in a short period
of time. The Sponsors' buying of securities may tend to raise the market prices
of these securities. The actual market impact of the Sponsors' purchases,
however, is currently unpredictable because the actual amount of securities to
be purchased and the supply and price of those securities is unknown. A similar
problem may occur in connection with the sale of Securities during the
Liquidation Period; depending on the number of sales required, the prices of and
demand for Securities, such sales may tend to depress the market prices and thus
reduce the proceeds of such sales. The Sponsors believe that the sale of
underlying Securities over the Liquidation Period is in the best interest of a
Unitholder and may mitigate the negative market price
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consequences stemming from the trading of large amounts of Securities. The
Securities may be sold in fewer than seven days if, in the Sponsors' judgment,
such sales are in the best interest of Unitholders. The Sponsors, in
implementing such sales of securities on behalf of the Trustee, will seek to
maximize the sales proceeds and will act in the best interests of the
Unitholders. There can be no assurance, however, that any adverse price
consequences of heavy trading will be mitigated.
It is expected (but not required) that the Sponsors will generally follow
the following guidelines in selling the Securities: for highly liquid
Securities, the Sponsors will generally sell Securities on the first day of the
Liquidation Period; for less liquid Securities, on each of the first two days of
the Liquidation Period, the Sponsors will generally sell any amount of any
underlying Securities at a price no less than 1/2 of one point under the last
closing sale price of those Securities. On each of the following two days, the
price limit will increase to one point under the last closing sale price. After
four days, the Sponsors intend to sell at least a fraction of the remaining
underlying Securities, the numerator of which is one and the denominator of
which is the total number of days remaining (including that day) in the
Liquidation Period, without any price restrictions.
Section 17(a) of the Investment Company Act of 1940 generally prohibits
principal transactions between registered investment companies and their
affiliates. Pursuant to an exemptive order issued by the Securities and Exchange
Commission, each terminating Schwab Ten Trust can sell Duplicated Securities
directly to a New Series. The exemption will enable the Trust to eliminate
commission costs on these transactions. The price for those securities
transferred will be the closing sale price on the sale date on the national
securities exchange where the securities are principally traded, as certified
and confirmed by the Trustee.
The Sponsors may for any reason, in their sole discretion, decide not to
sponsor any subsequent series of the Trust, without penalty or incurring
liability to any Unitholder. If the Sponsors so decide, the Sponsors will notify
the Trustee of that decision, and the Trustee will notify the Unitholders before
the commencement of the Liquidation Period. All Unitholders will then elect
either option 1, if eligible, or option 2.
By electing to reinvest in the New Series, the Unitholder indicates his
interest in having his terminating distribution from the Trust invested only in
the New Series created following termination of the Trust; the Sponsors expect,
however, that a similar reinvestment program will be offered with respect to all
subsequent series of the Trust, thus giving Unitholders a yearly opportunity to
elect to "rollover" their terminating distributions into a New Series. The
availability of the reinvestment privilege does not constitute a solicitation of
offers to purchase units of a New Series or any other security. A Unitholder's
election to participate in the reinvestment program will be treated as an
indication of interest only. The Sponsors intend to coordinate the date of
deposit of a future series so that the terminating trust will terminate
contemporaneously with the creation of a New Series. The Sponsors reserve the
right to modify, suspend or terminate the reinvestment privilege at any time.
THE SPONSORS. Charles Schwab & Co., Inc. ("Schwab") was established in
1971 and is one of America's largest discount brokers. The firm provides
low-cost securities brokerage and related financial services to over 3.3 million
active customer accounts and has over 200 branch offices. Schwab also offers
convenient access to financial information services and provides products and
services that help investors make investment decisions. Schwab is a wholly owned
subsidiary of The Charles Schwab Corporation. Charles R. Schwab is the founder,
Chairman, Chief Executive Officer and a director of The Charles Schwab
Corporation and, as of January 31, 1996, the beneficial owner of approximately
20.1% of the outstanding shares of that corporation. Mr. Schwab may be deemed to
be a controlling person of Schwab.
Reich & Tang Distributors, Inc. a Delaware corporation, is engaged in
the brokerage business and is a member of the National Association of Securities
Dealers, Inc. Reich & Tang is also a registered investment advisor. Reich & Tang
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maintains its principal business offices at 600 Fifth Avenue, New York, New York
10020. The sole shareholder of Reich & Tang, Reich & Tang Asset Management, Inc.
("RTAM Inc."), is wholly owned by NEIC Holdings, Inc. which, effective December
29, 1997, is wholly owned by NEIC Operating Partnership, L.P. ("NEICOP"). The
general partners of NEICOP are New England Investment Companies, Inc. ("NEIC")
and New England Investment Companies, L.P. ("NEIC LP") which is owned
approximately 99% by public unitholders and whose general partner is NEIC.
NEICOP, with a principal place of business at 399 Boyston Street, Boston, MA
02116, is a holding company of firms engaged in the securities and investment
advisory business. These affiliates in the aggregate are investment advisors or
managers to over 80 registered investment companies. Reich & Tang is successor
Sponsor to Bear Stearns for numerous series of unit investment trusts, including
New York Municipal Trust, Series 1 (and Subsequent Series), Municipal Securities
Trust, Series 1 (and Subsequent Series), 1st Discount Series (and Subsequent
Series), Multi-State Series 1 (and Subsequent Series), Mortgage Securities
Trust, Series 1 (and Subsequent Series), Insured Municipal Securities Trust,
Series 1 (and Subsequent Series) and 5th Discount Series (and Subsequent Series)
and Equity Securities Trust, Series 1, Signature Series, Gabelli Communications
Income Trust (and Subsequent Series).
NEIC is wholly owned by MetLife New England Holdings, Inc., a
wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife").
Effective December 30, 1997, MetLife owns approximately 47% of the limited
partnership interests of NEICOP.
