Rule 497(b)
Registration No. 33-51009
NOTE: Part A of this Prospectus May Not be
Distributed Unless Accompanies by Part B.
GABELLI VALUE FUND AND U.S. TREASURIES
EQUITY SECURITIES TRUST SERIES 4
EquiT's
The Trust is a unit investment trust designated Equity Securities Trust,
Series 4, EquiT's ("Trust"). The Sponsor is Reich & Tang Distributors L.P.
(successor Sponsor to Bear, Stearns & Co. Inc.). The objectives of the Trust
are to seek to achieve safety of capital through investment in stripped United
States Treasury issued notes or bonds paying no current interest ("Treasury
Obligations") and to attempt to provide for capital appreciation through
investment in shares of The Gabelli Value Fund Inc. (the "Fund"), a
non-diversified, open-end Management Investment Company (the Treasury
Obligations and Fund Shares collectively, the "Securities"). The objective of
the Fund is long-term capital appreciation which the Fund attempts to achieve
by investing primarily in equity securities of companies that the Fund's
investment adviser, Gabelli Funds, Inc., believes are undervalued and that by
virtue of anticipated developments or catalysts particularly applicable to
such companies may, in the adviser's judgement, achieve significant
appreciation. The allocation between the Treasury Obligations and the Fund
would seek to assure that an investor purchasing units in the Trust at
inception would at least receive back the original unit purchase price at the
termination of the Trust from the maturity value of the Treasury Obligations.
The Sponsor can not give assurance that the Trust's objectives can be
achieved. There are certain risks inherent in an investment in the Fund and
Treasury Obligations. See "Special Risk Considerations" in Part A and Part B
of this Prospectus.
Minimum Purchase: 100 Units
This Prospectus consists of two parts. Part A contains the Summary of
Essential Information including descriptive material relating to the Trust as
of December 31, 1995 (the "Evaluation Date") and audited financial statements
of the Trust, including the Portfolio as of the Evaluation Date of the Trust.
Part B contains general information about the Trust. Part A may not be
distributed unless accompanied by Part B.
Investors should read and retain both parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED APRIL 30, 1996
148298.2
<PAGE>
THE TRUST
The Trust is a unit investment trust designated Equity Securities Trust,
Series 4, EquiT's (the "Trust"). The Sponsor is Reich & Tang Distributors L.P.
(successor Sponsor to Bear, Stearns & Co. Inc.). The Trust consists of
stripped United States Treasury issued notes or bonds bearing no current
interest (the "Treasury Obligations") and shares (the "Fund Shares") of The
Gabelli Value Fund Inc. (the "Fund"), a non-diversified, open-end management
investment company, or contracts and funds for the purchase thereof (the
Treasury Obligations and the Fund Shares, collectively, the "Securities"). The
Trust contains Treasury Obligations maturing approximately 14 years from the
Date of Deposit. The objectives of the Trust are to attempt to obtain safety
of capital through investment in Treasury Obligations and to attempt to
provide for capital appreciation through investment in shares of the Fund. The
objective of the Fund is long-term capital growth which the Fund attempts to
achieve by investing primarily in equity securities of companies that the
Fund's investment adviser, Gabelli Funds, Inc., believes are undervalued and
that by virtue of anticipated developments or catalysts particularly
applicable to such companies may, in the adviser's judgment, achieve
significant appreciation. The Fund may invest in, among other things,
unregistered convertible securities, securities of issuers involved in
corporate reorganizations, warrants, rights, securities of foreign issuers and
forward commitments for securities purchased on a "when issued" or "delayed
delivery" basis. While the Fund may offer its shareholders an ability to
reinvest distributions that are payable to such shareholders, the Trust will
elect to receive all distributions declared by the Fund in cash. There is, of
course, no assurance that the Trust's objectives will be achieved.
The Trust is structured to contain a sufficient amount of Treasury
Obligations to insure that an initial investor will receive, at the maturity
of the Trust, $15.00 per unit. On the initial Date of Deposit, the Public
Offering Price, including the sales charge, will be $12.50 per Unit and
consequently Certificateholders purchasing Units on such date can anticipate
realizing proceeds at maturity of the Treasury Obligations greater than their
initial investment of $12.50 per Unit. However, an investor holding his Units
to Trust maturity or all investors if the Trust is terminated before the
Treasury Obligations mature, may suffer a loss to the extent the investor's
purchase cost of a Unit exceeds $15.00 since the capital protection is limited
to the aggregate maturity value per Unit of Treasury Obligations. An investor
who sells his Units prior to Trust maturity or all investors if the Trust is
terminated before the Treasury Obligations mature, may suffer a loss to the
extent that the price he receives upon the sale or redemption of his Units is
less than the purchase price of his Units. The price paid for a Unit may
differ from that set forth herein due to changes in the value of the
Securities in the portfolio subsequent to the Date of Deposit. There is no
assurance that a purchaser of Units on the date of the Prospectus or
subsequent to such date will receive, upon termination, his purchase price per
Unit. The Fund has not been structured to generate dividends and therefore
dividend distributions by the Trust are likely to be insignificant. The
maximization of dividend income is not an objective of the Trust. The Trust is
"concentrated" in Fund Shares, so investors should be aware that the potential
for capital appreciation is directly related to the investment performance of
the Fund itself. There are certain risks inherent in an investment in a
portfolio of Fund Shares and Treasury Obligations. See "Risk Considerations"
in this Part A and in Part B. The Trust will terminate 14 years after the
initial Date of Deposit. Upon termination, Certificateholders may elect to
receive their terminating distributions of the Trust's Treasury Obligations or
Fund Shares in cash, in the form of an in-kind distribution of the
Certificateholder's proportionate share of Treasury Obligations or may utilize
their terminating distributions to purchase units of a future series of the
Trust at a reduced sales charge. Any election made by a Certificateholder may
result in the current taxation of all or a portion of the gain, if any,
realized by a Certificateholder upon the receipt of the terminating
distribution. See "Termination" in this Part A and "Trust
Administration--Trust Termination" in Part B.
With the deposit of the Securities in the Trust on the initial Date of
Deposit, the Sponsor established a proportionate relationship among the
aggregate value of the specified Securities in the Trust. During the 90 days
subsequent to the initial Date of Deposit, the Sponsor may, but is not
obligated to, deposit from time to time additional Securities in the Trust
("Additional Securities") or contracts to purchase Additional Securities,
maintaining 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 maintain the
exact original proportionate relationship among the number of shares of
Securities in the Trust portfolio on the initial Date of Deposit with the
deposit of Additional Securities, because of, among other reasons, purchase
requirements, changes in prices, or the unavailability of Securities. Deposits
of Additional Securities in the Trust subsequent to the 90-day period
following the initial Date of Deposit must replicate exactly the proportionate
relationship between the Fund Shares and Treasury Obligations in the Trust
Portfolio at the end of the initial 90-day period. The number and identity of
Securities in the Trust will be adjusted to reflect the disposition of
Securities and/or the distribution with respect to such Securities or the
reinvestment of the proceeds distributed to Certificateholders. The portfolio
of the
A-2
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<PAGE>
Trust may change slightly based on such disposition and reinvestment.
Securities received in exchange for shares will be similarly treated.
Substitute Treasury Obligations may be acquired under specified conditions
when Treasury Obligations originally deposited in the Trust are unavailable
(see "The Trust--Substitution of Securities" in Part B). As additional Units
are issued by the Trust as a result of the deposit of Additional Securities by
the Sponsor, 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. As of the Date of Deposit, Units in the Trust
represent an undivided interest in the principal and net income of the Trust
in the ratio of one hundred Units for the indicated aggregate value of
Securities in the Trust on the Date of Deposit as is set forth in the Summary
of Essential Information (See "The Trust-- Organization" in Part B) (For the
specific number of Units in the Trust as of the Date of Deposit, see "Summary
of Essential Information" in this Part A).
The Sponsor does not act as an underwriter, manager or co-manager of a
public offering of the securities of any of the issuers in the Trust
portfolio.
THE FUND
The Fund's investment objective is long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity
securities of companies that the Fund's investment adviser believes are
undervalued and that by virtue of anticipated developments or catalysts
particularly applicable to such companies may, in the investment adviser's
judgment, achieve significant appreciation.
The Fund may invest in, among other things, unregistered convertible
securities, securities of issuers involved in corporate reorganizations,
warrants, rights, securities of foreign issuers and forward commitments for
securities purchased on a "when issued" or "delayed delivery" basis.
Convertible securities are not typically rated within the four highest
categories by the rating agencies and are, therefore, not generally considered
investment grade. There is no minimum rating that is acceptable for investment
by the Fund; however, it is the Fund's current operating policy that not more
than 35% of the Fund's portfolio will consist of debt securities considered by
the rating agencies, or, if unrated, judged by the investment adviser to be
predominantly speculative and involving major risk exposure to adverse
conditions, including securities of issuers in default. The Fund will,
however, limit its investments in securities of issuers in default, which are
included within the 35% limitation, to not more than 5% of its total assets.
These investments may involve special risks. See "Risks of Investing in Lower
Rated Securities" and "Description of Corporate Bond Ratings" in Part B. The
Fund may also purchase or sell exchange traded options, engage in short sales
of securities it owns or has the right to acquire, enter into repurchase
agreements, lend its portfolio securities to securities broker-dealers or
financial institutions and borrow money for short-term credits from banks as
may be necessary for the clearance of portfolio transactions and for temporary
or emergency purposes. Although the Fund will consistently seek to attain the
objective of long-term capital appreciation, there can be no assurance it will
be attained. The objective of the Fund may not be changed without shareholder
approval. There is, of course, no guarantee that the Fund's investment
objective will be achieved.
RISK CONSIDERATIONS
Investors should be aware of the risks which an investment in Units of
the Trust may entail. During the life of the Trust, the value of the portfolio
Securities and hence the Units may fluctuate and therefore the Public Offering
Price and Redemption Price per Unit may be more or less than the price paid by
the investor. The value of the Treasury Obligations will fluctuate inversely
with changes in interest rates and the value of Fund Shares will vary as the
value of the underlying portfolio securities of the Fund increases or
decreases. The Treasury Obligations are subject to substantially greater price
fluctuations during periods of changing interest rates than securities of
comparable quality which make periodic interest payments. See "The
Trust--Stripped U.S. Treasury Obligations." Although the Trust is structured
to return to an initial Certificateholder his purchase cost of a Unit through
the distribution of the Treasury Obligations maturity value on the mandatory
termination date of the Trust, an investor will have included the accrual of
original issue discount on such Treasury Obligations in income for Federal
income tax purposes and will have paid Federal income tax on such accrual. An
investor holding his Units to Trust maturity may suffer a loss to the extent
the investor's purchase cost of a Unit exceeds $15.00 since the capital
protection is limited to the aggregate maturity value per Unit of Treasury
Obligations. Similarly, an investor who sells his Units prior to Trust
maturity, or all investors if the Trust is terminated before the Treasury
Obligations mature, may suffer a loss to the extent that the price he receives
upon the sale or redemption of his Units is less than the purchase price of
his Units.
A-3
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<PAGE>
PUBLIC OFFERING PRICE
The Public Offering Price per 100 Units of the Trust is equal to the
aggregate offering side evaluation during the initial offering period and the
aggregate bid side evaluation thereafter of the underlying Treasury
Obligations and the net asset value of the Fund Shares (excluding any sales
charge) divided by the number of Units outstanding times 100 plus a sales
charge of 4.90% of the Public Offering Price per 100 Units or 5.152% of the net
amount invested in Securities per 100 Units. (See "Summary of Essential
Information.") Any cash held by the Trust will be added to the Public Offering
Price. For additional information regarding the Public Offering Price, the
descriptions of dividend and principal distributions, repurchase and
redemption of Units and other essential information regarding the Trust, see
the "Summary of Essential Information" for the Trust. During the initial
offering period orders involving at least 10,000 Units will be entitled to a
volume discount from the Public Offering Price. If Units had been purchased on
the Evaluation Date, the Public Offering Price would have been $1,132.98 under
the annual distribution plan. The Public Offering Price per Unit may vary on a
daily basis in accordance with fluctuations in the aggregate value of the
underlying Securities. (See "Public Offering" in Part B.) The figures above
assume a purchase of 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.
