<PAGE>
Pursuant to rule 497(b)
Registration No. 333-64293
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CHARLES SCHWAB
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SCHWAB TRUSTS
SCHWAB TEN TRUST, 1998 SERIES C
The Trust is a unit investment trust designated Schwab Ten Trust, 1998 Series
C (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.
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The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
PROSPECTUS PART A DATED DECEMBER 10, 1998
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 9, 1998:*
INITIAL DATE OF DEPOSIT: December 10,
1998
<TABLE>
<S> <C>
AGGREGATE VALUE OF SECURITIES $ 149,805
NUMBER OF UNITS.................. 14,998
FRACTIONAL UNDIVIDED INTEREST IN
TRUST SECURITIES................ 1/14,998
PUBLIC OFFERING PRICE PER 100 UNITS
Aggregate Value of Securities in
Trust........................... $ 149,805
Plus Estimated Organization
Costs**........................ $ 181
Divided By 14,998 Units (times
100)
Public Offering Price per 100
Units***+...................... $1,000.00
SPONSORS' REPURCHASE PRICE AND
REDEMPTION PRICE PER 100
UNITS++......................... $ 987.50
EVALUATION TIME: 4:00 p.m. New York
Time (or earlier close of the New
York Stock Exchange).
MINIMUM INCOME OR PRINCIPAL
DISTRIBUTION: $1.00 per 100 Units
LIQUIDATION PERIOD: Beginning on the
Termination Date and continuing for
40 days.
MINIMUM VALUE OF TRUST: The Trust may
be terminated if the value of the
Trust is less than 40% of the
aggregate value of the Securities at
the completion of the Deposit
Period.
TERMINATION DATE: January 18, 2000 or
the disposition of the last Security
in the Trust.
MANDATORY TERMINATION DATE: The last
day of the Liquidation Period.
TRUSTEE: The Chase Manhattan Bank
TRUSTEE'S FEE: $.74 per 100 Units
outstanding
OTHER FEES AND EXPENSES: $.11 per 100
Units outstanding
SPONSORS: Charles Schwab & Co., Inc.
and Reich & Tang Distributors, Inc.
AGENT FOR SPONSORS: Reich & Tang
Distributors, Inc.
SPONSORS' PORTFOLIO SUPERVISORY,
BOOKKEEPING AND ADMINISTRATIVE
FEE: Maximum of $.25 per 100 Units
outstanding (see "Trust Expenses and
Charges" in Part B).
RECORD DATES: December 15 and June 15
DISTRIBUTION DATES: December 31 and
June 30
ROLLOVER NOTIFICATION DATE****:
December 31, 1999 or another date as
determined by the Sponsors.
MONTHLY DEFERRED SALES CHARGE PAYMENT
DATES: March 10, 1999 and the first
business day of each month
thereafter.
SEMI-ANNUAL DEFERRED SALES CHARGE
PAYMENT DATES: June 30, 1999 and
December 31, 1999.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Schwab
Schwab Fee-Based Account/Strategic
CUSIP NUMBERS: Cash: 808523344 Accounts: Ten Investors:
Reinvestment: 808523351 Cash: 808523328 Cash: 808523302
Reinvestment: 808523336 Reinvestment: 808523310
</TABLE>
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*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.
**Investors will reimburse the Sponsors, on a per 100 Units basis, for all
or a portion of the costs incurred in organizing and offering the Trust
(collectively, the "organization costs") -- including costs of preparing the
registration statement, the trust indenture and other closing documents,
registering units with the SEC and the states and the initial audit of the
Trust's portfolios. The estimated organization costs will be paid to the
Sponsors from the assets of the Trust as of the close of the initial public
offering period. To the extent that actual organization costs are less than
the estimated amount, only the actual organization costs will be deducted from
the assets of the Trust. To the extent that actual organization costs are
greater than the estimated amount, only the estimated organization costs
included in the Public Offering Price will be reimbursed to the Sponsors.
A-2
<PAGE>
***A maximum Deferred Sales Charge of $12.50 per 100 Units (1.25% of the
Initial Public Offering Price) will be paid through deductions subsequent to
the Initial Date of Deposit as described under "Deferred Sales Charge". See
"Public Offering -- Discounts" in Part B for a description of reduced deferred
sales charges for certain investors. (See "Public Offering -- Offering
Price".) On a repurchase or redemption of Units before the last Deferred Sales
Charge Payment Date, any remaining Deferred Sales Charge payments will be
deducted from the proceeds. Units purchased pursuant to the Reinvestment Plan
are subject to that portion of the Deferred Sales Charge remaining at the time
of reinvestment (see "Reinvestment Plan").