MetLife is a mutual life insurance company with assets of $297.6 billion
at December 31, 1996. It is the second largest life insurance company in the
United States in terms of total assets. MetLife provides a wide range of
insurance and investment products and services to individuals and groups and is
the leader among United States life insurance companies in terms of total life
insurance in force, which exceeded $1.6 trillion at December 31, 1996 for
MetLife and its insurance affiliates. MetLife and its affiliates provide
insurance or other financial services to approximately 36 million people
worldwide.
The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsors and their ability
to carry out their contractual obligations. The Sponsors will be under no
liability to Unitholders for taking any action, or refraining from taking any
action, in good faith pursuant to the Trust Agreement, or for errors in judgment
except in cases of their own willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations and duties.
The Sponsors may each resign at any time by delivering to the Trustee an
instrument of resignation executed by the individual Sponsor. If at any time
either of the Sponsors shall resign or fail to perform any of its duties under
the Trust Agreement or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may either (a)
appoint a successor Sponsor; (b) terminate the Trust Agreement and liquidate the
Trust; or (c) continue to act as Trustee without terminating the Trust
Agreement. Any successor Sponsor appointed by the Trustee shall be satisfactory
to the Trustee and, at the time of appointment, shall have a net worth of at
least $1,000,000.
THE TRUSTEE. The Trustee is The Chase Manhattan Bank with its principal
executive office located at 270 Park Avenue, New York, New York 10017 (800)
428-8890 and its unit investment trust office at 4 New York Plaza, New York, New
York 10004. The Trustee is subject to supervision by the Superintendent of Banks
of the State of New York, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
The Trustee shall not be liable or responsible in any way for taking any
action, or for refraining from taking any action, in good faith pursuant to the
Trust Agreement, or for errors in judgment; or for any disposition of any
moneys, Securities or Units in accordance with the Trust Agreement, except in
cases of its own willful misfeasance, bad faith, gross negligence
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or reckless disregard of its obligations and duties; provided, however, that the
Trustee shall not in any event be liable or responsible for any evaluation made
by any independent evaluation service employed by it. In addition, the Trustee
shall not be liable for any taxes or other governmental charges imposed upon or
in respect of the Securities or the Trust which it may be required to pay under
current or future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Securities pursuant to the
Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Unitholders."
The Trustee may resign by executing an instrument in writing and filing
the same with the Sponsors, and mailing a copy of a notice of resignation to all
Unitholders. In such an event the Sponsors are obligated to appoint a successor
Trustee as soon as possible. In addition, if the Trustee becomes incapable of
acting or becomes bankrupt or its affairs are taken over by public authorities,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsors. If upon resignation of the Trustee no successor has
been appointed and has accepted the appointment within thirty days after
notification, the retiring Trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
the Trustee becomes effective only when the successor Trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor Trustee. Upon execution of a written acceptance of such appointment by
such successor Trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor.
Any corporation into which the Trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Trustee shall be a party, shall be the successor Trustee. The
Trustee must always be a banking corporation organized under the laws of the
United States or any State and have at all times an aggregate capital, surplus
and undivided profits of not less than $2,500,000.
EVALUATION OF THE TRUST. The value of the Securities in the Trust
portfolio is determined in good faith by the Trustee on the basis set forth
under "Public Offering--Offering Price." The Sponsors and the Unitholders may
rely on any evaluation furnished by the Trustee and shall have no responsibility
for the accuracy thereof. Determinations by the Trustee under the Trust
Agreement shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Trustee shall be under no liability
to the Sponsors or Unitholders for errors in judgment, except in cases of its
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties. The Trustee, the Sponsors and the Unitholders may
rely on any evaluation furnished to the Trustee by an independent evaluation
service and shall have no responsibility for the accuracy thereof.
TRUST EXPENSES AND CHARGES
All or a portion of the expenses incurred in creating and establishing
the Trust, including the cost of the initial preparation and execution of the
Trust Agreement, registration of the Trust and the Units under the Investment
Company Act of 1940 and the Securities Act of 1933 and State registration fees,
the initial fees and expenses of the Trustee, legal expenses and other actual
out-of-pocket expenses, will be paid by the Trust and charged to capital over
the life of the Trust. All advertising and selling expenses, as well as any
organizational expenses not paid by the Trust, will be borne by the Sponsors at
no cost to the Trust.
The Sponsors will receive for portfolio supervisory, bookkeeping and
administrative services to the Trust an Annual Fee in the amount set forth under
"Summary of Essential Information" in Part A. The Sponsors' fee may exceed the
actual
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cost of providing portfolio supervisory, bookkeeping and administrative services
for the Trust, but at no time will the total amount received for portfolio
supervisory, bookkeeping and administrative services rendered to all series of
the Schwab Trusts in any calendar year exceed the aggregate cost to the Sponsors
of supplying such services in such year. (See "Portfolio Supervision.")
The Trustee will receive, for its ordinary recurring services to the
Trust, an annual fee in the amount set forth under "Summary of Essential
Information" in Part A. For a discussion of the services performed by the
Trustee pursuant to its obligations under the Trust Agreement, see "Trust
Administration" and "Rights of Unitholders."
The Trustee's fees applicable to a Trust are payable as of each Record
Date from the Income Account of the Trust to the extent funds are available and
then from the Principal Account. Both the Sponsors' and Trustee's fees may be
increased without approval of the Unitholders by amounts not exceeding
proportionate increases in consumer prices for services as measured by the
United States Department of Labor's Consumer Price Index entitled "All Services
Less Rent."
The following additional charges are or may be incurred by the Trust:
all expenses (including counsel fees) of the Trustee incurred and advances made
in connection with its activities under the Trust Agreement, including the
expenses and costs of any action undertaken by the Trustee to protect the Trust
and the rights and interests of the Unitholders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement; indemnification of
the Trustee for any loss or liability accruing to it without gross negligence,
bad faith or willful misconduct on its part, arising out of or in connection
with its acceptance or administration of the Trust; indemnification of the
Sponsors for any losses, liabilities and expenses incurred in acting as sponsors
of the Trust without gross negligence, bad faith or willful misconduct on its
part; and all taxes and other governmental charges imposed upon the Securities
or any part of the Trust (no such taxes or charges are being levied, made or, to
the knowledge of the Sponsors, contemplated). The above expenses, including the
Trustee's fees, when paid by or owing to the Trustee are secured by a first lien
on the Trust to which such expenses are charged. In addition, the Trustee is
empowered to sell the Securities in order to make funds available to pay all
expenses.