DISTRIBUTIONS
Distributions of net income (other than amortized discount) and
long-term capital gains distributions received in respect to any of the
Securities by the Trust will be made by the Trust annually on the 15th day of
January (the "Distribution Date"). (See "Rights of
Certificateholders--Distributions"). Although Certificateholders will be
required to include in income amounts of original issue discount that have
accrued during the taxable year on the Treasury Obligations, no income will be
currently distributed to the Certificateholders. (See "Tax Status" in Part B).
MARKET FOR UNITS
The Sponsor, although not obligated to do so, intends to maintain a
secondary market for the Units of the Trust after the initial public offering
has been completed. The secondary market repurchase price will be based on the
aggregate bid side evaluation of the Treasury Obligations and the net asset
value of the Fund Shares (excluding any sales charge on Fund Shares). (See
"Liquidity--Sponsor Repurchase" for a description on how the secondary market
repurchase price will be determined.) If a market is not maintained a
Certificateholder will be able to redeem his Units with the Trustee. (See
"Liquidity--Trustee Redemption" in Part B.) There can be no assurance of the
making or the maintenance of a market for any of the Securities contained in
the Trust portfolio. Notwithstanding the foregoing, the Sponsor undertakes to
maintain the secondary market during the initial public offering period. In
addition, the Trust may be restricted under the Investment Company Act of 1940
from selling Securities to the Sponsor. The price at which the Securities may
be sold to meet redemptions and the value of the Units will be adversely
affected if trading markets for the Securities are limited or absent.
TOTAL REINVESTMENT PLAN
Distributions from the Trust are made to Certificateholders annually.
The Certificateholder has the option, however, of either receiving his
distribution check, from the Trustee or participating in a reinvestment
program offered by the Sponsor in shares of The Treasurer's Fund, Inc., U.S.
Treasury Money Market Portfolio (the "Treasurer's Fund"). Gabelli-O'Connor
Fixed Income Mutual Funds Management Co. serves as the investment adviser of
the Fund and GOC Fund Distributors, Inc. serves as distributor for the Fund.
Participation in the reinvestment option is conditioned on the GOC Fund's
lawful qualification for sale in the state in which the Certificateholder is a
resident. The Plan is not designed to be a complete investment program. See
"Total Reinvestment Plan" in Part B for details on how to enroll in the Total
Reinvestment Plan and how to obtain a Treasurer's Fund prospectus.
TERMINATION
During the 60 day period prior to the Mandatory Termination Date (14
years after the Initial Date of Deposit) (the "Liquidation Period"),
Securities will begin to be sold in connection with the termination of the
Trust and all Securities will be sold by the Mandatory Termination Date. The
Sponsor will attempt to sell the Securities as quickly as they can during the
Liquidation Period without, in its judgment, materially adversely affecting
the
A-4
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<PAGE>
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 Sponsor does not
anticipate that the period will be as long as 60 days, and it could be as
short as one day, depending on the liquidity of the Securities being sold. The
liquidity of any Security depends on the daily trading volume of the Security
and the amount that the Sponsor has available for sale on any particular day.
During the Liquidation Period, Certificateholders who have not chosen to
receive distributions-in-kind will be at risk to the extent that Fund Shares
are not sold; for this reason the Sponsor will be inclined to sell the
Securities in as short a period as they can without materially adversely
affecting the price of the Securities. Fund Shares, as more fully described in
the prospectus for the Fund, will be redeemed through certain broker-dealers
and the Fund's transfer agent at the net asset value next computed after the
redemption request is received.
Certificateholders may elect one of the three options in receiving their
terminating distributions. Certificateholders may elect: (1) to receive their
pro rata share of the underlying Fund Shares in kind and the maturity value of
Treasury Obligations in cash, if they own at least 2,500 units, (2) to receive
cash upon the liquidation of their pro rata share of the underlying Securities
or (3) subject to the receipt by the Trust of an appropriate exemptive order
from the Securities and Exchange Commission, to invest the amount of cash they
would have received upon the liquidation of their pro rata share of the
underlying Securities in units of a future series of the Trust (if one is
offered) at a reduced sales charge. See "Trust Administration--Trust
Termination" in Part B for a description of how to select a termination
distribution option. Any election made by a Certificateholder may result in
the current taxation of all or a portion of the gain, if any, realized upon
the Certificateholder's receipt of the terminating distribution. See "Tax
Status of the Trust" in Part B for further discussions.
A-5
148298.2
<PAGE>
EQUITY SECURITIES TRUST, SERIES 4, EQUIT'S
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
DATE OF DEPOSIT+: January 21, 1994 EVALUATION TIME: 4:00 p.m. New York
NUMBER OF UNITS..................465,620 Time.
FRACTIONAL UNDIVIDED MINIMUM PRINCIPAL DISTRIBUTION: $1.00
INTEREST IN TRUST............1/465620 per 100 Units.
SECONDARY MARKET PUBLIC OFFERING LIQUIDATION PERIOD: Beginning 60 days prior
PRICE to the Mandatory Termination Date.
Total Aggregate Bid Price..$6,301,330 MINIMUM VALUE OF TRUST: The Trust may
Divided By # of Units be terminated if the value of the Trust is less
(times $100)..............$1,353.32 than 40% of the aggregate value of the
Plus Sales Charge of 4.90% Securities at the completion of the Deposit
of Public Offering Price.....$69.73 Period.
Public Offering Price per MANDATORY TERMINATION DATE: The
100 Units+++..............$1,423.05 earlier of August 15, 2008 or the disposition of
REDEMPTION & SPONSOR'S REPURCHASE the last Security in the Trust.
PRICE PER 100 UNITS++++.....$1,353.32 TRUSTEE: The Chase Manhattan Bank, N.A.
EXCESS OF SECONDARY MARKET PUBLIC TRUSTEE'S ANNUAL FEE++: $.93 per 100
OFFERING PRICE OVER REDEMPTION & Units outstanding.
SPONSOR'S REPURCHASE PRICE SPONSOR: Reich & Tang Distributors L.P.
PER 100 UNITS..................$69.73 EVALUATOR: Kenny S&P Evaluation Services.
EVALUATOR'S FEE FOR EACH EVALUATION
OF TREASURY OBLIGATIONS: $5.00 per
evaluation.
SPONSOR'S ANNUAL SUPERVISORY FEE:
Maximum of $.25 per 100 Units outstanding
(see "Trust Expenses and Charges" in Part B).
RECORD DATE: First of January, Annually.
DIVIDEND DISTRIBUTION DATE: Fifteenth of
January, Annually.
</TABLE>
- ------------------------
+ The Date of Deposit is the date on which the Trust Agreement was
signed and contracts to purchase Securities were initially deposited
with the Trustee.
++ Any Rule 12b-1 fees paid by the Fund's distributor to the Trustee for
performing servicing functions with respect to the Fund Shares will
be used to reduce the expenses and fees otherwise payable by the
Trust to the Trustee and any excess will be rebated to the Trust.
+++ 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.
++++ Based on bid side evaluations of underlying Treasury Obligations and
net asset value of the Fund Shares.
A-6
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INFORMATION REGARDING THE TRUST AS OF DECEMBER 31, 1995
DESCRIPTION OF PORTFOLIO*
$6,985,000 face amount of Treasury Obligations maturing on August 15,
2008 and 230,390 Fund Shares were held in the Trust on December 31, 1995. The
Treasury Obligations and the Fund Shares represent 52.52% and 47.48%,
respectively, of the total of the aggregate offering side valuation of
Treasury Obligations in the Trust and the aggregate value of Fund Shares on
December 31, 1995.
- --------------------
*Changes in the Trust Portfolio: On January 30, 1996, 450,000 shares
($212,035.50) of Zero Coupon U.S. Treasury Bonds held by the Trust (Portfolio
no. 1) were sold. On January 30, 1996, 14,734 shares ($175,334.60) of The
Gabelli Fund, Inc. held by the Trust (Portfolio no. 2) were sold. On March 12,
1996, 280,000 shares ($125,910.40) of Zero Coupon U.S. Treasury Bonds held by
the Trust (Portfolio no. 1) were sold. On March 15, 1996, 9,313 shares
($119,858.31) of The Gabelli Fund, Inc. held by the Trust (Portfolio no. 2)
were sold. From January 1, 1996 to March 22, 1996, 852,864 Units were redeemed
from the Trust.
A-7
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FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit of the Trust outstanding for the periods listed
below:
<TABLE>
<CAPTION>
Distributions of Distributions of
Net Asset* Interest During Principal During
Value the Period the Period
Period Ended Units Outstanding per 100 Units (per 100 Units) (per 100 Units)
- ------------ ----------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 31, 1994 617,000 $10.34 -0- -0-
December 31, 1995 465,620 12.93 $37.51 $746.65
</TABLE>
- --------
* Net Asset Value per 100 Units is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of units
outstanding as of the date of the Statement of Net Assets. See Note 5 of
Notes to Financial Statements for a description of the components of Net
Assets.
A-8
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<PAGE>
Independent Auditors' Report
The Sponsor, Trustee and Certificateholders
Equity Securities Trust, Series 4
EquiT's
We have audited the accompanying statement of net assets, including the
portfolio, of Equity Securities Trust, Series 4 - EquiT's as of December 31,
1995, and the related statements of operations, and changes in net assets for
the year ended December 31, 1995 and the period from January 21, 1994 (date of
initial deposit) to December 31, 1994. These financial statements are the
responsibility of the Trustee (see note 2). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equity Securities Trust, Series
4 - EquiT's as of December 31, 1995, and the results of its operations and the
changes in its net assets for the year ended December 31, 1995 and the period
from January 21, 1994 (date of initial deposit) to December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 31, 1996
<PAGE>
EQUITY SECURITIES TRUST, SERIES 4
EquiT's
Statement of Net Assets
December 31, 1995
Investments in marketable securities,
at market value (cost $5,865,415) $ 6,029,513
Excess of total liabilities over other assets (10,404)
----------
Net assets (465,620 units of fractional undivided
interest outstanding $12.93 per unit) $ 6,019,109
----------
----------
See accompanying notes to financial statements.
<PAGE>
<TABLE>
EQUITY SECURITIES TRUST, SERIES 4
EquiT's
Statements of Operations
<CAPTION>
For the Period from
January 21, 1994
For the Year Ended (date of deposit)
December 31, 1995 to December 31, 1994
------ ---------- --- --- --------------- --
<S> <C> <C>
Investment Income:
Interest Income $ 236,067 226,312
Dividend Income 484,763 4,634
---------- ---------------
Total Investment Income 720,830 230,946
Expenses:
Trustee's fees 12,121 3,349
Evaluator's fees 460 -
---------- ---------------
Investment income, net 708,249 227,597
Realized and unrealized gain (loss)
on investments:
Realized gain on securities sold 33,988 -
Unrealized appreciation (depreciation)
of investments for the period 1,302,225 (1,138,127)
---------- ---------------
Net gain (loss) on investments 1,336,213 (1,138,127)
---------- ---------------
Net increase (decrease) in
net assets resulting
from operations $ 2,044,462 (910,530)
========== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
EQUITY SECURITIES TRUST, SERIES 4
EquiT's
Statements of Changes in Net Assets
<CAPTION>
For the Period from
January 21, 1994
For the Year Ended (date of deposit) to
December 31, 1995 December 31, 1995
-- ---------- --- --------------- --
<S> <C> <C>
Operations:
Investment income, net $ 708,249 227,597
Realized gain on securities sold 33,988 -
Unrealized appreciation (depreciation)
of investments for the period 1,302,225 (1,138,127)
---------- ---------------
Net increase (decrease) in
net assets resulting
from operations 2,044,462 (910,530)
---------- ---------------
Distributions to Certificateholders:
Investment Income 23,144 -
Principal 460,683 -
Redemptions:
Investment Income - -
Principal 1,921,907 -
---------- ---------------
Total distributions
and redemptions 2,405,734 -
---------- ---------------
Net decrease (361,272) (910,530)
Value of additional units acquired
during offering period - 7,053,167
Net assets at beginning of period 6,380,381 237,744
---------- ---------------
Net assets at end of period
(including undistributed
investment income $813,348
and $227,597, respectively) $ 6,019,109 6,380,381
========== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EQUITY SECURITIES TRUST, SERIES 4
EQUIT'S
Notes to Financial Statements
December 31, 1995
(1) Organization
Equity Securities Trust Series 4, EquiT's (Trust) was organized on
January 21, 1994 by Bear, Stearns & Co. Inc. under the laws of the State
of New York by a Trust Indenture and Agreement, and is registered under
the Investment Company Act of 1940. On January 21, 1994 (date of initial
deposit) the Trust had 20,000 units outstanding. During the period from
January 21, 1994 to December 31, 1994 (the offering period) the Trust
issued an additional 597,000 units bringing total units issued to
617,000. Effective September 28, 1995, Reich & Tang Distributors L.P.