****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").
+Except for the amount representing the estimated organization costs, 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 25,000 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. As of the close of the initial offering period,
the Sponsors' Repurchase Price and Redemption Price per 100 Units for each
Trust will be reduced to reflect the payment of the organization costs to the
Sponsors. Therefore, the amount of the Repurchase Price and Redemption Price
per 100 Units received by a Unitholder will include the portion representing
organization costs only when such Units are tendered for redemption prior to
the close of the initial offering period. See "Liquidity -- Trustee
Redemption" in Part B.
A-3
<PAGE>
FEE TABLE
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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.
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<TABLE>
<CAPTION>
MAXIMUM REDUCED
DEFERRED SALES CHARGE DEFERRED SALES CHARGE+
--------------------- ----------------------
UNITHOLDER TRANSACTION As a % of
EXPENSES As a % of Initial Amount per Initial Amount per
Offering Price 100 Units Offering Price 100 Units
----------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Deferred Sales Charge
per Year.............. 1.25%* $12.50 1.00%** $10.00
----- ------ ----- ------
Maximum Sales Charge
Imposed Per Year on
Reinvested Dividends.. 1.25%*** $12.50 1.00%*** $10.00
===== ====== ===== ======
Estimated Organization
Costs................. .121% $1.21 .121% $1.21
===== ===== ===== =====
<CAPTION>
ESTIMATED ANNUAL FUND As a % of Amount per As a % of Amount per
OPERATING EXPENSES Net Assets 100 Units Net Assets 100 Units
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trustee's Fee.......... .074% $.74 .074% $.74
Other Operating
Expenses.............. .011% .11 .011% .11
Portfolio Supervision,
Bookkeeping and
Administrative Fees.. .025% .25 .025% .25
----- --- ----- ---
Total................. .110% $1.10 .110% $1.10
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES
--------
MAXIMUM DEFERRED SALES CHARGE EXAMPLE: Cumulative Expenses Paid for Period:
------------------------------------
1 year 3 years
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<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming the Trust operating expense ratio of
.110% and a 5% annual return on the investment throughout the
periods...................................................... $15 $41
<CAPTION>
REDUCED DEFERRED SALES CHARGE EXAMPLE: Cumulative Expenses Paid for Period:
------------------------------------
1 year 3 years
------ -------
<S> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming the Trust operating expense ratio of
.110% and a 5% annual return on the investment throughout the
periods...................................................... $12 $34
</TABLE>
The Examples assume reinvestment of all dividends and distributions and
utilize 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.
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*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 March 10, 1999. 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 March 10, 1999. 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
<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 have outperformed the DJIA. As used herein, the term
"Securities" means the common stocks initially deposited in the Trust and
described in "Portfolio" in Part A and any additional common stocks acquired
and held by the Trust pursuant to the provisions of the Indenture. Further,
the Securities may appreciate or depreciate in value, dependent upon the full
range of economic and market influences affecting corporate profitability, the
financial condition of issuers and the price of equity securities in general
and the Securities in particular. Therefore, there is no guarantee that the
objective of the Trust will be achieved.
PORTFOLIO. The Portfolio contains 10 issues of common stock. 100% of the
issues are represented by the Sponsor's contracts to purchase. Based upon the
principal business of each issuer and current market values, the following
industries are represented in the Portfolio: Auto Manufacturing, 10.00%;
Banking and Finance, 10.02%; Chemical Products, 9.87%; Consumer Products,
10.06%; Machinery, 10.01%; Manufacturing, 10.02%; Oil, 19.96%; Paper and
Forest Products, 9.96%; and Photography, 10.10%.
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. In addition,
during the initial offering period, cash in an amount sufficient to pay the
per Unit portion of all or a part of the estimated organization and offering
costs (collectively, "organization costs") of the Trust will be added to the
Public Offering Price per 100 Units. 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 March 10,
1999 (and the first business day of each month thereafter) ($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, 1999 and December
31, 1999 ($4.50 or $2.00 total) (the "Semi-Annual Charge"). See "Public
Offering -- Discounts" in Part B for a description of reduced
A-5
<PAGE>
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 Account) as of two business days prior to
the Initial Date of Deposit per 100 Units was $21.90. This estimate will vary
with changes in the Trust's fees 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 period. 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 forty-day period commencing on the Termination Date
(the "Liquidation Period"), Securities will 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, (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
A-6
<PAGE>
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 January
18, 2000, Unitholders whose purchase of Units settles after January 15, 1999,
will have no assurance of realizing long-term capital gains (see "Tax Status"
in Part B). Unitholders should consult their own tax advisers in this regard.