Unless the Sponsors otherwise direct, the accounts of the Trust shall
be audited not less than annually by independent auditors selected by the
Sponsors. The expenses of the audit shall be an expense of the Trust. So long as
the Sponsors maintain a secondary market, the Sponsors will bear any audit
expense which exceeds $.50 cents per 100 Units. Unitholders covered by the audit
during the year may receive a copy of the audited financial statements upon
request.
REINVESTMENT PLAN
Income and principal distributions on Units (other than the final
distribution in connection with the termination of the Trust) may be reinvested
by participating in the Trust's reinvestment plan. Under the plan, the Units
acquired for participants will be either Units already held in inventory by the
Sponsors or new Units created by the Sponsors' deposit of Additional Securities
as described in "The Trust--Organization" in this Part B. Units acquired by
reinvestment will be subject to any remaining deductions of the Deferred Sales
Charge. In order to enable a Unitholder to participate in the reinvestment plan
with respect to a particular distribution on their Units, written notification
must be received by the Trustee within 10 days prior to the Record Date for such
distribution. Each subsequent distribution of income or principal on the
participant's Units will be automatically applied by the Trustee to purchase
additional Units of the Trust. The Sponsors reserve the right to demand, modify
or terminate the reinvestment plan at any time without prior notice. The
reinvestment plan for the Trust may not be available in all states.
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OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and certain
matters relating to federal tax law have been passed upon by Battle Fowler LLP,
75 East 55th Street, New York, New York 10022 as counsel for the Sponsors.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have acted
as counsel for the Trustee.
INDEPENDENT AUDITORS. The Statement of Financial Condition, including
the Portfolio of Investments, is included herein in reliance upon the report of
Ernst & Young LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
PERFORMANCE INFORMATION. Total returns, average annualized returns or
cumulative returns for various periods of the Strategic Ten, the related index
and this Trust may be included from time to time in advertisements, sales
literature and reports to current or prospective investors. Total return shows
changes in Unit price during the period plus any dividends and capital gains
received, divided by the public offering price as of the date of calculation.
Average annualized returns show the average return for stated periods of longer
than a year. From time to time, the Trust may compare the cost of purchasing
Trust shares to the cost of purchasing the individual securities which
constitute the Strategic Ten. In addition, the Trust may compare its deferred
sales charge to the sales charges assessed on unitholders by other unit
investment trusts. Sales material may also include an illustration of the
cumulative results of like annual investments in the Strategic Ten during an
accumulation period and like annual withdrawals during a distribution period.
Figures for actual portfolios will reflect all applicable expenses and, unless
otherwise stated, the maximum deferred sales charge. No provision is made for
any income taxes payable. Similar figures may be given for this Trust applying
the Strategic Ten investment strategy to other indexes. Returns may also be
shown on a combined basis. Trust performance may be compared to performance on a
total return basis of the Dow Jones Industrial Average, the S&P 500 Composite
Price Stock Index, or the average performance of mutual funds investing in a
diversified portfolio of U.S. stocks generally or growth stocks, or performance
data from Lipper Analytical Services, Inc. and Morningstar Publications, Inc. or
from publications such as Money, The New York Times, U.S. News and World Report,
Business Week, Forbes or Fortune. As with other performance data, performance
comparisons should not be considered representative of a Trust's relative
performance for any future period.
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<TABLE>
<S> <C>
No person is authorized to give any information or to ----------------------------------------------------
make any representations not contained in Parts A and B of INSERT LOGO
this Prospectus; and any information or representation not ----------------------------------------------------
contained herein must not be relied upon as having been
authorized by the Trust, the Trustee or the Sponsors. The SCHWAB TEN TRUST,
Trust is registered as a unit investment trust under the 1998 SERIES A
Investment Company Act of 1940. Such registration does not
imply that the Trust or any of its Units have been guaranteed, (A UNIT INVESTMENT TRUST)
sponsored, recommended or approved by the United States or
any state or any agency or officer thereof. PROSPECTUS
------------------ DATED: MARCH 3, 1998
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any SPONSORS:
person to whom it is not lawful to make such offer in such
state. CHARLES SCHWAB & CO., INC.
101 Montgomery Street
Table of Contents San Francisco, California 94104
800-435-4000
Title Page
REICH & TANG DISTRIBUTORS, INC.
PART A 600 Fifth Avenue
Summary of Essential Information....................................A-2 New York, New York 10020
Statement of Financial Condition....................................A-8 800-237-7020
Portfolio of Investments............................................A-9
Report of Independent Auditors......................................A-10
PART B TRUSTEE:
The Trust...........................................................B-1
Risk Considerations.................................................B-5 THE CHASE MANHATTAN BANK
Public Offering.....................................................B-7 4 New York Plaza
Rights of Unitholders...............................................B-9 New York, New York 10004
Tax Status..........................................................B-10
Liquidity...........................................................B-13
Trust Administration................................................B-16
Trust Expenses and Charges..........................................B-21
Reinvestment Plan...................................................B-22
Other Matters.......................................................B-23
</TABLE>
Parts A and B of this Prospectus do not contain all of the information
set forth in the registration statement and exhibits relating thereto, filed
with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933, and the Investment Company Act of 1940, and to which
reference is made.
687791.1
PART II -- ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM A -- BONDING ARRANGEMENTS
The employees of Reich & Tang Distributors L.P. are covered under
Brokers' Blanket Policy, Standard Form 14, in the amount of $11,000,000 (plus
$196,000,000 excess coverage under Brokers' Blanket Policies, Standard Form 14
and Form B Consolidated). This policy has an aggregate annual coverage of $15
million.