(Reich & Tang) has become the successor sponsor (Sponsor) to certain of
the unit investments trusts previously sponsored by Bear, Stearns & Co.
Inc. As successor Sponsor, Reich & Tang has assumed all of the
obligations and rights of Bear Stearns & Co. Inc., the previous sponsor.
(2) Summary of Significant Accounting Policies
Effective September 2, 1995, United States Trust Company of New York was
merged into Chase Manhattan Bank (National Association) (Chase).
Accordingly, Chase is the successor trustee of the unit investment trusts.
The Trustee has custody of and responsibility for the accounting records
and financial statements of the Trust and is responsible for establishing
and maintaining a system of internal control related thereto.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses
on the accrual basis.
The discount on the zero-coupon bonds is accreted by the interest method
over the respective lives of the bonds. The accretion of such discount is
included in interest income; however, it is not distributed until realized
in cash upon maturity or sale of the respective bonds.
Investments are carried at market value which is determined by Chase
Manhattan Bank (National Association) (Evaluator) based upon the closing
bid prices of the securities at the end of the period, except that the
market value on the date of deposit represents the cost to the Trust based
on the offering prices for investments at that date. The difference
between cost (including accumulated accretion of original issue discount
on zero-coupon bonds) and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions are
recorded on the trade date. Realized gains (losses) from securities
transactions are determined on the basis of average cost of the securities
sold or redeemed.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Trustee to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(Continued)
F-5
<PAGE>
EQUITY SECURITIES TRUST, SERIES 4
EQUIT'S
Notes to Financial Statements
(3) Income Taxes
The Trust is not subject to Federal income taxes as provided for by the
Internal Revenue Code.
(4) Trust Administration
The fees and expenses of the Trust are incurred and paid on the basis
set forth under "Trust Expenses and Charges" in Part B of this
Prospectus.
The Trust Indenture and Agreement provides for interest distributions as
often as monthly (depending upon the distribution plan elected by the
Certificateholders).
See "Financial and Statistical Information" in Part A of this Prospectus
for the amounts of per unit distributions during the year ended December
31, 1995 and the period January 21, 1994 (date of initial deposit) to
December 31, 1994.
The Trust Indenture and Agreement further requires that principal
received from the disposition of securities be distributed to
Certificateholders.
The Trust Indenture and Agreement also requires the Trust to redeem units
tendered. 151,380 units were redeemed during the year ended December 31,
1995. No units were redeemed during the period from January 21, 1994 (date
of initial deposit) to December 31, 1994.
(5) Net Assets
At December 31, 1995, the net assets of the Trust represented the
interest of Certificateholders as follows:
Original cost to Certificateholders $ 249,994
Less initial gross underwriting commission ( 12,250)
-----------
237,744
Cost of additional units acquired during the
offering period to Certificateholders 7,053,167
Cost of securities sold or called (1,788,521)
Net unrealized appreciation 164,098
Undistributed net investment income 813,348
Distributions in excess of proceeds
from bonds sold or called (460,727)
-----------
Total $ 6,019,109
=========
The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public offering price
net of the applicable sales charge on 617,000 units of fractional undivided
interest of the Trust as of the date of deposit.
Undistributed net investment income includes accumulated accretion of
original issue discount of $363,025.
F-6
<PAGE>
<TABLE>
EQUITY SECURITIES TRUST SERIES 4
EquiT's
Portfolio
December 31, 1995
<CAPTION>
Face amount/ Percentage Cost
Port- Number of of Market
folio of shares Description Fund (1) Securities Value
- ----- ------------ ------------------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1 $9,255,000 Zero Coupon U.S. Treasury 55.600% $3,080,350 $3,352,381
Bonds
Maturing August 15, 2008
2 305,291 shs. The Gabelli Value Fund 44.400% 2,785,065 2,677,132
Inc. ------ --------- ---------
($ 9.12 per Fund Share)
Total Investment in Securities 100.00% $5,865,415 $6,029,513
======== ============ ============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
EQUITY SECURITIES TRUST, SERIES 4
EQUIT'S
Footnotes to Portfolio
December 31, 1995
(1) Based on the cost of the Securities to the Trust.
F-8
<PAGE>
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY
PART A
EQUITY SECURITIES TRUST SERIES 4
GABELLI VALUE FUND
AND U.S. TREASURIES
EquiT's
PROSPECTUS PART B
Dated: April 30, 1996
THE TRUST
Organization
"Equity Securities Trust, Series 4, EquiT's" 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
Reich & Tang Distributors L.P. (successor Sponsor to Bear Stearns & Co. Inc.),
as Sponsor, The Chase Manhattan Bank, N.A., as Trustee and Kenney S&P
Evaluation Services, as Evaluator.
On the initial Date of Deposit, the Sponsor deposited with the Trustee
stripped United States Treasury issued notes or bonds paying no current return
(the "Treasury Obligations") and shares of Gabelli Value Fund Inc., a
non-diversified, open-end Management Investment Company (the "Fund Shares")
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 Sponsor the Certificates evidencing the ownership of all Units of the
Trust. The Sponsor has a limited right to substitute other securities in the
Trust portfolio in the event of a failed contract ("Substitute Securities").
See "The Trust--Substitution of Securities". The Sponsor may also, in certain
circumstances, direct the Trustee to dispose of certain Securities if the
Sponsor believes that, because of market or credit conditions, or for certain
other reasons, retention of the Security would be detrimental to
Certificateholders. (See "Trust Administration--Portfolio Supervision.")
Each "Unit" outstanding on the Evaluation Date represented an undivided
interest or pro rata share in the Securities of the Trust in the ratio of one
hundred Units for the indicated amount of the aggregate market value of the
Securities initially deposited in the Trust as is set forth in the "Summary of
Essential Information". 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
Certificateholders, which may include the Sponsor or the Underwriters, or
until the termination of the Trust Agreement.
With the deposit of the Securities in the Trust on the initial Date of
Deposit, the Sponsor established a proportionate relationship between the
maturity amounts of Treasury Obligations and the number of Fund Shares in the
Portfolio. During the 90 days subsequent to the initial Date of Deposit, the
Sponsor may deposit
261356.2
<PAGE>
additional Securities in the Trust that are substantially similar to the
Securities already deposited in the Trust ("Additional Securities") or
contracts to purchase Additional Securities, in order to create additional
Units, maintaining to the extent practicable the original proportionate
relationship between the Securities in the Trust portfolio on the initial Date
of Deposit. (Securities and Additional Securities collectively may be
hereinafter referred to as "Securities".) These additional Units 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 between the Treasury Obligations and the
Fund Shares deposited on the initial Date of Deposit because of, among other
reasons, purchase requirements, changes in prices, or unavailability of
Securities. Deposits of Additional Securities in the Trust subsequent to the
90-day period following the initial Date of Deposit must replicate exactly the
proportionate relationship between the Treasury Obligations and the Fund
Shares in the Trust Portfolio at the end of the initial 90-day period. The
number and identity of Securities in the Trust will be adjusted to reflect the
disposition of Securities and/or the receipt of a distribution with respect to
shares or the reinvestment of the proceeds distributed to Certificateholders.
The portfolio of the Trust may change slightly based on such disposition and
reinvestment. Securities received in exchange for Securities will be similarly
treated. Substitute Treasury Obligations may be acquired under specified
conditions when Treasury Obligations originally deposited in the Trust are
unavailable )see "The Trust--Substitution of Securities"). Units may be
continuously offered to the public by means of this Prospectus (see "Public
Offering-Distribution of Units") resulting in a potential increase in the
number of Units outstanding. As additional Units are issued by the Trust as a
result of the deposit of Additional Securities, 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.
Objectives
The objectives of the Trust are to seek to achieve safety of capital and
to attempt to provide capital appreciation. In addition, it is the Trust's
objective to achieve growth in income with the growth in capital. The Trust
seeks to achieve these objectives by investing primarily in a portfolio of
stripped United States Treasury issued notes or bonds paying no current
interest and shares of The Gabelli Value Fund Inc., a non- diversified,
open-end Management Investment Company. The Fund's objective is long-term
capital appreciation which the Fund attempts to achieve by investing primarily
in equity securities of companies that the Fund's investment adviser believes
are undervalued and that by virtue of anticipated developments or catalysts
particularly applicable to such companies may, in the adviser's judgment,
achieve significant appreciation, and contracts to purchase such Securities.
The allocation between the Treasury Obligations and the Fund Shares would seek
to assure that an investor purchasing units in the Trust at inception would at
least receive back the original unit purchase price at the termination of the
Trust from the maturity value of the Treasury Obligations. There can be no
assurance that the Trust's investment objectives can be achieved.
The Securities
In selecting Treasury Obligations for the Trust, the Sponsor considers
the following factors, among others: (i) the prices and yields of such
securities and (ii) the maturities of such securities. In selecting the Fund
Shares for deposit in the Trust, the following factors, among others, were
considered by the Sponsor: (i) the historical performance of the Fund and (ii)
the nature of the underlying Fund portfolio.
The Trust consists of such of the Securities listed under "Schedule of
Portfolio Securities," herein as may continue to be held from time to time in
the Trust, newly deposited Securities meeting requirements for creation of
additional Units, undistributed cash receipts from the Fund and proceeds
realized from the disposition of Securities.
Stripped U.S. Treasury Obligations. The Treasury Obligations in the portfolio
consists of United States Treasury Obligations which have been stripped by the
United States Treasury of their unmatured interest coupons or such stripped
coupons or receipts or certificates evidencing such obligations or coupons.
The
-2-
261356.2
<PAGE>
obligor with respect to the Treasury Obligations is the United States
Government. Such Treasury Obligations may include certificates that represent
rights to receive the payments that comprise a U.S. Government bond.
Stripped U.S. Treasury bonds evidence the right to receive a fixed
payment at a future date from the U.S. Government, and are backed by the full
faith and credit of the U.S. Government. The Treasury Obligations can be
purchased at a deep discount because the buyer receives only the right to
receive one fixed payment at a specific date in the future and does not
receive any periodic interest payments. The effect of owning deep discount
obligations which do not make current interest payments is that a fixed yield
is earned not only on the original investment but also, in effect, on all
discount earned during the life of the discount obligations. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable
to reinvest the income on such obligations at a rate as high as the implicit
yield on the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason, the
Treasury Obligations are subject to substantially greater price fluctuations
during periods of changing market interest rates than are securities of
comparable quality which pay interest on a current basis. Investors should be
aware that income in respect of the accrual of original issue discount on the
Treasury Obligations, although not distributed on a current basis, will be
includible by a Certificateholder as income and will be subject to income tax
on a current basis at ordinary income tax rates (see "Tax Status").
The Gabelli Value Fund Inc. The following disclosure concerning the Fund and
its affiliates has been derived from the prospectus, semi-annual report and
proxy statement of The Gabelli Value Fund Inc. While the Sponsor has not
independently verified its information, it has no reason to believe that such
information is not correct in all material respects. No representation is made
herein as to the accuracy or adequacy of such information.
The Portfolio contains shares of the Gabelli Value Fund Inc. (the "Fund").
On December 31, 1995, the net assets of the Fund were $488,144,293. The
Fund has retained an Investment Adviser, Gabelli Funds, Inc. (herein
referred to as "Gabelli" or the "Adviser").
The Fund's investment objective is long-term capital appreciation. The
Fund regards its receipt of income as an incidental consideration. The
investment objective is fundamental and may not be changed without the
approval of the holders of a majority of the Fund's shares. There is, of
course, no guarantee that the Fund will achieve its investment objective.