ROLLOVER OPTION. Unitholders may elect to roll over their terminating
distributions into the next available New Trust at a reduced deferred sales
charge. Rollover Unitholders must make this election on or prior to the
Rollover Notification Date. 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 C. 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
<PAGE>
SCHWAB TEN TRUST,
1998 SERIES C
STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 9, 1998
ASSETS
<TABLE>
<S> <C>
Investment in Securities -- Sponsors' Contracts to Purchase
Underlying Securities Backed by Letter of Credit (cost $149,805)
(Note 1)............................................................ $149,805
Cash................................................................... 181
--------
Total.................................................................. $149,986
========
LIABILITIES AND INTEREST OF UNITHOLDERS
Reimbursement to Sponsors for Organization Costs (Note 2).............. $ 181
--------
Interest of Unitholders -- Units of Fractional
Undivided Interest Outstanding (1998 Series C: 14,998 Units)......... 149,805
--------
Total.................................................................. $149,986
========
Net Asset Value per Unit (3)........................................... $ 9.99
========
</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 C (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 December 9, 1998. The Trust will terminate
on January 18, 2000 or can be terminated earlier under certain circumstances
as further described in the Prospectus.
(2) A portion of the Public Offering Price consists of cash in an amount
sufficient to reimburse the Sponsor for the per Unit portion of all or a part
of the costs of establishing the Trust. These costs have been estimated at
$1.21 per 100 Units for the Trust. A payment will be made as of the close of
the initial public offering period to an account maintained by the Trustee
from which the obligation of the investors to the Sponsors will be satisfied.
To the extent that actual organization costs are less than the estimated
amount, only the actual organization costs will be deducted from the assets of
the Trust.
(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 $100,000,000, the estimated
maximum total Deferred Sales Charge would be $1,250,000. To the extent that
Unitholders pay a reduced Deferred Sales Charge or the Trust is larger or
smaller, the estimate may vary.
A-8
<PAGE>
SCHWAB TEN TRUST,
1998 SERIES C
PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 9, 1998
<TABLE>
<CAPTION>
MARKET
VALUE OF
STOCKS AS A
NUMBER PERCENTAGE CURRENT MARKET COST OF
PORTFOLIO OF TICKER OF THE DIVIDEND VALUE PER SECURITIES TO
NO. SHARES NAME OF ISSUER(1) SYMBOL TRUST(2) YIELD(3) SHARE THE TRUST(4)
- --------- ------ ----------------- ------ ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stocks:
1. 312 Caterpillar Inc. CAT 10.01% 2.50% $48.0625 $ 14,995
2. 173 Chevron Corporation CHV 9.94 2.84 86.0625 14,889
3. 273 E.I. du Pont de Nemours and Co. DD 9.87 2.58 54.1875 14,793
4. 209 Eastman Kodak Company EK 10.10 2.43 72.3750 15,126
5. 203 Exxon Corporation XON 10.02 2.22 73.9375 15,009
6. 217 General Motors Corporation GM 10.00 2.90 69.0625 14,987
7. 351 International Paper Company IP 9.96 2.35 42.5000 14,918
8. 144 J.P. Morgan & Company JPM 10.02 3.65 104.1875 15,003
9. 193 Minnesota Mining & Manufacturing MMM 10.02 2.83 77.7500 15,006
Company
10. 277 Philip Morris Companies, Inc. MO 10.06 3.23 54.4375 15,079
------ --------
Total Investment in Securities 100.00% $149,805
====== ========
</TABLE>
FOOTNOTES TO PORTFOLIO OF INVESTMENTS
(1) Contracts to purchase the Securities were entered into on December 9,
1998. All such contracts are expected to be settled on or about the First
Settlement Date of the Trust which is expected to be December 15, 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
December 9, 1998.
(4) Evaluation of Securities by the Trustee was made on the basis of closing
sales prices at the Evaluation Time on December 9, 1998. The Sponsors'
Purchase Price was $149,805.
The accompanying notes form an integral part of the Financial Statements.
A-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE UNITHOLDERS, SPONSORS AND TRUSTEE
SCHWAB TEN TRUST, 1998 SERIES C
We have audited the accompanying statement of Financial Condition of Schwab
Ten Trust, 1998 Series C, including the Portfolio of Investments, as of
December 9, 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 December 9, 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 C, at December 9, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
December 9, 1998
A-10
<PAGE>
- --------------------------------------------------------------------------------
Charles Schwab
- --------------------------------------------------------------------------------
SCHWAB TRUSTS
SCHWAB TEN TRUST, 1998 SERIES C
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 and cash 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
B-1
<PAGE>
create additional Units, maintaining to the extent practicable the original
proportionate relationship of the number of shares of each Security in the
Trust portfolio on the Initial Date of Deposit. These additional 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, 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.