<TABLE>
ITEM B -- CONTENTS OF REGISTRATION STATEMENT
<S> <C> <C>
This Registration Statement on Form S-6 comprises the following papers
and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference Sheet to Amendment No. 2 to the
Registration Statement of Schwab Trusts, Schwab Ten Trust, 1997 Series A).
The Prospectus consisting of pages.
Undertakings.
Signatures.
Written consents of the following persons:
Battle Fowler LLP (included in Exhibit 3.1)
Ernst & Young LLP
</TABLE>
<TABLE>
<S> <C> <C>
The following exhibits:
*99.1.1 -- Reference Trust Agreement including certain
amendments to the Trust Indenture and Agreement
referred to under Exhibit 99.1.1.1 below.
99.1.1.1 -- Form of Trust Indenture and Agreement (filed as
Exhibit 1.1.1 to Amendment No. 2 to Form S-6
Registration Statement No. 333-31133 of Schwab Trusts,
Schwab Ten Trust, 1997 Series A on November 4, 1997
and incorporated herein by reference).
99.1.3.5 -- Restated Articles of Incorporation of Charles
Schwab & Co., Inc (filed as Exhibit 1.3.5 to Amendment
No. 2 to Form S-6 Registration Statement No. 333-31133
of Schwab Trusts, Schwab Ten Trust, 1997 Series A on
November 4, 1997 and incorporated herein by
reference).
99.1.3.6 -- Certificate of Amendment of Articles of
Incorporation of Charles Schwab & Co., Inc (filed as
Exhibit 1.3.6 to Amendment No. 2 to Form S-6
Registration Statement No. 333-31133 of Schwab Trusts,
Schwab Ten Trust, 1997 Series A on November 4, 1997
and incorporated herein by reference).
99.1.3.7 -- Amended and Restated Bylaws of Charles Schwab & Co.,
Inc. (filed as Exhibit 1.3.7 to Amendment No. 2 to
Form S-6 Registration Statement No. 333-31133 of
Schwab Trusts, Schwab Ten Trust, 1997 Series A on
November 4, 1997 and incorporated herein by reference).
99.1.3.8 -- Certificate of Incorporation of Reich & Tang
Distributors, Inc. (filed as Exhibit 1.3.5 to Form S-6
Registration Statement No. 333-44301 of Equity
Securities Trust, Series 16, Signature Series, Zacks
All- Star Analysts Trust III on January 15, 1998 and
incorporated herein by reference).
99.1.3.9. -- By-Laws of Reich & Tang Distributors, Inc. (filed
as Exhibit 1.3.6 to Form S-6 Registration Statement
No. 333-44301 of Equity Securities Trust, Series 16,
Signature Series, Zacks All-Star Analysts Trust III on
January 15, 1998 and incorporated herein by
reference).
*99.3.1 -- Opinion of Battle Fowler LLP as to the legality of
the securities being registered, including their
consent to the filing thereof and to the use of their
name under the headings "Tax Status" and "Legal
Opinions" in the Prospectus, and to the filing of
their opinion regarding tax status of the Trust.
99.6.0 -- Power of Attorney of Reich & Tang Distributors,
Inc., the Depositor, by its officers and a majority of
its Directors (filed as Exhibit 6.0 to Form S-6
Registration Statement No. 333-44301 of Equity
Securities Trust, Series 16, Signature Series, Zacks
All-Star Analysts Trust III on January 15, 1998 and
incorporated herein by reference).
99.6.1 -- Powers of Attorney of Charles Schwab & Co., Inc.,
the Depositor, by its officers and a majority of its
Directors (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 333-31133 of Schwab Trusts,
Schwab Strategic Ten Trust, 1997 Series A on July 11,
1997 and incorporated herein by reference).
*99.27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Filed herewith.
</TABLE>
606976.4
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
The Registrant hereby identifies Schwab Trusts, Schwab Ten Trust, 1997
Series A for the purposes of the representations required by Rule 487 and
represents the following:
1) That the portfolio securities deposited in the Series as to the
securities of which this registration statement is being filed do
not differ materially in type or quality from those deposited in
such previous series;
2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential
financial information for, the Series with respect to the
securities of which this registration statement is being filed,
this registration statement does not contain disclosures that
differ in any material respect from those contained in the
registration statements for such previous Series as to which the
effective date was determined by the commission or the staff; and
3) That is has complied with Rule 460 under the Securities Act of
1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Schwab Trusts, Schwab Ten Trust, 1998 Series A, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of New York and State of New
York on the 3rd day of March, 1998.
SCHWAB TRUSTS, SCHWAB
TEN TRUST, 1998 SERIES A
(Registrant)
CHARLES SCHWAB & CO., INC.
(Depositor)
By /s/ JIM WHITE
Jim White
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons, who constitute the principal officers and a majority of the directors
of Charles Schwab & Co., Inc., the Depositor, in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C>
Name Title Date
DAVID POTTRUCK Chief Executive Officer and Director
STEVEN SCHEID Chief Financial Officer and Director
CHARLES R. SCHWAB Director March 3, 1998
By /s/ JIM WHITE
Jim White
Attorney-In-Fact*
- --------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 333-31133 on July 11, 1997.
</TABLE>
606976.4
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
The Registrant hereby identifies Schwab Trusts, Schwab Ten Trust, 1997
Series A for the purposes of the representations required by Rule 487 and
represents the following:
1) That the portfolio securities deposited in the Series as to the
securities of which this registration statement is being filed do not
differ materially in type or quality from those deposited in such
previous series;
2) That, except to the extent necessary to identify the specific portfolio
securities deposited in, and to provide essential financial information
for, the Series with respect to the securities of which this
registration statement is being filed, this registration statement does
not contain disclosures that differ in any material respect from those
contained in the registration statements for such previous Series as to
which the effective date was determined by the commission or the staff;
and
3) That is has complied with Rule 460 under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Schwab Trusts, Schwab Ten Trust, 1998 Series A, has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of New York and State of New
York on the 3rd day of March, 1998.