As a "non-diversified" investment company, the Fund is not subject to the
provisions of the 1940 Act that otherwise would limit the proportion of
its assets that may be reinvested in obligations of a single issuer.
Consequently, because the Fund may hold a relatively high proportion of
its assets in a limited number of portfolio companies, an investment in
the Fund may, under certain circumstances, present greater risk to an
investor than an investment in a diversified investment company. The Fund
intends, however, to comply with the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the "Code").
In pursuing the Fund's investment objective, the Adviser seeks companies
that it believes are undervalued and that by virtue of anticipated
developments or catalysts particularly to such companies may, in the
Adviser's judgment, achieve significant capital appreciation. In
identifying such companies, the Adviser seeks to invest in companies that,
in the public market, are selling at a significant discount to their
private market value, the value the Adviser believes informed
industrialists would be willing to pay to acquire companies with similar
characteristics. If investor attention is focused on the underlying asset
values of these companies through an emerging or anticipated development
or other catalyst, an investment opportunity to realize this private
market value may exist. Undervaluation of a company can result from a
variety of factors, such as a lack of investor recognition of (1) the
underlying value of a company's fixed assets, (2) the value of a consumer
or commercial franchise, (3) changes in the economic or financial
environment
-3-
261356.2
<PAGE>
particularly affecting a company, (4) new, improved or unique products or
services, (5) new or rapidly expanding markets, (6) technological
developments or advancements affecting a company or its products, or (7)
changes in governmental regulations, political climate or competitive
conditions. The actual developments or catalysts particularly applicable
to a given company that may, in the Adviser's judgment, lead to
significant appreciation of that company's securities include: a change in
management or management policies; the acquisition of a significant equity
position by an investor or group of investors acting in concert; a merger,
reorganization, sale of a division, or a third-party or issuer tender
offer; the spin-off to shareholders of a subsidiary, division or other
substantial assets; or a recapitalization, an internal reorganization or
the retirement or death of a senior officer or substantial shareholder. In
addition to the foregoing factors, developments and catalysts, the
Adviser, in selecting investments, also considers the market price of the
issuer's securities, its balance sheet characteristics and the perceived
strength of its management.
The Fund seeks to achieve its objective by investing primarily in a
portfolio of common stocks, preferred stocks and other securities
convertible into, or exchangeable for, common stocks. When the Adviser
believes that a defensive investment posture is warranted or when
opportunities for capital appreciation do not appear attractive, the Fund
may temporarily invest all or a portion of its assets in short-term money
market instruments, such as obligations of the U.S. Government and its
agencies and instrumentalities, high-quality commercial paper and bank
certificates of deposit and time deposits, repurchase agreements with
respect to such instruments, and money market mutual funds not affiliated
with the Fund, Lehman Brothers Inc. ("Lehman Brothers") or Gabelli &
Company, Inc. ("Gabelli & Company").
Boston Safe Deposit and Trust Company is the custodian of the Fund's
assets. State Street Bank and Trust Company, Inc. acts as the Fund's
transfer agent and dividend disbursing agent for its shares. The Fund's
prospectus is available upon request.
General Information Regarding the Fund. Shown below for the periods
indicated are per share income and capital changes for a share of capital
stock outstanding ("per share information") of the Fund.
<TABLE>
<CAPTION>
Year Year Year Year Year Year 9/29/89
ended ended ended ended ended ended through
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91++ 12/31/90 12/31/89*
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginnining of year $10.49 $12.09 $10.13 $9.48 $8.51 $9.58 $9.45
Net investment income............... 0.05 0.09 0.05 0.09 0.13 0.45 0.16
Net realized and unrealized gain/
(loss) on investments............. 2.30 (0.09) 3.95 1.11 1.17 (0.98) 0.04
Total from investment operations 2.35 0.00 4.00 1.20 1.30 (0.53) 0.20
Distributions to shareholders
from:
Net realized capital gains........ (1.18) (1.50) (1.99) (0.46) (0.14) --- (0.01)
Net investment income............. (0.05) (0.09) (0.01) (0.09) (0.19) (0.54) (0.06)
Distributions in excess of net
investment income............... --- (0.00)(a) (0.04) --- --- --- ---
Total distributions................. (1.23) (1.60) (2.04) (0.55) (0.33) (0.54) (0.07)
Net asset value, end of year........ $11.61 $10.49 $12.09 $10.13 $9.48 $8.51 $9.58
Total Return**...................... 22.5% 0.0% 39.4% 12.7% 15.3% (5.6)% 2.1%
</TABLE>
-4-
261356.2
<PAGE>
<TABLE>
<CAPTION>
Year Year Year Year Year Year 9/29/89
ended ended ended ended ended ended through
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91++ 12/31/90 12/31/89*
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios to average net
assets/supplemental data:
Net assets, end of year $486,144 $436,629 $491,193 $423,381 $574,676 $850,685 $1,126,146
Ratio of net investment income
to average net asse 0.42% 0.73% 0.38% 0.75% 1.43% 4.45% 6.06%+
Ratio of operating expenses to
average net assets 1.50% 1.50% 1.53% 1.52% 1.45% 1.39% 1.48%+
Portfolio turnover rate 64.6% 66.6% 21.4% 0.1% 16.2% 58.6% 73.3%
</TABLE>
- ---------------------
* The Fund commenced operations on September 29, 1989.
** Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges. Total return for the period
of less than one year is not annualized.
+ Annualized.
++ Per share amounts have been calculated using the monthly average share
method.
(a) Amount represents less than $0.01 per share.
Investment Strategies and Restrictions. From time to time, the Fund may
engage in the following investment techniques:
The Fund, consistent with its investment objective and policies of seeking
long-term capital appreciation from securities of companies that, in the
public market, are selling at a significant discount to their private
market value, may invest up to 50% of its total assets in securities for
which a tender or exchange offer has been made or announced and in
securities of companies for which a merger, consolidation, liquidation or
similar reorganization proposal has been announced ("reorganization
securities"). Frequently the holders of securities of companies involved
in such transactions will receive new securities ("substituted
securities") in exchange therefor. No more than 30% of the Fund's total
assets, however, may be invested in reorganization securities where the
Adviser anticipates selling the reorganization securities or the
substituted securities within six months or less of the initial purchase
of the reorganization securities, except that this limitation will not
apply to reorganization securities that have been purchased to supplement
a position in such securities held by the Fund for more than six months.
The principal risk of this type of investing is that the anticipated
offers or proposals may not be consummated within the time and under the
terms contemplated at the time of the investment, in which case, unless
replaced by an equivalent or increased offer or proposal that is
consummated, the Fund may sustain a loss on its investments.
The Fund has adopted the following investment restrictions for the
protection of shareholders that may not be changed without the approval of
a majority of the Fund's shareholders, defined as the lesser of (1) 67% of
the Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares are present in person or by proxy, or (2) more than
50% of the Fund's outstanding shares. Under these restrictions, the Fund
may not:
1. Invest more than 25% of the value of its total assets in any particular
industry (this restriction does not apply to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities);
-5-
261356.2
<PAGE>
2. Purchase securities on margin, but it may obtain short-term credits
from banks as may be necessary for the clearance of purchase and sales of
portfolio securities;
3. Make loans of its assets except for: (a) purchasing debt securities,
(b) engaging in repurchase agreements as set forth in the Fund's
prospectus, and (c) leading its portfolio securities consistent with
applicable regulatory requirements and as set forth in the Fund's
prospectus;
4. Borrow money except subject to the restrictions set forth in the Fund's
prospectus;
5. Mortgage, pledge or hypothecate any of its assets except that, in
connection with permissible borrowings mentioned in restrictions (4)
above, not more than 20% of the assets of the Fund (not including amounts
borrowed) may be used as collateral and that collateral arrangements with
respect to the writing or options or any other leading activity are not
deemed to be pledges of assets and these arrangements are not deemed to be
the issuance of a senior security as set forth in restriction (11);
6. Except to the extent permitted by restriction (14) below, invest in any
investment company affiliated with the Fund, Lehman Brothers or Gabelli &
Company, invest more than 5% of its total assets in the securities of any
one investment company, own more than 3% of the securities of any
investment company or invest more than 10% of its total assets in the
securities of all other investment companies;
7. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
in disposing of a portfolio security;
8. Invest, in the aggregate more than 10% of the value of its net assets
in securities for which market quotations are not readily available,
securities which are restricted for public sale, in repurchase agreements
maturing or terminable in more than seven days and all other illiquid
securities;
9. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
10. Purchase or acquire commodities or commodity contracts except that the
Fund may purchase or sell futures contracts and related options thereon if
thereafter no more than 5% of its total assets are invested in margin and
premiums;
11. Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with: (a) borrowing money in
accordance with restriction (4) above, (b) lending portfolio securities,
(c) entering into repurchase agreements, (d) purchasing or selling options
contracts, (e) purchasing or selling futures contracts and related options
thereon, or (f) acquiring when issued or delayed delivery securities and
forward commitments;
12. Sell securities short, except transactions involving selling
securities short "against the box;"
13. Purchase warrants if, thereafter, more than 5% of the value of the
Fund's net assets would consist of such warrants, but warrants attached to
other securities or acquired in units by the Fund are not subject to this
restriction; or
14. Invest in companies for the purpose of exercising control, except
transactions involving investments in investment companies for the purpose
of effecting mergers and other corporate reorganizations involving the
Fund and such other investment companies.
-6-
261356.2
<PAGE>
If any percentage limitations is adhered to at the time of an investment,
a later increase or decrease in the percentage of assets resulting from a
change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction. In
order to permit the sale of the Fund's shares in certain states, the Fund
may make commitments more restrictive than the investments restrictions
describe above.
Convertible and Nonconvertible Corporate Obligations. Corporate
obligations include securities such as bonds, debentures, notes or other
similar securities issued by corporations. These obligations can be
further subdivided into convertible and nonconvertible securities. Unlike
a nonconvertible corporate obligation, a convertible corporate obligation
may be converted into or exchanged for a prescribed amount of common stock
or other equity of the same or different issuer within a particular period
of time at a specified price or formula.
The Fund believes that investing in convertible and nonconvertible
corporate obligations is consistent with the Fund's investment objective
of seeking securities of companies that, in the public market, can provide
significant long-term capital appreciation. Due to a variety of factors,
it is possible that the potential for capital gain on a convertible
security may be less than that of the underlying common stock. Convertible
securities, however, are senior to common stock in an issuer's capital
structure and are consequently of higher quality and entail less risk than
the issuer's common stock, although the extent to which the risk is
reduced depends in large measure upon a variety of factors, including the
creditworthiness of the issuer and its overall capital structure.
The Fund may purchase convertible securities or nonconvertible debt
securities without limitation, except that no more than 35% of the Fund's
total assets may be invested in convertible securities or nonconvertible
debt securities having a rating lower than a Standard & Poor's Corporation
("S&P") rating of "CCC", a Moody's Investor Service, Inc. ("Moody's")
rating of "Caa" or, if unrated, judged by the Adviser to be of comparable
quality. However, as a matter of current operating policy, the Adviser and
the Fund have agreed that the Fund will not invest more than 35% of the
Fund's total assets in debt securities rated less than S&P's BBB or the
equivalent by other major rating agencies or, if unrated, judged by the
Adviser to be of comparable quality. These debt securities are
predominantly speculative and involve major risk exposure to adverse
conditions, and are often referred to in the financial press as "junk
bonds." (See "Risks of Investing in Lower Rated Securities".)
The ratings of Moody's and S&P generally represent the opinions of those
organizations as to the quality of the securities that they rate. Such
ratings, however, are relative and subjective, are not absolute standards
of quality and do not evaluate the market risk of the securities. Although
the Adviser uses these ratings as a criterion for the selection of
securities for the Fund, the Adviser also relies on its independent
analysis to evaluate potential investments for the Fund.
Within the Fund's limitation on the purchase of lower-rated and unrated
securities, the Fund may invest up to 5% of its total assets in securities
of issuers in default.