B-2
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Stocks Currently Comprising the DJIA
------------------------------------
<C> <S>
AT&T Corporation Hewlett-Packard Company
International Business Machines
Allied Signal Corporation
Aluminum Company of America International Paper Company
American Express Company Johnson & Johnson
Boeing Company J.P. Morgan & Company, Inc.
Caterpillar Inc. McDonald's Corporation
Chevron Corporation Merck & Company, Inc.
Minnesota Mining & Manufacturing
Citigroup Inc. 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 Union Carbide Corporation
General Electric Company United Technologies Corporation
General Motors Corporation Wal-Mart Stores, Inc.
Goodyear Tire & Rubber Company Walt Disney Company
</TABLE>
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.
B-3
<PAGE>
Although the Schwab Ten Trust was not available until this year, during the
last 25 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 have outperformed the cumulative returns of the DJIA. The Strategic
Ten underperformed the DJIA in certain years. Also, investors in the Trust may
not realize as high a total return as on a direct investment in the Strategic
Ten since the Trust has sales charges and expenses and may not be fully
invested at all times. Unit prices fluctuate with the value of the underlying
stocks, and there is no assurance that dividends on these stocks will be paid
or that the Units will appreciate in value.
B-4
<PAGE>
The following table compares the actual performance of the DJIA and
approximately equal values of the Strategic Ten Strategy in each of the past
25 years, as of December 31 in each of these years:
COMPARISON OF TOTAL RETURNS(/1/)
<TABLE>
<CAPTION>
DOW JONES
INDUSTRIAL
YEAR ENDED STRATEGIC TEN(/2/) AVERAGE (DJIA)
---------- ------------------ --------------
<S> <C> <C>
1973 3.90% -13.10%
1974 -1.30 -23.10
1975 55.90 44.40
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 21.60 24.70
</TABLE>
- ---------------------
(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 stocks will be paid or that the Units will appreciate in
value.
B-5
<PAGE>
The contracts to purchase Securities deposited initially in the Trust are
expected to settle in three business days, in the ordinary manner for such
Securities. Settlement of the contracts for Securities is thus expected to
take place prior to the settlement of purchase of Units on the Initial Date of
Deposit.
SUBSTITUTION OF SECURITIES. In the event of a failure to deliver any
Security that has been purchased for the Trust under a contract ("Failed
Securities"), the Sponsors are authorized under the Trust Agreement to direct
the Trustee to acquire other securities ("Substitute Securities") to make up
the original corpus of the Trust.
The Substitute Securities must be purchased within 20 days after the sale of
the portfolio Security or delivery of the notice of the failed contract. Where
the Sponsors purchase Substitute Securities in order to replace Failed
Securities, (i) the purchase price may not exceed the purchase price of the
Failed Securities and (ii) the Substitute Securities must be substantially
similar to the Failed Securities. Such selection may include or be limited to
Securities previously included in the portfolio of the Trust. No assurance can
be given that the Trust will retain its present size and composition for any
length of time.
The Trustee shall notify all Unitholders of the acquisition of the
Substitute Security, within five days thereafter, and the Trustee shall, on
the next Distribution Date which is more than 30 days thereafter, make a pro
rata distribution of the amount, if any, by which the cost to the Trust of the
Failed Security exceeded the cost of the Substitute Security. In the event no
reinvestment is made, the proceeds of the sale of Securities will be
distributed to Unitholders as set forth under "Rights of Unitholders--
Distributions." In addition, if the right of substitution shall not be
utilized to acquire Substitute Securities in the event of a failed contract,
the Sponsors will cause to be refunded the sales charge attributable to such
Failed Securities to all Unitholders, and distribute the principal and
dividends, if any, attributable to such Failed Securities on the next
Distribution Date. The proceeds from the sale of a Security or the exercise of
any redemption or call provision will be distributed to Unitholders except to
the extent such proceeds are applied to meet redemptions of Units. (See
"Liquidity--Trustee Redemption.")
RISK CONSIDERATIONS
FIXED PORTFOLIO. The value of the Units will fluctuate depending on all of
the factors that have an impact on the economy and the equity markets. These
factors similarly impact the ability of an issuer to distribute dividends.