SCHWAB TRUSTS, SCHWAB
TEN TRUST, 1998 SERIES A
(Registrant)
REICH & TANG DISTRIBUTORS, INC.
(Depositor)
By: Reich & Tang Asset Management, Inc.
By /s/ PETER J. DEMARCO
Peter J. DeMarco
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons, who constitute the principal officers and a majority of the directors
of Reich & Tang Distributors, Inc., the Depositor, in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
Name Title Date
RICHARD E. SMITH, III President and Director
PETER S. VOSS Director March 3, 1998
G. NEAL RYLAND Director By /s/ PETER J. DEMARCO
STEVEN W. DUFF Director Peter J. DeMarco
ROBERT F. HOERLE Managing Director Attorney-In-Fact*
PETER J. DEMARCO Executive Vice President
RICHARD I. WEINER Vice President
BERNADETTE N. FINN Vice President
LORRAINE C. HYSLER Secretary
RICHARD DE SANCTIS Treasurer
EDWARD N. WADSWORTH Executive Officer
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption
"Independent Auditors" in Part B of the Prospectus and to the use of our report
dated March 2, 1998, in this Registration Statement (Form S-6 No. 333-44589) of
Schwab Trusts, Schwab Ten Trust, 1998 Series A.
New York, New York
March 2, 1998 ERNST & YOUNG LLP
- --------
* Executed copies of Powers of Attorney were filed as Exhibit 6.0 to
Registration Statement No. 333-44301 on January 15, 1998.
606976.4
SCHWAB TRUSTS,
SCHWAB TEN TRUST, 1998 SERIES A
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement (the "Agreement") dated March 3, 1998
among Charles Schwab & Co., Inc., Reich & Tang Distributors, Inc., as Depositors
and The Chase Manhattan Bank, as Trustee, sets forth certain provisions in full
and incorporates other provisions by reference to the document entitled "Schwab
Trusts, Schwab Ten Trust, 1997 Series A, and Subsequent Series, Trust Indenture
and Agreement" dated November 4, 1997 and as amended in part by this Agreement
(collectively, such documents hereinafter called the "Indenture and Agreement").
This Agreement and the Indenture, as incorporated by reference herein, will
constitute a single instrument.
WITNESSETH THAT:
WHEREAS, this Agreement is a Reference Trust Agreement as defined in
Section 1.1 of the Indenture, and shall be amended and modified from time to
time by an Addendum as defined in Section 1.1 (1) of the Indenture, such
Addendum setting forth any Additional Securities as defined in Section 1.1 (2)
of the Indenture;
WHEREAS, the Depositors wish to deposit Securities, and any Additional
Securities as listed on any Addendums hereto, into the Trust and issue Units,
and Additional Units as the case maybe, in respect thereof pursuant to Section
2.5 of the Indenture; and
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the Depositors and the Trustee as follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Section 1. Subject to the provisions of Part II hereof, all the
provisions contained in the Indenture are herein incorporated by reference in
their entirety and shall be deemed to be a part of this instrument as fully and
to the same extent as though said provisions had been set forth in full in this
instrument except that the following sections of the Indenture hereby are
amended as follows:
(a) All references to "Reich & Tang Distributors, L.P." are replaced
with "Reich & Tang Distributors, Inc."
688576.1
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<PAGE>
(b) Section 1.1 of the Agreement is amended to add the following
definitions:
"Distribution Agent" shall mean the Distribution Agent appointed in the
Distribution Agency Agreement, or its successor as appointed pursuant
to the Distribution Agency Agreement.
"Distribution Agency Agreement" shall mean the Distribution Agency
Agreement among the Depositors, Trustee and the Distribution Agent
dated as of March 3, 1998.
Definitions following these definitions shall be renumbered.
(c) Section 2.1 of the Agreement is amended by adding the following
paragraph after the second paragraph thereof:
"When and as directed by the Depositors, the Trustee or
Distribution Agent shall accept securities and cash to be
deposited in a New Series in exchange for Units of the New Series
from persons other than Unitholders participating in a rollover
option. Notwithstanding the fact that any Unitholder may acquire
Units of the Trust by purchase or by in-kind contribution, the
Depositors will not deposit Securities received by the Depositors
on termination, or through a redemption of Units, of a series of
the Trust to a subsequent series of the Trust."
(d) Section 5.2 of the Agreement is amended by adding the following
prior to the first paragraph thereof:
"In connection with each redemption of Units, the Depositors
shall direct the Trustee to redeem Units in accordance with the
procedures set forth in either (a) or (b) of this Section 5.2.
(a) Trustee."
(e) Section 5.2 of the Agreement is further amended by adding the
following three paragraphs after the ninth paragraph of such Section 5.2.:
"(b) Distribution Agent-On any Business Day on which any
Unit or Units are tendered for redemption (the "Redemption Day")
by a Unitholder or his duly authorized attorney to the Trustee at
its unit investment trust office in the City of New York not
later than the Evaluation Time, such Units shall be redeemed by
the Trustee on that Redemption Day. Units in uncertificated form
shall be tendered by means of an appropriate request for
redemption in form approved by the Trustee. Unitholders must sign
exactly as their name appears on the register with the signature
688576.1
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<PAGE>
guaranteed by a participant in a signature guarantee program
acceptable to the Trustee, or in such other manner as may be
acceptable to the Trustee. The Trustee may also require
additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority. Subject to
payment by such Unitholder of any tax or other governmental
charges which may be imposed thereon, such redemption is to be
made by distribution to the Distribution Agent on behalf of the
redeeming Unitholder on the Redemption Day of (i) the
Unitholder's pro rata portion as of the Redemption Day of the
Securities in the Trust as designated by the Depositor and (ii)
the Unitholder's pro rata portion of the cash in the Trust as of
the Redemption Day (herein called the "Redemption Distribution").
The Distribution Agent will dispose of such assets in accordance
with the provisions of the Distribution Agent Agreement.