Warrants and Rights. The Fund may invest up to 5% of its net assets in
warrants or rights (other than those acquired in units or attached to
other securities) that entitle the holder to buy equity securities at a
specific price for a specific period of time but will do so only if the
equity securities are deemed appropriate by the Adviser for inclusion in
the Fund's portfolio. It is the current intention of the Fund not to
invest more than 2% of its net assets in warrants or rights that are not
listed on the New York or American Stock Exchange, although the Board of
Directors in the future may permit up to 5% of the Fund's net assets to be
invested in such unlisted warrants and rights.
-7-
261356.2
<PAGE>
Foreign Securities. The Fund may invest up to 25% of its total assets in
foreign securities. Investing in securities of foreign companies and
foreign governments, which generally are denominated in foreign
currencies, may involve certain risk and opportunity considerations not
typically associated with investing in domestic companies and could cause
the Fund to be affected favorably or unfavorably by changes in currency
exchange rates and revaluations of currencies. In addition, less
information may be available about foreign companies than about domestic
companies, and foreign companies and foreign governments generally are not
subject to uniform accounting, auditing and financial reporting standards
or to other regulatory practices and requirements comparable to those
applicable to domestic companies. Foreign securities and their markets may
not be as liquid as United States securities and their markets. Securities
of some foreign companies may involve greater market risk than securities
of United States companies. Investment in foreign securities may result in
higher expenses than investing in domestic securities because of the
payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on United States exchanges, and the
imposition of transfer taxes or transaction charges associated with
foreign exchanges. Investment in foreign securities also may be subject to
local economic or political risks, including instability of some foreign
governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on
the use or removal of funds or other assets.
Among the foreign securities in which the Fund may invest are those issued
by companies located in developing countries, which are countries in the
initial stages of their industrialization cycles. Investing in the equity
and debt markets of developing countries involves exposure to economic
structures that are generally less diverse and less mature, and to
political systems that can be expected to have less stability, than those
of developed countries. The markets of developing countries historically
have been more volatile than the markets of the more mature economies of
developed countries, but often have provided higher rates of return to
investors. The Fund may also invest in debt securities of foreign
governments.
The Fund may purchase American Depositary Receipts ("ADRs") or U.S.
dollar-denominated securities of foreign issuers that are not included in
the 25% foreign securities limitation. ADRs are receipts issued by U.S.
banks or trust companies in respect of securities of foreign issuers held
on deposit for use in the U.S. securities markets. While ADRs may not
necessarily be denominated in the same currency as the securities into
which they may be converted, many of the risks associated with foreign
securities may also apply to ADRs.
Short-Term Investments. As noted above, in certain circumstances the Fund
may invest in short- term money market instruments such as obligations of
the U.S. Government and its agencies and instrumentalities, high quality
commercial paper (rated "A-1" or better by S&P or "P-1" or better by
Moody's) and bank certificates of deposit and time deposits, and may
engage in repurchase agreement transactions with respect to those
instruments.
In addition, the Fund may invest in money market mutual funds not
affiliated with the Fund, Lehman Brothers or Gabelli & Company. The
investment policy with respect to investment companies generally is set
forth below under "Other Investment Companies."
Other Investment Companies. The Fund reserves the right to invest up to
10% of its total assets in the securities of money market mutual funds,
which are open-end investment companies, and closed-end investment
companies, including small business investment companies, none of which
are affiliated with the Fund, Lehman Brothers or Gabelli & Company. Not
more than 5% of the Fund's total assets may be invested in the securities
of any one investment company and the Fund may not own more than 3% of the
securities of any investment company.
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<PAGE>
Investment in Small, Unseasoned Companies and Other Illiquid Securities.
The Fund may invest up to 5% of its net assets in small, less well-known
companies which (including predecessors) have operated less than three
years. The securities of these kinds of companies may have limited
liquidity.
The Fund will not, in the aggregate, invest more than 10% of its net
assets in small, unseasoned companies, securities that are restricted for
public sale, securities for which market quotations are not readily
available, repurchase agreements maturing or terminable in more than seven
days and all other illiquid securities. Securities freely salable among
qualified institutional investors under special rules adopted by the
Securities and Exchange Commission ("Rule 144A") may be treated as liquid
if they satisfy liquidity standards established by the Board of Directors.
The continued liquidity of such securities is not as well assured as that
of publicly traded securities, and accordingly, the Board of Directors
will monitor their liquidity.
Borrowing. The Fund may not borrow money except for (1) short-term credits
from banks as may be necessary for the clearance of portfolio
transactions, and (2) borrowings from banks for temporary or emergency
purposes, including the meeting of redemption requests, that would
otherwise require the untimely disposition of the Fund's portfolio
securities. Borrowing for any purpose, including redemptions, may not, in
the aggregate, exceed 15% of the value of the Fund's total assets, and
borrowing for purposes other than meeting redemptions may not excess 5% of
the value of the Fund's total assets, and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's
total assets at the time borrowing is made. The Fund will not borrow
(leverage) to make additional investment when any borrowing remains
unpaid. The Fund will not mortgage, pledge or hypothecate any of its
assets except that, in connection with the borrowings described above, not
more than 20% of the total assets of the Fund may be used as collateral.
Repurchase Agreements. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve
Bank of New York and member banks of the Federal Reserve System that
furnish collateral at least equal in value or market price to the amount
of their repurchase obligation. In a repurchase agreement, the Fund
purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date. Repurchase
agreements are generally for one business day and generally will not have
a duration of longer than one week. The SEC has taken the position that,
in economic reality, a repurchase agreement is a loan by the Fund to the
other party to the transaction secured by securities transferred to the
Fund. The resale price generally exceeds the purchase price by an amount
which reflects an agreed upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults,
the Fund might suffer a loss to the extent that the proceeds from the sale
of the underlying securities and other collateral held by the Fund are
less than the repurchase price. The Board of Directors will monitor the
creditworthiness of the other parties to the repurchase agreements.
The Fund may not enter into repurchase agreements which would cause more
than 5% of the value of its total assets to be so invested. This
percentage limitation does not apply to repurchase agreements involving
U.S. Government obligations, or obligations of its agencies or
instrumentalities, for a period of a week or less. The terms of each of
the Fund's repurchase agreements will always be less than one year and the
Fund will not enter into repurchase agreements of a duration of more than
seven days if, taken together with all other illiquid securities in the
Fund's portfolio, more than 10% of its net assets would be so invested.
Short Sales Against the Box. The Fund may from time to time make short
sales of securities it owns or has the right to acquire through conversion
or exchange of other securities it owns. A
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<PAGE>
short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. In a short sale, the Fund does
not immediately deliver the Securities sold or receive the proceeds from
the sale. The Fund may not make short sales or maintain a short position
if it would cause more than 25% of the Fund's total assets, taken at
market value, to be held as collateral for the sales.
The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing in the value
of a security owned by the Fund or security convertible into, or
exchangeable for, the security, or when the Fund does not want to sell the
security it owns, because, among other things, it wishes to defer
recognition of gain or loss for U.S. Federal income tax purposes.
Options. The Fund may purchase or sell (that is, write) listed options on
securities as a means of achieving additional return or of hedging the
value of the Fund's portfolio. The Fund may write covered call options on
common stocks that it owns or has an immediate right to acquire through
conversion or exchange of other securities in an amount not to exceed 25%
of total assets; or invest up to 10% of its total assets in the purchase
of put options on common stocks that the Fund owns or may acquire through
the conversion or exchange of other securities that it owns. The Fund may
only buy options that are listed on a national securities exchange.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a
premium paid, the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call
option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price during the option
period.
A put option is a contract that, in return for the premium, gives the
holder of the option the right to sell to the writer (seller) the
underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy
the underlying security upon exercise, at the exercise price during the
option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written.
There can be no assurance that a closing purchase transaction can be
effected when the Fund so desires.
An option may be closed out only on an exchange that provides a secondary
market for an option of the same series. Although the Fund will generally
purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for nay particular option. The Fund will
not purchase options if, as a result, the aggregate cost of all
outstanding options exceeds 10% of the Fund's total assets.
The Fund may write put and call options on stock indexes for the purpose
of increasing its gross income and to protect its portfolio against
declines in the value of the securities it owns or increases in the value
of securities to be acquired. In addition, the Fund may purchase the put
and call options on stock indexes in order to hedge its investments
against a decline in value or to attempt to reduce the risks of missing a
market or industry segment advance. Options on stock indexes are similar
to options on specific securities. However, because options on stock
indexes do not involve the delivery of an underlying security, the option
represents the holder's right to obtain from the writer cash in an amount
equal to a fixed multiple of the amount by which the exercise price
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying stock index on the exercise date.
Therefore, while one purpose of writing such options
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<PAGE>
is to generate additional income for the Fund, the Fund recognizes that it
may be required to deliver an amount of cash in excess of the market value
of a stock index at such time as an option written by the Fund is
exercised by the holder. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The successful use of protective puts for hedging purposes
depends in part on the Adviser's ability to predict future price
fluctuations and the degree of correlation between the options and
securities markets.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund
may enter into forward commitments for the purchase of securities. Such
transactions may include purchase on a "when issued" or "delayed delivery"
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization of debt restructuring, i.e., a when, as
and if issued security. When such transactions are negotiated, the price
is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the
commitment. While the Fund will only enter into a forward commitment with
the intention of actually acquiring the security, the Fund may sell the
security before the settlement date if it is deemed advisable. Securities
purchased under a forward commitment are subject to market fluctuations,
and no interest or dividends accrue to the Fund prior to the settlement
date.
Lending of Portfolio Securities. The Fund may lend securities from its
portfolio to brokers, dealers and other financial organizations. This
practice is expected to help the Fund generate revenue to defray certain
operating expenses. Loans by the Fund, if and when made, (1) will be
collateralized in accordance with applicable regulatory requirements and
(2) will be limited so that the value of all loaned securities does not
exceed 33% of the value of the Fund's total assets. The current intention
of the Fund, however, is to limit the value of all loaned securities to no
more than 5% of the Fund's total assets. Under extreme circumstances,
there may be a restriction on the Fund's ability to sell the collateral
and the Fund could suffer a loss.
Futures Contracts and Options on Futures. Depending upon market conditions
prevailing at such time and its perceived investment needs, the Fund may
enter into futures contracts and options on futures contracts that are
traded on a U.S. exchange or board of trade. These investments, if any,
may be made by the Fund solely for the purpose of hedging against changes
in the value of its portfolio securities and the aggregate initial margins
and premiums thereon would not constitute more than 5% of the Fund's total
assets.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contacts or options on
futures can be offset at favorable prices, possible reduction of the
Fund's yield due to the use of hedging, possible reduction in value of
both the securities hedged and the hedging instrument, possible lack of
liquidity due to daily limits on price fluctuation, imperfect correlation
between the contracts and the securities being hedged, and potential
losses in excess of the amount invested in the futures contracts
themselves.
Net Asset Value of the Fund Shares. The Fund's net asset value per share
is calculated on each day, Monday through Friday, except days on which the
New York Stock Exchange ("NYSE") is closed. The NYSE is currently
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas and
on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively.
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, currently 4:00 P.M., New York time, and is
computed by dividing the value of the Fund's net
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<PAGE>
assets by the total number of its shares outstanding. The Fund uses market
quotations in valuing its portfolio securities. Short-term investments
that mature in 60 days or less are valued at amortized cost whenever the
Fund's Board of Directors determines the amortized cost reflects fair
value of these investments.
The Fund's Investment Manager. Gabelli Funds, Inc. was organized in 1980
and serves as investment adviser to the Fund. Gabelli Funds, Inc. also
serves as the investment adviser to The Gabelli ABC Fund; The Gabelli
Small Cap Growth Fund; The Gabelli Equity Income Fund; The Gabelli Growth
Fund; The Gabelli Asset Fund; The Gabelli Global Telecommunications Fund;
The Gabelli Global Interactive Couch Potato TM(C) Fund; The Gabelli Global
Convertible Securities Fund; The Gabelli U.S. Treasury Money Market Fund
and Gabelli Gold Fund, Inc., which are open-end investment companies and
The Gabelli Equity Trust Inc., The Gabelli Convertible Securities Fund
Inc. and The Gabelli Global Multimedia Trust Inc., which are closed-end
investment companies, having aggregate assets as of March 31, 1995, in
excess of $3.70 billion. GAMCO Investors, Inc. ("GAMCO"), an investment
adviser for individuals, pension trusts, profit-sharing trusts and
endowments, is a subsidiary of the Adviser with aggregate assets in excess
of $4.50 billion under its management as of March 31, 1995. The current
business address of Gabelli Funds, Inc. is One Corporate Center, Rye, New
York 10580-1434.