Unlike a managed investment company in which there may be frequent changes in
the portfolio of securities based upon economic, financial and market
analyses, securities of a unit investment trust, such as the Trust, are not
subject to such frequent changes based upon continuous analysis. All the
Securities in the Trust are liquidated during a seven-day period at the
termination of the approximately one-year life of the Trust. Since the Trust
will not sell Securities in response to ordinary market fluctuation, but only
at the Trust's termination or upon the occurrence of certain events (see
"Trust Administration--Portfolio Supervision") the amount realized upon the
sale of the Securities may not be the highest price attained by an individual
Security during the life of the Trust. Some of the Securities in the Trust may
also be owned by other clients of the Sponsors and their affiliates. However,
because these clients may have differing investment objectives, the Sponsors
may sell certain Securities from those accounts in instances where a sale by
the Trust would be impermissible, such as to maximize return by taking
advantage of market fluctuations. Investors should consult with their own
financial advisers prior to investing in the Trust to determine its
suitability. (See "Trust Administration--Portfolio Supervision" below.)
B-6
<PAGE>
ADDITIONAL SECURITIES. Investors should be aware that in connection with the
creation of additional Units subsequent to the Initial Date of Deposit, the
Sponsors may deposit Additional Securities, contracts to purchase Additional
Securities or cash (or letter of credit in lieu of cash) with instructions to
purchase Additional Securities, in each instance maintaining the original
proportionate relationship, subject to adjustment under certain circumstances,
of the numbers of shares of each Security in the Trust. To the extent the
price of a Security increases or decreases between the time cash is deposited
with instructions to purchase the Security and the time the cash is used to
purchase the Security, Units may represent less or more of that Security and
more or less of the other Securities in the Trust. In addition, brokerage fees
(if any) incurred in 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 those 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
B-7
<PAGE>
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.
YEAR 2000 ISSUE. Many existing computer programs use only two digits to
identify a year in the date field and were designed and developed without
considering the impact of the upcoming change in the century. Therefore, for
example, the year "2000" would be incorrectly identified as the year "1900".
If not corrected, many computer applications could fail or create erroneous
results by or at the Year 2000, requiring substantial resources to remedy. The
Sponsors and Trustee believe that the "Year 2000" problem is material to their
business and operations and could have a material adverse effect on each of
the Sponsors' and the Trustee's results of operations and, in turn, cash
available for distribution by the Trustee. Although the Sponsors and the
Trustee are addressing the problem with respect to their business operations,
there can be no assurance that the "Year 2000" problem will be properly or
timely resolved. The "Year 2000" problem may also adversely affect issuers of
the Securities contained in the Trust to varying degrees based upon various
factors. The Sponsors are unable to predict what effect, if any, the "Year
2000" program will have on such issuers.
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. 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. In addition, during the initial offering
period a portion of the Public Offering Price per 100 Units also consists of
cash in an amount sufficient to pay the per 100 Units portion of all or a part
of the cost incurred in organizing and offering the Trust. See "Trust Expenses
and Charges." 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
B-8
<PAGE>
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 March 10, 1999 (and the first business day of each month
thereafter) and two semi-annual deductions from distributions from the Income
Account of $2.25 each on June 30, 1999 and December 31, 1999. 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
Unit, 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 Unit, the Deferred
Sales Charge will exceed 1.25%. To the extent the entire Deferred Sales Charge
has not been so deducted at the time of repurchase or redemption of the Units,
any unpaid amount will be deducted from the proceeds or in calculating an in
kind distribution. However, any remaining Deferred Sales Charge will be
refunded by the Sponsors when Units of any Schwab Ten Trust held at the time
of the death (including the death of a single joint tenant with rights of
survivorship) or disability (as defined in the Internal Revenue Code of 1986)
of a Holder are repurchased or redeemed. The Sponsors may require receipt of
satisfactory proof of the death or disability before releasing the portion of
the proceeds representing the amount waived. Units purchased pursuant to the
Reinvestment Plan are subject only to any remaining Deferred Sales Charge
deductions (see "Reinvestment Plan").
DISCOUNTS. Employees (and their immediate families) of Charles Schwab & Co.,
Inc., and Reich & Tang Distributors, 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, and
not through other broker-dealers.
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
either (i) 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 or (ii) a terminating series of the Schwab
Ten Trust who can purchase Units of the Trust in an amount not greater than
twice the value of their investment in the terminating
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Schwab Ten Trust ("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 March 10, 1999 (and the first business day of
each month thereafter) and the semi-annual deductions of $1.00 each on June
30, 1999 and December 31, 1999. The reduced Deferred Sales Charge of $8.00 per
100 Units will only be subject to the monthly charge described above.
DISTRIBUTION OF UNITS. During the initial offering period and thereafter to
the extent additional Units continue to be offered by means of this
Prospectus, Units will be distributed by the Sponsors at the Public Offering
Price. The initial offering period is thirty days after each deposit of
Securities in the Trust and the Sponsors may extend the initial offering
period for successive thirty-day periods.