Fractional interests in shares distributed to the Distribution
Agent, which are not included in the Redemption Distribution,
shall be held in trust by the Distribution Agent, which is hereby
designated a subcustodian of the Trustee with respect to such
fractional interests, and shall be subject to such disposition as
the Depositor shall direct. Units received for redemption by the
Trustee on any date after the Evaluation Time will be held by the
Trustee until the next Business Day on which the New York Stock
Exchange is open for trading and will be deemed to have been
tendered on such day for redemption at the Redemption Price
computed on that day. Units tendered for redemption by the
Depositors on any Business Day shall be deemed to have been
tendered before the Evaluation Time on such Business Day provided
that the Depositors advise the Trustee before the later of the
Trustee's close of business and 5:00 pm New York City time. By
such advice, the Depositors will be deemed to certify that all
Units so tendered were either (a) tendered to the Depositors or
to a retail dealer between the Evaluation Time on the preceding
Business Day and the Evaluation Time on such Business Day or (b)
acquired previously by the Depositors but which the Depositors
determined to redeem prior to the Evaluation Time on such
Business Day.
The portion of the Redemption Distribution which represents
the Unitholder's interest in the Income Account shall be
withdrawn from the Income Account to the extent available. The
balance paid on any redemption, including dividends receivable on
stocks trading ex dividend, if any, shall be withdrawn from
688576.1
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<PAGE>
the Principal Account to the extent that funds are available for
such purpose. If such available balance shall be insufficient,
the Trustee shall advance funds sufficient to pay such amount to
the Unitholder and shall be entitled to reimbursement of such
advance upon the deposit of additional monies in the Income
Account or Principal Account, whichever happens first. Should any
amounts so advanced with respect to declared but unreceived
dividends prove uncollectible because of default in payment of
such dividends, the Trustee shall have the right immediately to
liquidate Securities in amount sufficient to reimburse itself for
such advances, without interest. In the event that funds are
withdrawn from the Principal Account for payment of any portion
of the Redemption Distribution representing dividends receivable
on stocks trading ex dividend, the Principal Account shall be
reimbursed when sufficient funds are next available in the Income
Account for such funds so applied.
Unitholders requesting or required to receive a cash
distribution shall receive such distribution in accordance with
the applicable provisions of the Distribution Agency Agreement."
(f) Section 6.2 of the Agreement is amended by adding the following at
the end of the second paragraph thereof:
"The Trustee shall maintain and provide, upon the request of a
Unitholder or the Depositors, the Unitholders or the Unitholder's
designated representative with the cost basis of the Securities
represented by the Unitholder's Units."
(g) Section 9.2 of the Agreement is amended by deleting the fourth
paragraph thereof and by adding the following paragraph in its place:
"In the event that the Trust terminates on the Termination Date,
the Trustee shall, not less than 30 days prior to the Termination
Date, send a written notice to each Unitholder. Such notice shall
allow each Unitholder of record owning, as of such date, 2,500 Units,
to elect to redeem his Units at the net asset value on the Termination
Date and to receive, in partial payment of the Redemption Price per
Unit, an in-kind distribution of such Unitholder's pro rata share of
the Securities, to the extent of whole shares. The Trustee will honor
duly executed requests for such in-kind distribution received by the
close of business on the Termination Date. Redemption of the Units of
Unitholders electing such in-kind distribution shall be
688576.1
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<PAGE>
made on the third business day following the Termination Date and
shall consist of (1) such Unitholder's pro rata share of Securities
(valued as of the Termination Date) to the extent of whole shares and
(2) cash equal to the balance of such Unitholder's Redemption Price.
Unitholders who do not effectively request an in-kind distribution
shall receive their distribution upon termination in cash. The Trustee
shall distribute the Unitholder's Securities to the account of the
Unitholder's bank or broker-dealer at Depositary Trust Company. An
in-kind distribution shall be reduced by customary transfer and
registration charges incurred by the Trustee."
(h) Section 9.2 of the Agreement is further amended by adding the
following paragraph after the sixth paragraph of such Section 9.2:
"In the event that the Depositors direct the Trustee that certain
Securities will be sold to a new series of the Trust (a "New Series"),
the Depositors will certify to the Trustee, within five days of each
sale from a Trust to a New Series, (1) that the transaction is
consistent with the policy of both the Trust and the New Series, as
recited in their respective registration statements and reports filed
under the Act, (2) the date of such transaction and (3) the closing
sales price on the national securities exchange for the sale date of
the securities subject to such sale. The Trustee will then countersign
the certificate, unless the Trustee disagrees with the closing sales
price listed on the certificate, whereupon the Trustee will promptly
inform the Depositors orally of any such disagreement and return the
certificate within five days to the Depositors with corrections duly
noted. Upon the Depositors' receipt of a corrected certificate, if the
Depositors verify the corrected price by reference to an independently
published list of closing sales prices for the date of the
transactions, the Depositors will ensure that the price of Units of
the New Series, and distributions to holders of the Trust with regard
to redemption of their Units or termination of the Trust, accurately
reflect the corrected price. To the extent that the Depositors
disagree with the Trustee's corrected price, the Depositors and the
Trustee will jointly determine the correct sales price by reference to
a mutually agreeable, independently published list of closing sales
prices for the date of the transaction. The Depositors and Trustee
will periodically review the procedures for sales and make such
changes as they deem necessary, consistent with Rule 17a-7(e)(2).
Finally,
688576.1
-5-
<PAGE>
records of the procedures and of each transaction will be maintained
as provided in Rule 17a-7(f)."