The Adviser and its affiliates act as investment advisers to the other
clients that may invest in the same securities. As a result, clients of
the Adviser and its affiliates hold substantial positions in the same
issuers of securities. If a substantial position in an issuer is held,
liquidity and concentration considerations may limit the ability of the
Adviser to add to the position on behalf of the Fund or other clients or
to readily dispose of the position. Although the availability at
acceptable prices of such securities may from time to time be limited, it
is the policy of the Adviser and its affiliates to allocate purchases and
sales of such securities in a manner believed by the Adviser to be
equitable to all clients, including the Fund. The Adviser may on occasion
give advice or take action with respect to other clients from the actions
taken with respect to the Fund.
Mr. Mario J. Gabelli, Chairman of the Board, Chief Executive Officer and
Chief Investment Officer of the Adviser and Chairman of the Board,
President and Chief Investment Officer of the Fund, is responsible for
managing the day-to-day investment operations of the Fund, including the
making of investment decisions. He acts as Chairman of the Board and Chief
Executive Officer of GAMCO and is an officer or director of various other
companies owned or controlled by Gabelli Funds, Inc. Accounts under the
management of the Adviser and GAMCO will tend, subject to differences in
investment objectives and authorized investment practices, to hold many of
the same securities because all the accounts are under the overall
direction of Mr. Gabelli. In addition to his positions with Gabelli Funds,
Inc. and its subsidiaries, Mr. Gabelli serves as an officer and/or
director of various other companies. Owning to the diverse nature of Mr.
Gabelli's responsibilities with respect to Gabelli Funds, Inc., its
subsidiaries and other companies with which he is affiliated, he will
devote less than substantially all of his time to the Fund, although this
is not expected to affect adversely the operations or management of the
Fund. There is no contract of employment between Mr. Gabelli and Gabelli
Funds, Inc. or any of its subsidiaries and there can be no assurance that
a suitable replacement could be found for him in the event of his death,
disability or resignation.
As compensation for its services and the related expenses borne by the
Adviser, the Adviser is paid a fee, computed and payable monthly, equal,
on an annual basis, to 1.00% of the value of the Fund's average daily net
assets, which is higher than that paid by most mutual funds. By its
agreement with the Fund, the Adviser has undertaken certain expense
reimbursement obligations.
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<PAGE>
The Fund's Plan of Distribution. Pursuant to a Distribution Plan (the
"Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the
Fund will make monthly payments to registered broker-dealers, including
the underwriters, who enter into agreements with the Fund (each, a
"Designated Dealer") calculated at the annual rate of 0.25% of the value
of the average daily net assets of the Fund attributable to outstanding
shares of the Fund sold by the Designated Dealer (including additional
shares acquired by reinvestment of dividends). Gabelli & Company also will
be reimbursed annually by other Designated Dealers (pro rata based on the
amounts paid to such Designated Dealers under the Plan) for out-of-pocket
distribution expenses incurred in respect of the Fund in an amount equal
to the excess, if any, of (i) $150,000 over (ii) the amounts otherwise
paid to Gabelli & Company as a Designated Dealer during such year. Such
reimbursements, however, will not increase the amounts payable under the
Plan by the Fund to Gabelli & Company or other Designated Dealers. Gabelli
& Company may in turn enter into selling agreements with Soliciting
Broker-Dealers whereby all or a portion of the monthly payments paid by
Gabelli & Company pursuant to the Plan will be paid by Gabelli & Company
to a Soliciting Broker-Dealer for activities intended to result in the
distribution of Fund shares.
Payments under the Plan are not tied exclusively to the distribution
expenses actually incurred by Designated Dealers and such payments may
exceed their distribution expenses. Expenses incurred in connection with
the offering and sale of shares may include, but are not limited to,
payments to the Designated Dealer's (or its affiliates') sales personnel
for selling shares of the Fund; costs of printing and distributing the
other Designated Dealer branch office distribution-related expenses;
payments to and expenses of persons who provide support services in
connection with the distribution of shares of the Fund; and financing
costs on the amount of the foregoing expenses.
The Fund's Board of Directors will evaluate the appropriateness of the
Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including expenses borne by Designated
Dealers in the current year and in prior years and amounts received under
the Plan.
The Sponsor will not receive any Rule 12b-1 fees from the Fund. Any Rule
12b-1 fees paid by the Fund's distributor to the Trustee for performing
servicing functions with respect to the Fund Shares will be used to reduce
directly the expenses and fees otherwise payable by the Trust to the
Trustee. There can be no assurance that the Trustee will receive any Rule
12b-1 fees in the future.
Portfolio
The Trust consists of the Securities (or contracts to purchase such
Securities together with an irrevocable letter or letters of credit for the
purchase of such contracts) and Additional Securities deposited upon the
creation of additional Units as set forth above and Substitute Securities
acquired by the Trust as long as such Securities may continue to be held from
time to time in the Trust together with uninvested cash realized from the
disposition of Securities. Because certain of the Securities and Additional
Securities from time to time may be sold under certain circumstances, as
described herein, no assurance can be given that the Trust will retain for any
length of time its present size and composition. The Trustee has not
participated and will not participate in the selection of Securities for the
Trust, and neither the Sponsor nor the Trustee will be liable in any way for any
default, failure or defect in any Securities.
Some of the Securities are publicly traded in the over-the-counter market.
The contracts to purchase Securities deposited in the Trust are expected to
settle in five business days, in the ordinary manner for such Securities.
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<PAGE>
Substitution of Securities
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Securities. In the event of a failure
to deliver any Security that has been purchased for the Trust under a contract
("Failed Securities"), the Sponsor is 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 Sponsor purchases Substitute Securities in order to replace Failed
Securities, (1) the purchase price may not exceed the purchase price of the
Failed Securities and (ii) the Substitute Securities must be substantially
similar to the Securities originally contracted for and not delivered. Where the
Sponsor purchases Substitute Securities in order to replace Securities they
sold, the Sponsor will endeavor to select Securities which are securities that
possess characteristics that are consistent with the objectives of the Trust as
set forth above. Such selection may include or be limited to Securities
previously included in the portfolio of the Trust.
Whenever a Substitute Security has been acquired for the Trust, the
Trustee shall, within five days thereafter, notify all Certificateholders of the
Trust of the acquisition of the Substitute Security 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 plus accrued
interest, if any.
In the event no reinvestment is made, the proceeds of the sale of
Securities will be distributed to Certificateholders as set forth under "Rights
of Certificateholders--Distributions." In addition, if the right of substitution
shall not be utilized to acquire Substitute Securities in the event of a failed
contract, the Sponsor will cause to be refunded the sales charge attributable to
such Failed Securities to all Certificateholders of the Trust, and distribute
the principal and accrued interest attributable to such Failed Securities on the
next Distribution Date.
Because certain of the Securities and Additional Securities from time to
time may be substituted (see "Trust Administration--Portfolio Supervision") or
may be sold under certain circumstances, no assurance can be given that the
Trust will retain its present size and composition for any length of time. The
proceeds from the sale of a Security or the exercise of any redemption or call
provision will be distributed to Certificateholders except to the extent such
proceeds are applied to meet redemptions of Units. (See "Liquidity--Trustee
Redemption.")
RISK FACTORS
Fixed Portfolio
The value of the Units fluctuate depending on all the factors that have an
impact on the economy and the equity markets. These factors similarly impact on
the ability of an issuer to distribute dividends. The Trust is not a "managed
registered investment company" and Securities will not be sold by the Trustee as
a result of ordinary market fluctuations. Additionally, the Trust will not elect
to reinvest any distributions it is entitled to as a result of its ownership of
shares on the Fund. 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.
However, the Sponsor may direct the disposition by the Trustee of Securities
upon the occurrence of certain events. (See "Trust Administration--Portfolio
Supervision" below.)
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Fund Shares and Treasury Obligations
The Sponsor has taken steps to ensure that an investment in Fund Shares is
equitable to all parties and particularly that the interest of the
Certificateholders are protected. Accordingly, any sales charges which would
otherwise be applicable is waived on Fund Shares sold to the Trust, since the
Sponsor is receiving the sales charge on all Units sold. In addition, the Trust
Agreement requires the Trustee to vote all Fund Shares held in the Trust in the
same manner and ratio on all proposals as the vote of owners of Fund Shares not
held by the Trust.
The Fund's shares may appreciate or depreciate in value (or pay dividends)
depending on the full range or economic and market influences affecting the
securities in which the Fund is invested and the success of the Fund's
management in anticipating or taking advantage or such opportunities as may
occur. In addition, in the event of the inability of the Fund's Adviser to act
and/or claims or actions against the Fund by regulatory agencies or other
persons or entities, the value of the Fund Shares may decline thereby causing a
decline in the value of Units. Termination of the Fund prior to the Termination
Date of the Trust may result in the termination of the Trust sooner than
anticipated. Prior to a purchase of Units, investors should determine that the
aforementioned risks are consistent with their investment objectives.
The net asset value of the Fund's shares, like the value of the Treasury
Obligations, fluctuates over the life of the Trust and may be more or less than
the price paid therefor by the Trust. An investment in Units of the Trust should
be made with an understanding of the risks inherent in ownership of equity
securities since the Portfolio of the Fund is invested in equity securities
which the Fund's Adviser believes are undervalued and that by virtue of
anticipated developments or catalysts particularly applicable to such companies
may, in the Adviser's judgment, achieve significant appreciation. However, the
Sponsor believes that, upon termination of the Trust or the mandatory
termination date, even if the Fund Shares are worthless, the Treasury
Obligations will provide sufficient cash at maturity to equal $15.00 per Unit.
Part of such cash will, however, represent an amount of taxable original issue
discount of the Treasury Obligations which was previously accrued and included
in the income of the Certificateholders.
A CERTIFICATEHOLDER PURCHASING A UNIT ON THE DATE OF THIS PROSPECTUS OR
THEREAFTER MAY RECEIVE TOTAL DISTRIBUTIONS, INCLUDING DISTRIBUTIONS MADE UPON
TERMINATION OF THE TRUST THAT ARE LESS THAN THE AMOUNT PAID FOR SUCH UNIT.
Sales of Securities in the Portfolio under certain permitted circumstances
may result in an accelerated termination of the Trust. It is also possible that,
in the absence of a secondary market for the Units or otherwise, redemption of
Units may occur in sufficient numbers to reduce the portfolio to a size
resulting in such termination. In addition, the Trust may be terminated if the
net aggregate value of the Trust is less than 40% of the aggregate value of the
Securities calculated immediately after the most recent deposit of Securities in
the Trust. Early termination of the Trust may have important consequences to the
Certificateholder, e.g., to the extent that Units were purchased with a view to
an investment of longer duration, the overall investment program of the investor
may require readjustment; or the overall return on investment may be less than
anticipated and may result in a loss to a Certificateholder.
In the event of the early termination of the Trust, the Trustee will cause
the Fund Shares to be sold and the proceeds thereof distributed to the
Certificateholders in proportion to their respective interests therein, unless a
Certificateholder elects to receive Fund Shares "in kind." (See "Trust
Administration - Trust Termination.") Proceeds from the sale of the Treasury
Obligations will be paid in cash.
In the event of a notice that any Treasury Obligation will not be
delivered ("Failed Treasury Obligations"), the Sponsor is authorized under the
Indenture to direct the Trustee to acquire other Treasury Obligations
("Replacement Treasury Obligations") within a period ending on the earlier of
the first distribution of cash to the Trust Certificateholder or 90 days after
the Date of Deposit. The cost of the Replacement
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<PAGE>
Treasury Obligations may not exceed the cost of the Treasury Obligations which
they replace. Any Replacement Treasury Obligation deposited in the Trust will be
substantially identical to every Treasury Obligation then in the Trust. Whenever
a Replacement Treasury Obligation has been acquired for the Trust, the Trustee
shall, within 5 days thereafter, notify Certificateholders of the acquisition of
the Replacement Treasury Obligation.