The Sponsors intend to qualify the Units for sale in substantially all
States.
SPONSORS' PROFITS. The Sponsors will receive a combined gross underwriting
commission equal to up to $12.50 per 100 Units or 1.25% of the Initial Public
Offering Price per 100 Units (equivalent to 1.266% of the net amount invested
in the Securities). Additionally, the Sponsors may realize a profit on the
deposit of the Securities in the Trust representing the difference between the
cost of the Securities to the Sponsors and the cost of the Securities to the
Trust. (See "Portfolio of Investments.") All or a portion of the Securities
initially deposited in the Trust may have been acquired through the Sponsors.
During the initial offering period and thereafter to the extent additional
Units continue to be offered by means of this Prospectus, the Sponsors may
also realize profits or sustain losses as a result of fluctuations after the
Initial Date of Deposit in the aggregate value of the Securities and hence in
the Public Offering Price received by the Sponsors for the Units. Cash, if
any, made available to the Sponsors prior to settlement date for the purchase
of Units may be used in the Sponsors' business subject to the limitations of
17 CFR 240.15c3-3 under the Securities Exchange Act of 1934 and may be of
benefit to the Sponsors.
Both upon acquisition of Securities and termination of the Trust, the
Trustee may utilize the services of the Sponsors for the purchase or sale of
all or a portion of the Securities in the Trust. The Sponsors may receive
brokerage commissions from the Trust in connection with such purchases and
sales in accordance with applicable law.
In maintaining a market for the Units (see "Sponsors Repurchase") the
Sponsors will realize profits or sustain losses in the amount of any
difference between the price at which they buy Units and the price at which
they resell such Units.
RIGHTS OF UNITHOLDERS
BOOK-ENTRY UNITS. Ownership of Units of the Trust will not be evidenced by
certificates. All evidence of ownership of the Units will be recorded in book-
entry form at The Depository Trust Company ("DTC") through an investor's
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
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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.
The amount of any dividend distribution 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
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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
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.
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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 its Units) in order to determine its initial cost for its 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 long-term if the Unitholder
has held its Units (and the Trust has held the Securities) for more than one
year. Capital gains are generally taxed at the same rates applicable to
ordinary income, although non-corporate Unitholders who realize long-term
capital gains may be subject to a reduced tax rate of 20% on such gains,
rather than the "regular" maximum tax rate of 39.6%. 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 its
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.
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
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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. 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.
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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 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.
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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 (during the initial offering period a
portion of the cash on hand includes an amount sufficient to pay the per Unit
portion of all or a part of the costs incurred in organizing and offering the
Trust, see "Trust Expenses and Charges"), (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. As of the close
of the initial offering period the Redemption Price per 100 Units will be
reduced to reflect the payment of the organization costs to the Sponsors.
Because the Securities are listed on a national securities exchange, the
Trustee may determine the value of the Securities in the Trust 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 25,000 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
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reduced by customary transfer and registration charges. The tendering
Unitholder will receive his pro rata number of whole shares of each of the
Securities comprising the Trust portfolio and cash from the Income and
Principal Accounts equal to the balance of the Redemption Price to which
the tendering Unitholder is entitled. A Unitholder who elects to receive In
Kind Distributions may incur brokerage or other transaction costs in
converting the Securities so distributed into cash subsequent to their
receipt of the Securities from the Trust. If funds in the Principal Account
are insufficient to cover the required cash distribution to the tendering
Unitholder, the Trustee may sell Securities in the manner described above.
The Trustee is irrevocably authorized in its discretion, if the Sponsors
do not elect to purchase a Unit tendered for redemption or if the Sponsors
tender a Unit for redemption, in lieu of redeeming such Unit, to sell such
Unit in the over-the-counter market for the account of the tendering
Unitholder at prices which will return to the Unitholder an amount in cash,
net after deducting brokerage commissions, transfer taxes and other
charges, equal to or in excess of the Redemption Price for such Unit. The
Trustee will pay the net proceeds of any such sale to the Unitholder on the
day he would otherwise be entitled to receive payment of the Redemption
Price.
(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 25,000 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 25,000 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
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than the purchase price originally paid by such Unitholder, depending on
the value of the Securities in the Portfolio at the time of redemption.
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.