(i) Section 9.2 of the Agreement is further amended by deleting the
last paragraph thereof and by adding the following paragraph in its place:
"Upon the Depositors' request, the Trustee will include in the
written notice to be sent to Unitholders referred to in the fourth
paragraph of this section a form of election whereby Unitholders may
express interest in investing their terminating distribution in units
of another series of the Schwab Trusts (the "New Series"). The Trustee
will inform the Depositors of all Unitholders who, within the time
period specified in such notice, express such interest. The Depositors
will provide to such Unitholders applicable sales material with
respect to the New Series and a form, acceptable to the Trustee,
whereby a Unitholder may appoint the Distribution Agent the
Unitholder's agent to apply the Unitholder's distribution for the
acquisition of a unit or units of the New Series (a "Rollover"). Such
form will specify, among other things, the time by which it must be
returned to the Trustee in order to be effective and the manner in
which such purchase shall be made. Redemption of the Units of the
Unitholders electing such Rollover shall be made by distribution to
the Distribution Agent on behalf of redeeming Unitholder on a date on
or prior to the Termination Date selected by the Depositors and
specified in the notice (the "Rollover Date") and shall consist of (1)
such Unitholder's pro rata share of Securities (valued as of the
Rollover Date) and (2) cash equal to the balance of the Unitholder's
Redemption Price. The Distribution Agent will dispose of such assets
in accordance with the provisions of the Distribution Agency
Agreement. In the event that the Depositors determine that an in-kind
deposit into the New Series pursuant to Section 1.02 of the
Distribution Agency Agreement will not be permitted, the Units owned
by the Unitholders electing investment in a New Series will be
redeemed pursuant to Section 5.2(a) and the above-described notice
will include a form, acceptable to the Trustee, whereby a Unitholder
may appoint the Trustee the Unitholder's agent to apply the
Unitholder's cash distribution for the purchase of a unit or units of
the New Series. This paragraph shall not obligate the Depositors to
create any New Series or to provide any such investment election."
Section 2. This Reference Trust Agreement may be amended and modified
by Addendums, attached hereto, evidencing
688576.1
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<PAGE>
the purchase of Additional Securities which have been deposited to effect an
increase over the number of Units initially specified in Part II of this
Reference Trust Agreement ("Additional Closings"). The Depositors and Trustee
hereby agree that their respective representations, agreements and
certifications contained in the Closing Memorandum dated March 3, 1998, relating
to the initial deposit of Securities continue as if such representations,
agreements and certifications were made on the date of such Additional Closings
and with respect to the deposits made therewith, except as such representations,
agreements and certifications relate to their respective By-Laws and as to which
they each represent that their has been no amendment affecting their respective
abilities to perform their respective obligations under the Indenture.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
Section 1. The following special terms and conditions are hereby
agreed to:
(a) The Securities (including Contract Securities) listed in the
Prospectus relating to this series of Equity Securities Trust (the "Prospectus")
have been deposited in the Trust under this Agreement (see "Portfolio" in Part A
of the Prospectus which for purposes of this Indenture and Agreement is the
Schedule of Securities or Schedule A).
(b) The number of Units delivered by the Trustee in exchange for the
Securities referred to in Section 2.3 is 14,966.
(c) For the purposes of the definition of Unit in item (24) of Section
1.1, the fractional undivided interest in and ownership of the Trust initially
is 1/14966 as of the date hereof.
(d) The term Record Date shall mean the fifteenth day of June and
December commencing on June 15, 1998.
(e) The term Distribution Date shall mean the last business day of
June and December commencing on June 30, 1998.
(f) The First Settlement Date shall mean March 6, 1998.
(g) For purposes of Section 6.1(g), the liquidation amount is hereby
specified to be 40% of the aggregate value of the Securities at the completion
of the Deposit Period.
(h) For purposes of Section 6.4, the Trustee shall be paid per annum
an amount computed according to the following
688576.1
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<PAGE>
schedule, determined on the basis of the number of Units outstanding as of the
Record Date preceding the Record Date on which the compensation is to be paid,
provided, however, that with respect to the period prior to the first Record
Date, the Trustee's compensation shall be computed at $.92 per 100 Units:
rate per 100 units number of Units outstanding
$0.92 5,000,000 or less
$0.86 5,000,001 - 10,000,000
$0.80 10,000,001 - 20,000,000
$0.68 20,000,001 or more
(i) For purposes of Section 7.4, the Depositors' maximum annual
supervisory fee is hereby specified to be $.25 per 100 Units outstanding.
(j) The Termination Date shall be April 8, 1999 or the earlier
disposition of the last Security in the Trust.
(k) The fiscal year for the Trust shall end on December 31 of each
year.
(l) For purposes of Section 3.15, the Trust will have a Deferred Sales
Charge as specified in and as permitted by the Prospectus.
IN WITNESS WHEREOF, the parties hereto have caused this Reference
Trust Agreement to be duly executed on the date first above written.
[Signatures on separate pages]
688576.1
-8-
<PAGE>
CHARLES SCHWAB & CO, INC.
Depositor
By: /s/ Jim White
Authorized Signator
STATE OF HAWAII )
: ss:
COUNTY OF MAUI )
On this 26th day of February, 1998, before me personally appeared
James C. White, to me known, who being by me duly sworn, said that he is an
Authorized Signator of Charles Schwab & Co., Inc. the Depositor, one of the
corporations described in and which executed the foregoing instrument, and that
he signed his name thereto by authority of the Board of Directors of said
corporation.
Martina C. Hilldorfer
Notary Public
688576.1
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<PAGE>
REICH & TANG DISTRIBUTORS, INC.
Depositor
By: /s/ Peter DeMarco
Authorized Signator
STATE OF NEW YORK )
: ss:
COUNTY OF NEW YORK )
On this 3rd day of March, 1998, before me personally appeared Peter
DeMarco, to me known, who being by me duly sworn, said that he is an Authorized
Signator of Reich & Tang Asset Management, Inc. as General Partner of the
Depositors, one of the corporations described in and which executed the
foregoing instrument, and that he signed his name thereto by authority of the
Board of Directors of said corporation.
/s/ Teresa Scilla
Notary Public
688576.1
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<PAGE>
THE CHASE MANHATTAN BANK
Trustee
By: /s/ Rosalia Raviele
Vice President
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK )
On this 3rd day of March, 1998, before me personally appeared Rosalia
Raviele, to me known, who being by me duly sworn, said that he is an Authorized
Signator of The Chase Manhattan Bank, one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation and that he signed his name thereto by like authority.