In the event a contract to purchase Securities fails and Replacement
Treasury Obligations are not acquired, the Trustee will distribute to
Certificateholders the funds attributable to the failed contract. The Sponsor
will, in such case, refund the sales charge applicable to the failed contract.
If less than all the funds attributable to a failed contract are applied to
purchase Replacement Treasury Obligations, the remaining money will be
distributed to Certificateholders.
The Trustee will have no power to vary the investments of the Trust, i.e.,
the Trustee will have no managerial power to take advantage of market variations
to improve a Certificateholder's investment but may dispose of Securities only
under limited circumstances.
To the best of the Sponsor's knowledge there was no litigation pending as
of the initial Date of Deposit in respect of any Security which might reasonably
be expected to have a material adverse effect on the Trust. At any time after
the initial Date of Deposit, litigation may be instituted on a variety of
grounds with respect to the Securities. The Sponsor is unable to predict whether
any such litigation may be instituted, or if instituted, whether such litigation
might have a material adverse effect on the Trust.
Investors should consult with their own financial advisers prior to
investing in the Trust to determine its suitability. (See "Trust
Administration--Portfolio Supervision.") all the Securities in the Trust are
liquidated during a 60 day period prior to the termination of the Trust. Since
the Trust will not sell Securities in response to ordinary market fluctuation,
but only at the Trust's termination, 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.
There is no assurance that any dividends will be declared or paid in the
future on the Fund Shares. Investors should be aware that there is no assurance
that the Trust's objectives will be achieved.
Risks of Investing in Lower Rated Securities
As a matter of current operating policy, the Fund will not invest more
than 35% of its total assets in lower rated securities (Baa by Moody's or BBB by
S&P) and comparable unrated securities (collectively commonly known as "junk
bonds"). No minimum rating standard is required by the Fund. These lower rated
securities are considered speculative and, while generally providing greater
income than investments in higher rated securities, will involve greater risk of
principal and income (including the possibility of default or bankruptcy of the
issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities in
the higher rating categories and because yields vary over time, no specific
level of income can ever be assured. These lower rated securities generally tend
to reflect economic changes (and the outlook for economic growth) short-term
corporate and industry developments and the market's perception of their credit
quality (especially during times of adverse publicity) to a greater extent than
during times of adverse publicity to a greater extent than higher rated
securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated securities are also affected by
changes in interest rates). In the past, economic downturns or an increase in
interest rates have, under certain circumstances, caused a higher incidence of
default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. For
example, federal rules require that savings and loan associations gradually
reduce their holdings of securities. An effect of such legislation may be to
depress the prices of outstanding lower rated securities. In addition,
investment in these lower rated securities may involve greater liquidity and
valuation risks than those for investment grade securities. To the extent there
is no
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established secondary market for these securities, there could be thin trading
of such securities which could adversely impact the Board of Directors' ability
to accurately value such securities and the Fund's assets. Furthermore, the
liquidity of these lower rated securities may be affected by the market's
perception of their credit quality. Therefore, the judgment of the Fund's
Adviser may at times play a greater role in valuing these securities than in the
case of investment grade securities, and it also may be more difficult during
times of certain adverse market conditions to dispose of these lower rated
securities to meet redemption requests or to respond to changes in the market.
PUBLIC OFFERING
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 plus a sales charge of 4.9%
of the Public Offering Price per 100 Units (excluding any transaction fees) or
5.152% of the net amount invested in Securities per 100 Units. In addition, the
net amount invested in Securities involves a proportionate share of amounts in
the Income Account and Principal Account, if any. The Public Offering Price can
vary on a daily basis from the amount stated on the cover of this Prospectus in
accordance with fluctuations in the market value of the Securities and the price
to be paid by each investor will be computed as of the date the Units are
purchased.
The aggregate value of the Securities is determined in good faith by the
Evaluator on each "Business Day" as defined in the Trust Agreement in the
following manner: during the initial offering period on the basis of the net
asset value of the Fund Shares and the offering side evaluation of the Treasury
Obligations and following the initial offering period on the basis of the net
asset value of the Fund Shares and the bid side evaluation of the Treasury
Obligations. The evaluation generally shall be based on the closing purchase
price in the over-the-counter market (unless the Evaluator deems these prices
inappropriate as a basis for evaluation) or if there is no such closing purchase
prices, then the Evaluator may ascertain the values of the Treasury Obligations
using any of the following methods, or a combination thereof, which it deems
appropriate: (a) on the basis of current offering prices for the Treasury
Obligations as obtained from investment dealers or brokers who customarily deal
in securities comparable to those held in the Trust, (b) if offering prices are
not available for the Treasury Obligations, on the basis of current offering
prices for comparable securities, (c) by appraising the value of the Treasury
Obligations on the offering side of the market or by such other appraisal deemed
appropriate by the Evaluator or (d) by any combination of the above, each as of
the Evaluation Time.
The method used for computing the sales charge for secondary market
purchases shall be based upon the number of years remaining to the Trust's
Termination Date. The table below sets forth the various sales charges based on
the number of years remaining to the Trust's Termination Date.
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As Percent of Public
Years to Termination Offering Price
less than 6 months 0%
6 months to 1 year 2.95%
over 1 yr. to 2 yrs. 3.45%
over 2 yrs. to 3 yrs. 3.90%
over 3 yrs. to 4 yrs. 4.50%
over 4 yrs. 4.90%
Volume and Other Discounts
Units of the Trust are available at a volume discount from the Public
Offering Price during the initial public offering. This volume discount will
result in a reduction of the sales charge applicable to such purchases. The
amount of the volume discount and the approximate reduced sales charge on the
Public Offering Price applicable to such purchases are as follows:
Approximate
Reduced Sales
Number of Units Charge
5,000 but less than 10,000 2.70%
10,000 but less than 25,000 2.45%
25,000 but less than 50,000 2.20%
50,000 but less than 100,000 2.00%
100,000 or more 1.75%
These discounts will apply to all purchases of Units by the same purchaser
during the initial public offering period. Units purchased by the same
purchasers in separate transactions during the initial public offering period
will be aggregated for purposes of determining if such purchaser is entitled to
a discount provided that such purchaser must own at least the required number of
Units at the time such determination is made. Units held in the name of the
spouse of the purchaser or in the name of the child of the purchaser under 21
years of age are deemed for the purposes hereof to be registered in the name of
the purchaser. The discount is also applicable to a trustee or other fiduciary
purchasing securities for a single trust estate or single fiduciary account.
Employees (and their immediate families) of Reich & Tang Distributors L.P.
(and its affiliates), Gabelli Funds, Inc., and of any underwriter of the Trust
may, pursuant to employee benefit arrangements, purchase Units of the Trust at a
price equal to the then market value of the underlying securities in the Trust
during the initial offering period, divided by the number of Units outstanding
plus a reduced sales charge of up to a maximum of 1.7% per Unit. 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 Sponsor's
secondary market, so long as it is being maintained.
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Distribution of Units
During the initial offering period (i) Units issued on the initial Date of
Deposit and (ii) additional Units issued after such date in respect of deposits
of Additional Securities, will be distributed by the Sponsor, the underwriters
and dealers at the Public Offering Price. The initial offering period in each
case is thirty days unless extended by the Sponsor for Units specified in (i)
and (ii) in the preceding sentence. Certain banks and thrifts will make Units of
the Trust available to their customers on an agency basis. A portion of the
sales charge paid by their customers is retained by or remitted to the banks.
Under the Glass-Steagall Act, banks are prohibited from underwriting Units;
however, the Glass-Steagall Act does permit certain agency transactions and the
banking regulators have indicated that these particular agency transactions are
permitted under such Act. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
The Sponsor presently maintains and intends to continue to qualify the
Units for sale in substantially all States through the Underwriters and through
dealers who are members of the National Association of Securities Dealers, Inc.
Units may be sold to dealers at prices which represent a concession of up to 3%
per Unit, subject to the Sponsor's right to change the dealers' concession from
time to time. In addition, for transactions of 100,000 Units or more, the
Sponsor intends to negotiate the applicable sales charge and such charge will be
disclosed to any such purchaser. Such Units may then be distributed to the
public by the dealers at the Public Offering Price then in effect. The Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units. In addition, any dealer, underwriter or firm who purchase Units on the
initial Date of Deposit are paid an additional concession of $1.00 per 100 Units
purchased that day. The Sponsor reserves the right to reject, in whole or in
part, any order for the purchase of Units. The Sponsor reserves the right to
change the discounts from time to time.
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsor a nominal award for each of their registered representatives who have
sold a minimum of units of unit investment trusts created by the Sponsor during
a specified time period. In addition, at various times the Sponsor may implement
other programs under which the sales forces of underwriters, brokers, dealers,
banks and/or others may be eligible to win other nominal awards for certain
sales efforts, or under which the Sponsor will reallow to any such underwriters,
brokers, dealers, banks and/or others that sponsor sales contests or recognition
programs conforming to criteria established by the Sponsor, or participate in
sales program sponsored by the Sponsor, an amount not exceeding the total
applicable sales charges on the sales generated by such person at the public
offering price during such programs. Also, the Sponsor in its discretion may
from time to time pursuant to objective criteria established by the Sponsor pay
fees to qualifying underwriters, brokers, dealers, banks and/or others for
certain services or activities which are primarily intended to result in sales
of Units of the Trust. Such payments are made by the Sponsor out of its own
assets and not out of the assets of the Trust. These programs will not change
the price Certificateholders pay for their Units or the amount that the Trust
will receive from the Units sold.
Frequent Buyer Program
Any dealer, underwriter, or firm whose total combined purchases of the
Trust and other unit investment trusts sponsored by Reich & Tang Distributors
L.P. ("MST/EST Units") from Reich & Tang Distributors L.P. in a single calendar
month fall in any of the levels listed below, are paid an additional concession.
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Aggregate Monthly Additional
Amounts of MST/EST Concession
Units Sold at (per $1,000.00)
Public Offering Price Sold
$1,000,000 but less than $2,000,000.................$0.50
$2,000,000 but less than $4,500,000.................$1.00
$4,500,000 but less than $7,000,000.................$1.50
$7,000,000 or more..................................$2.00
Sponsor's and Underwriters' Profits
The Sponsor and the Underwriters receive a gross underwriting commission
equal to 4.9% of the Public Offering Price per 100 Units (equivalent to 5.152%
of the net amount invested in the Securities). Additionally, the Sponsor may
realize a profit on the deposit of the Securities in the Trust representing the
difference between the cost of the Securities to the Sponsor and the cost of the
Securities to the Trust (See "Portfolio.") The Sponsor or any Underwriter may
realize profits or sustain losses with respect to Securities deposited in the
Trust which were acquired from underwriting syndicates of which they were a
member.
The Sponsor may have participated as an underwriter or manager, co-manager
or member of underwriting syndicates from which some of the aggregate principal
amount of the Securities were acquired for the Trust. All or a portion of the
Securities deposited in the Trust may have been acquired through the Sponsor.
During the initial offering period and thereafter to the extent additional
Units continue to be offered by means of this Prospectus, the underwriting
syndicate 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 Sponsor and the Underwriters
for the Units. Cash, if any, made available to the Sponsor prior to settlement
date for the purchase of Units may be used in the Sponsor's 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 Sponsor.
Upon termination of the Trust, the Trustee may utilize the services of the
Sponsor for the sale of all or a portion of the Securities in the Trust.
In maintaining a market for the Units (see "Sponsor Repurchase") the
Sponsor 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.
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RIGHTS OF CERTIFICATEHOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered Certificates
executed by the Trustee and the Sponsor. Certificates are issued in
denominations of one hundred or more Units. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed and/or accompanied
by a written instrument or instruments of transfer. Although no such charge is
presently made or contemplated, the Trustee may require a Certificateholder to
pay $2.00 for each Certificate reissued or transferred and any governmental
charge that may be imposed in connection with each such transfer or interchange.
Mutilated, destroyed, stolen or lost Certificates will be replaced upon delivery
of satisfactory indemnity and payment of expenses incurred.