B-18
<PAGE>
(d) The Sponsors are authorized to increase the size and number of Units
of the Trust by the deposit of Additional Securities, contracts to purchase
Additional Securities or cash or a letter of credit with instructions to
purchase Additional Securities in exchange for the corresponding number of
additional Units from time to time subsequent to the Initial Date of
Deposit, provided that the original proportionate relationship among the
number of shares of each Security established on the Initial Date of
Deposit is maintained to the extent practicable. The Sponsors may specify
the minimum numbers in which Additional Securities will be deposited or
purchased. If a deposit is not sufficient to acquire minimum amounts of
each Security, Additional Securities may be acquired in the order of the
Security most under-represented immediately before the deposit when
compared to the original proportionate relationship. If Securities of an
issue originally deposited are unavailable at the time of the subsequent
deposit, the Sponsors may (i) deposit cash or a letter of credit with
instructions to purchase the Security when it becomes available, or (ii)
deposit (or instruct the Trustee to purchase) either Securities of one or
more other issues originally deposited or a Substitute Security.
TRUST AGREEMENT AND AMENDMENT. The Trust Agreement may be amended by the
Trustee and the Sponsors without the consent of any of the Unitholders: (1) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (2) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor
governmental agency; or (3) to make such other provisions in regard to matters
arising thereunder as shall not adversely affect the interests of the
Unitholders.
The Trust Agreement may also be amended in any respect, or performance of
any of the provisions thereof may be waived, with the consent of investors
holding 66 2/3% of the Units then outstanding for the purpose of modifying the
rights of Unitholders; provided that no such amendment or waiver shall reduce
any Unitholder's interest in the Trust without his consent or reduce the
percentage of Units required to consent to any such amendment or waiver
without the consent of the holders of all Units. The Trust Agreement may not
be amended, without the consent of the holders of all Units in the Trust then
outstanding, to increase the number of Units issuable or to permit the
acquisition of any Securities in addition to or in 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
commencement of 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):
B-19
<PAGE>
1. A Unitholder whose interest in the Trust would entitle him to receive
at least one share of each underlying Security will have his Units redeemed
on commencement of the Liquidation Period by distribution of the
Unitholder's pro rata share of the net asset value of the Trust on such
date distributed in kind to the extent represented by whole shares of
underlying Securities and the balance in cash within three business days
following the commencement of the Liquidation Period. Unitholders
subsequently selling such distributed Securities will incur brokerage costs
when disposing of such Securities. Unitholders should consult their own tax
adviser in this regard;
2. to receive in cash such Unitholder's pro rata share of the net asset
value of the Trust derived from the sale by the Sponsors as the agents of
the Trustee of the underlying Securities over the Liquidation Period. The
Unitholder's pro rata share of its net assets of the Trust will be
distributed to such Unitholder within three days of the settlement of the
trade of the last Security to be sold; and/or
3. to invest such Unitholder's pro rata share of the net assets of the
Trust derived from the sale by the Sponsors as agents of the Trustee of the
underlying Securities 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 adviser 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.
B-20
<PAGE>
Depending on the amount of proceeds to be invested in Units of the New
Series and the amount of other orders for Units in the New Series, the
Sponsors may purchase a large amount of securities for the New Series in a
short period of time. The Sponsors' buying of securities may tend to raise the
market prices of these securities. The actual market impact of the Sponsors'
purchases, however, is currently unpredictable because the actual amount of
securities to be purchased and the supply and price of those securities is
unknown. A similar problem may occur in connection with the sale of Securities
during the Liquidation Period; depending on the number of sales required, the
prices of and demand for Securities, such sales may tend to depress the market
prices and thus reduce the proceeds of such sales. The Sponsors believe that
the sale of underlying Securities over the Liquidation Period is in the best
interest of a Unitholder and may mitigate the negative market price
consequences stemming from the trading of large amounts of Securities. The
Securities may be sold in fewer than seven days if, in the Sponsors' judgment,
such sales are in the best interest of Unitholders. The Sponsors, in
implementing such sales of securities on behalf of the Trustee, will seek to
maximize the sales proceeds and will act in the best interests of the
Unitholders. There can be no assurance, however, that any adverse price
consequences of heavy trading will be mitigated.
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 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.
B-21
<PAGE>
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 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, was wholly owned by NEIC Operating Partnership,
L.P. ("NEICOP"). Subsequently, on March 31, 1998, NEICOP changed its name to
Nvest Companies, L.P. ("Nvest"). The general partners of Nvest are Nvest
Corporation and Nvest L.P. As of March 31, 1998, Metropolitan Life Insurance
Company ("MetLife") owned approximately 47% of the partnership interests of
Nvest. Nvest, with a principal place of business at 399 Boylston 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).