Ada Iris Vega
Notary Public
688576.1
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BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
March 3, 1998
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, New York 10020
Re: Schwab Trusts, Schwab Ten Trust, 1998 Series A
Dear Sirs:
We have acted as special counsel for Charles Schwab & Co., Inc. and
Reich & Tang Distributors, Inc., as Depositors, Sponsors and Principal
Underwriters (collectively, the "Depositors") of Schwab Trusts, Schwab Ten
Trust, 1998 Series A (the "Trust") in connection with the issuance by the Trust
of units of fractional undivided interest (the "Units") in the Trust. Pursuant
to the Trust Agreements referred to below, the Depositors have transferred to
the Trust certain securities and contracts to purchase certain securities
together with an irrevocable letter of credit to be held by the Trustee upon the
terms and conditions set forth in the Trust Agreements. (All securities to be
acquired by the Trust are collectively referred to as the "Securities").
In connection with our representation, we have examined copies of the
following documents relating to the creation of the Trust and the issuance and
sale of the Units: (a) the Trust Indenture and Agreement and related Reference
Trust Agreement, each of even date herewith, relating to the Trust (collectively
the "Trust Agreements") among the Depositors and The Chase Manhattan Bank, as
Trustee; (b) the Notification of Registration on Form N-8A
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors, Inc.
March 3, 1998
and the Registration Statement on Form N-8B-2, as amended, relating to the
Trust, as filed with the Securities and Exchange Commission (the "Commission")
pursuant to the Investment Company Act of 1940 (the "1940 Act"); (c) the
Registration Statement on Form S-6 (Registration No. 333-44589) filed with the
Commission pursuant to the Securities Act of 1933 (the "1933 Act"), and all
Amendments thereto (said Registration Statement, as amended by said Amendment(s)
being herein called the "Registration Statement"); (d) the proposed form of
final Prospectus (the "Prospectus") relating to the Units, which is expected to
be filed with the Commission this day; (e) certified resolutions of the Board of
Directors of Reich & Tang Distributors, Inc. and of the Board of Directors of
Charles Schwab & Co., Inc. authorizing the execution and delivery by the
Depositors of the Trust Agreements and the consummation of the transactions
contemplated thereby; (f) the Certificate of Incorporation of Reich & Tang
Distributors, Inc.; (g) the Restated Articles of Incorporation, the Certificate
of Amendment of Articles of Incorporation and the Amended and Restated Bylaws of
Charles Schwab & Co., Inc.; and (h) a certificate of an authorized officer of
Reich & Tang Distributors, Inc. with respect to certain factual matters
contained therein.
We have examined the Order of Exemption from certain provisions of
Sections 11(a) and 11(c) of the 1940 Act, filed on behalf of Reich & Tang
Distributors L.P.; Equity Securities Trust (Series 1, Signature Series and
Subsequent Series), Mortgage Securities Trust (CMO Series 1 and Subsequent
Series), Municipal Securities Trust, Series 1 (and Subsequent Series) (including
Insured Municipal Securities Trust, Series 1 (and Subsequent Series and 5th
Discount Series and Subsequent Series)); New York Municipal Trust (Series 1 and
Subsequent Series); and A Corporate Trust (Series 1 and Subsequent Series)
granted on October 9, 1996. In addition, we have examined the Order of Exemption
from certain provisions of Sections 2(a)(32), 2(a)(35), 22(d) and 26(a)(2) of
the 1940 Act and Rule 22C-1 thereunder, filed on behalf of Reich & Tang
Distributors L.P.; Equity Securities Trust; Mortgage Securities Trust; Municipal
Securities Trust (including Insured Municipal Securities Trust); New York
Municipal Trust; A Corporate Trust; Schwab Trusts; and all presently outstanding
and subsequently issued series of these trusts and all subsequently issued
series of unit investment trusts sponsored by Reich & Tang Distributors L.P.
granted on October 29, 1997.
We have not reviewed the financial statements, compilation of the
Securities held by the Trust, or other financial or statistical data contained
in the Registration Statement and the Prospectus, as to which you have been
furnished with the reports of the accountants appearing in the Registration
Statement and the Prospectus.
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors, Inc.
March 3, 1998
In addition, we have assumed the genuineness of all agreements,
instruments and documents submitted to us as originals and the conformity to
originals of all copies thereof submitted to us. We have also assumed the
genuineness of all signatures and the legal capacity of all persons executing
agreements, instruments and documents examined or relied upon by us.
Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations under
equitable principles governing the availability of equitable remedies.
We are not admitted to the practice of law in any jurisdiction but the
State of New York and we do not hold ourselves out as experts in or express any
opinion as to the laws of other states or jurisdictions except as to matters of
Federal and Delaware corporate law.
Based exclusively on the foregoing, we are of the opinion that under
existing law:
(1) The Trust Agreements have been duly authorized and entered into by
an authorized officer of each of the Depositors and is a valid and binding
obligation of the Depositors in accordance with their respective terms.
(2) The registration of the Units on the registration books of the
Trust by the Trustee has been duly authorized by the Depositors in accordance
with the provisions of the Trust Agreements and issued for the consideration
contemplated therein, will constitute fractional undivided interests in the
Trust, will be entitled to the benefits of the Trust Agreements, and will
conform in all material respects to the description thereof contained in the
Prospectus. Upon payment of the consideration for the Units as provided in the
Trust Agreements and the Registration Statement, the Units will be fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus under the headings "Tax Status" and "Legal Opinions". We
authorize you to deliver copies of this opinion to the Trustee and the Trustee
may rely on this opinion as fully and to the same extent as if it had been
addressed to it.
648314.1
<PAGE>
Charles Schwab & Co., Inc.
Reich & Tang Distributors, Inc.
March 3, 1998
This opinion is intended solely for the benefit of the addressees and
the Trustee in connection with the issuance of the Units of the Trust and may
not be relied upon in any other manner or by any other person without our
express written consent.
Very truly yours,
Battle Fowler LLP
648314.1
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date of deposit and is qualified in its entirety
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