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 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
B-22
<PAGE>
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
Investors will reimburse the Sponsors on a per 100 Units basis, for all or a
portion of the estimated costs incurred in organizing the Trust (collectively,
the "organization costs"), 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. The estimated organization
costs will be paid to the Sponsors from the assets of the Trust as of the
close of the initial offering period (which may be between 30 and 90 days). To
the extent that actual organization costs are less than the estimated amount,
only the actual organization costs will be deducted from the assets of the
Trust. To the extent that actual organization costs are greater than the
estimated amount, only the estimated organization costs included in the Public
Offering
B-23
<PAGE>
Price will be reimbursed to the Sponsors. All advertising and selling
expenses, as well as any organizational costs 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 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
B-24
<PAGE>
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.
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and certain matters
relating to federal tax law have been passed upon by Battle Fowler LLP, 75
East 55th Street, New York, New York 10022 as counsel for the Sponsors.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have
acted as counsel for the Trustee.
INDEPENDENT AUDITORS. The Statement of Financial Condition, including the
Portfolio of Investments, is included herein in reliance upon the report of
Ernst & Young LLP, independent auditors, and upon the authority of said firm
as experts in accounting and auditing.
PERFORMANCE INFORMATION. Total returns, average annualized returns or
cumulative returns for various periods of the Strategic Ten, the related index
and this Trust may be included from time to time in advertisements, sales
literature and reports to current or prospective investors. Total return shows
changes in Unit price during the period plus any dividends and capital gains
received, divided by the public offering price as of the date of calculation.
Average annualized returns show the average return for stated periods of
longer than a year. From time to time, the Trust may compare the cost of
purchasing Trust shares to the cost of purchasing the individual securities
which constitute the Strategic Ten. In addition, the Trust may compare its
deferred sales charge to the sales charges assessed on unitholders by other
unit investment trusts. Sales material may also include an illustration of the
cumulative results of like annual investments in the Strategic Ten during an
accumulation period and like annual withdrawals during a distribution period.
Figures for actual portfolios will reflect all applicable expenses and, unless
otherwise stated, the maximum deferred sales charge. No provision is made for
any income taxes payable. Similar figures may be given for this Trust applying
the Strategic Ten investment strategy to other indexes. Returns may also be
shown on a combined basis. Trust performance may be compared to performance on
a total return basis of the Dow Jones Industrial Average, the S&P 500
Composite Price Stock Index, or the average performance of mutual funds
investing in a diversified portfolio of U.S. stocks generally or growth
stocks, or performance data from Lipper Analytical Services, Inc. and
Morningstar Publications, Inc. or from publications such as Money, The New
York Times, U.S. News and World Report, Business Week, Forbes or Fortune. As
with other performance data, performance comparisons should not be considered
representative of a Trust's relative performance for any future period.
B-25
<PAGE>
No person is authorized to give any information or to make any
representations not contained in Parts A and B of 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 Trust is
registered as a unit investment trust under the Investment Company Act of 1940.
Such registration does not imply that the Trust or any of its Units have been
guaranteed, sponsored, recommended or approved by the United States or any
state or any agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any state to any person to whom it is not lawful to
make such offer in such state.
Table of Contents
<TABLE>
<CAPTION>
Title Page
- ----- ----
<S> <C>
PART A
Summary of Essential Information........................................... A-2
Statement of Financial Condition........................................... A-8
Portfolio of Investments................................................... A-9
Report of Independent Auditors............................................. A-10
PART B
The Trust.................................................................. B-1
Risk Considerations........................................................ B-6
Public Offering............................................................ B-8
Rights of Unitholders...................................................... B-10
Tax Status................................................................. B-12
Liquidity.................................................................. B-15
Trust Administration....................................................... B-18
Trust Expenses and Charges................................................. B-23
Reinvestment Plan.......................................................... B-24
Other Matters.............................................................. B-25
</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.
MKT 3245-3
Schwab Ten Trust(TM)
SCHWAB TEN TRUST,
1998 SERIES C
(A UNIT INVESTMENT TRUST)
PROSPECTUS
DATED: DECEMBER 10, 1998
SPONSORS:
CHARLES SCHWAB & CO., INC.
101 Montgomery Street
San Francisco, California 94104
800-435-4000
REICH & TANG DISTRIBUTORS, INC.
600 Fifth Avenue
New York, New York 10020
800-237-7020
TRUSTEE:
THE CHASE MANHATTAN BANK
4 New York Plaza
New York, New York 10004