Distributions
Dividends and interest 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 Certificateholder from the Income Account are
computed as of the close of business on the Record Date for the Distribution
Date. Distributions from the Principal Account of the Trust (other than amounts
representing failed contracts, as previously discussed) will be computed as of
the Record Date, and will be made to the Certificateholders 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. No
distributions will be made to Certificateholders electing to participate in the
Total Reinvestment Plan. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the Distribution Date
following the first Record Date on which they are a Certificateholder of record.
As of each Record Date, the Trustee deducts 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 by the Trustee.
The dividend distribution per 100 Units cannot be estimated and will
change and may be reduced as Securities are redeemed, exchanged or sold, or as
expenses of the Trust fluctuate. No distribution need be made from the Principal
Account until the balance therein is an amount sufficient to distribute $1.00
per 100 Units.
Records
The Trustee shall furnish Certificateholders in connection with each
distribution a statement of the amount of dividends and interest, if any, and
the amount of other receipts, if any, which are being distributed, 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 Certificateholder 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,
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deductions for applicable taxes and fees and expenses of the Trust, and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount 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 dates of disposition of any Securities and the net
proceeds received therefrom, deductions for payments of applicable taxes and
fees and expense 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 Certificateholders 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 Certificateholders 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
Certificateholders, Certificates issued or 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"). Certificateholders
should consult their tax advisers in determining the Federal, state, local, and
any other tax consequences of the purchase, ownership and disposition of Units.
In rendering the opinion set forth below, Battle Fowler LLP, has examined
the Trust 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 Sponsor, 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
Certificateholders 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
Certificateholders 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
Certificateholder 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 the income of
the Certificateholder 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 Sponsor reserves 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.
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A taxable event will generally occur with respect to each
Certificateholder when the Trust disposes of a Security (whether by sale,
exchange or redemption) or upon the sale, exchange or redemption of Units by
such Certificateholder. The price a Certificateholder pays for his Units,
including sales charges, is allocated among his pro rata portion of each
Security held by the Trust (in proportion to the fair market values thereof on
the date the Certificateholder purchases his Units) in order to determine his
initial cost for his pro rata portion of each Security held by the Trust.
The Trust will contain Treasury Obligations which were originally issued
at a discount ("original issue discount"). In general, original issue discount
can be defined as the difference between the price at which a security was
issued and its stated redemption price at maturity. In the case of a Treasury
Obligation issued after July 2, 1982, original issue discount is deemed to
accrue on a constant interest method, which corresponds in general to the
economic accrual of interest (adjusted to eliminate proportionately on an
elapsed-time basis any excess of the amount paid for the Treasury Obligation
over the sum of the issue price and the accrued original issue discount on the
acquisition date).
Each Certificateholder will be required to include in his gross income,
original issue discount with respect to his interest in a Treasury Obligation
held by the Trust at the same time and in the same manner as though the
Certificateholder was the direct holder of such interest. The tax basis of a
Certificateholder with respect to his interest in a Treasury Obligation will be
increased by the amount of original issue discount thereon properly included in
the Certificateholder's gross income as determined for Federal income tax
purposes.
The amount of gain recognized by a Certificateholder on a disposition of a
Treasury Obligation by the Trust will be equal to the difference between such
Certificateholder's pro rata portion of the gross proceeds realized by the Trust
on the disposition and the Certificateholder's tax basis in his pro rata portion
of the Treasury Obligation disposed of. Any gain recognized on a sale or
exchange of a Certificateholder's pro rata interest in a Treasury Obligation,
and not constituting a realization of accrued "market discount" in the case of a
Treasury Obligation issued after July 18, 1984, will be capital gain. Gain
realized on the disposition of the interest of a Certificateholder in a market
discount Treasury Obligation is treated as ordinary income to the extent the
gain does not exceed the accrued market discount. A Certificateholder has an
interest in a market discount Treasury Obligation when the Certificateholder's
tax cost for his pro rata interest in the Treasury Obligation is less than the
stated redemption price thereof at maturity (or the issue price plus original
issue discount accrued up to the acquisition date, in the case of an original
issue discount Treasury Obligation). If a Certificateholder has an interest in a
market discount Treasury Obligation and has incurred debt to acquire Units, the
deductibility of a portion of the interest incurred on such debt may be
deferred.
The Trust will also own shares in the Fund, an entity that has elected and
qualified for the special tax treatment applicable to "regulated investment
companies." If the Fund distributes 90% or more of its investment company
taxable income to its shareholders, it will not be subject to Federal income tax
on the amounts so distributed. Moreover, if the Fund distributes at least 98% of
its investment company taxable income (including any net capital gain) it will
not be subject to the 4% excise tax on certain undistributed income of
"regulated investment companies." Distributions by the Fund of its taxable
income to its shareholders will be taxable as ordinary income to such
shareholders. Distributions of the Fund's net capital gain, which are designated
as capital gain dividends by the Fund, will be taxable to its shareholders as
long- term capital gain, regardless of the length of time the shareholders have
held their investment in the Fund.
A Certificateholder'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
Certificateholder has held his Units for more than one year. Long-term capital
gains are generally taxed at the same rates applicable to ordinary income,
although individuals who realize long-term capital gains will be subject to a
maximum tax rate of 28% on such gains, rather than the "regular" maximum tax
rate of 39.6%.
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Tax rates may increase prior to the time when Certificateholders may realize
gains from the sale, exchange or redemption of the Units or Securities.
A Certificateholder'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 Certificateholder has
held his Units for more than one year. Capital losses are deductible to the
extent of capital gains; in addition, up to $3,000 of capital losses recognized
by non-corporate Certificateholders may be deducted against ordinary income.
A Certificateholder 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 Certificateholder's other miscellaneous itemized
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
Certificateholder an annual statement containing information relating to the
income 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
Certificateholder 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 Certificateholder's pro rata
portion of dividends that are taxable as ordinary income to Certificateholders
which are received by the Trust from the Fund and derived by the Fund from a
domestic corporation under Section 243 of the Code or from a qualifying foreign
corporation. 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). Moreover, the allowable
percentage of the deduction will be reduced from 70% if a corporate
Certificateholder owns Units the financing of which is directly attributable to
indebtedness incurred by such corporation. Accordingly, corporate
Certificateholders should consult their tax advisers in this regard.
As discussed in the section "Trust Termination," each Certificateholder
may have three options in receiving their termination distributions, which are
(i) to receive their pro rata share of the underlying Fund Shares in kind, and
the maturity value of the Treasury Obligations in cash, if the Certificateholder
owns at least 2,500 Units, (ii) to receive cash upon liquidation of their pro
rata share of the underlying Securities, or (iii) to invest the amount of cash
they would receive upon the liquidation of their 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 Certificateholder choose
option (i), the exchange of the Certificateholder's pro rata portion of the
Securities held by the Trust for a proportionate number of Fund Shares plus cash
equal to the Certificateholder's proportionate share of Treasury Obligations.
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 Certificateholder may be considered the owner of
an undivided interest in all of the Trust's assets, and by accepting the
proportionate number of Fund Shares of the Trust in partial exchange for his
Unit, the Certificateholder should be treated as merely exchanging his undivided
pro rata ownership of Fund Shares held by the Trust into sole ownership of a
proportionate share of Fund Shares. As such, there should be no material
difference in the Certificateholder's ownership, and therefore the transaction
should be tax free to the extent the Fund Shares are received. Alternatively,
the transaction may be treated as an exchange that would qualify for
nonrecognition treatment to the extent the Certificateholder is exchanging his
undivided interest in all of the Trust's Fund Shares for his proportionate
number of shares of the underlying Fund Shares. In either instance, the
transaction should result in a non-
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taxable event for the Certificateholder to the extent Fund Shares are received.
However, there is no specific authority addressing the income tax consequences
of an in-kind distribution from a grantor trust, and investors are urged to
consult their tax advisers in this regard.
Entities that generally qualify for an exemption from Federal income tax,
such as many pension trusts, are nevertheless taxed under Section 511 of the
Code on "unrelated business taxable income." Unrelated business taxable income
is income from a trade or business regularly carried on by the tax-exempt entity
that is unrelated to the entity's exempt purpose. Unrelated business taxable
income generally does not include dividend or interest income or gain from the
sale of investment property, unless such income is derived from property that is
debt-financed or is dealer property. A tax-exempt entity's dividend income from
the Trust and gain from the sale of Units in the Trust or the Trust's sale of
Securities is not expected to constitute unrelated business taxable income to
such tax-exempt entity unless the acquisition of the Unit itself is
debt-financed or constitutes dealer property in the hands of the tax-exempt
entity.
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."
Prospective tax-exempt investors are urged to consult their own tax
advisers prior to investing in the Trust.
LIQUIDITY
Sponsor Repurchase
The Sponsor, although not obligated to do so, presently maintains and
intends to continue to maintain a secondary market for the Units and
continuously to offer to repurchase the Units. The Sponsor's secondary market
repurchase price will be based on the aggregate value of the Securities in the
Trust portfolio and will be the same as the redemption price. 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 Sponsor does not
guarantee the enforceability, marketability or price of any Securities in the
Portfolio or of the Units. Certificateholders who wish to dispose of their Units
should inquire of the Sponsor as to current market prices prior to making a
tender for redemption. The Sponsor may discontinue repurchase of Units if the
supply of Units exceeds demand, or for other business reasons. The date of
repurchase is deemed to be the date on which Certificates representing Units are
physically received in proper form, i.e., properly endorsed, by Reich & Tang
Distributors L.P., 600 Fifth Avenue, New York, New York 10020. Units received
after 4 P.M., New York Time, will be deemed to have been repurchased on the next
business day. In the event a market is not maintained for the Units, a
Certificateholder may be able to dispose of Units only by tendering them to the
Trustee for redemption.
Units purchased by the Sponsor in the secondary market may be reoffered
for sale by the Sponsor at a price based on the aggregate value of the
Securities in the Trust plus a 4.9% sales charge (or 5.152% of the net amount
invested) plus a pro rata portion of amounts, if any, in the Income Account. Any
Units that are purchased by the Sponsor in the secondary market also may be
redeemed by the Sponsor if it determines such redemption to be in its best
interest.
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The Sponsor may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee for
redemption (see "Trustee Redemption"). Factors which the Sponsor will consider
in making a determination will include the number of Units of all Trusts which
it has in inventory, its 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 (seven calendar days after
tender), the Sponsor may elect to purchase such Units. Such purchase shall be
made by payment to the Certificateholder not later than the close of business on
the redemption date of an amount equal to the Redemption Price on the date of
tender. Notwithstanding the foregoing, the Sponsor undertakes to maintain the
secondary market during the initial public offering period.
Trustee Redemption
Units may also be tendered to the Trustee for redemption at its corporate
trust office at 770 Broadway, New York, New York 10003, upon proper delivery of
Certificates representing such Units and payment of any relevant tax. At the
present time there are no specific taxes, other than the income taxes discussed
above, related to the redemption of Units. No redemption fee will be charged by
the Sponsor or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates representing Units to be redeemed must be delivered to the
Trustee and must be properly endorsed or accompanied by proper instruments of
transfer with signature guaranteed (or by providing satisfactory indemnity, as
in the case of lost, stolen or mutilated Certificates). Thus, redemptions of
Units cannot be effected until Certificates representing such Units have been
delivered by the person seeking redemption. (See "Certificates.")
Certificateholders must sign exactly as their names appear on the faces of their
Certificates. In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority.
Within seven calendar days following a tender for redemption, or, if such
seventh day is not a business day, on the first business day prior thereto, the
Certificateholder 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.
The "date of tender" is deemed to be the date on which Units are received by the
Trustee, except that with respect to Units received after the close of trading
on the New York Stock Exchange (4:00 p.m. Eastern Time), the date of tender is
the next day on which such Exchange is open for trading, and such Units will be
deemed to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day.
A Certificateholder will receive his redemption proceeds in cash and
amounts paid on redemption 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 between the Treasury Obligations and Fund Shares. Treasury
Obligations will not be sold, however, to the extent that the aggregate maturity
value per Unit of the Treasury Obligations remaining after such sale would be
less than the aggregate maturity value per Unit of the Treasury Obligations as
of the initial Date of Deposit.
The Redemption Price per Unit is the pro rata share of the Unit in the
Trust determined by the Trustee on the basis of (i) the cash on hand in the
Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust as determined by the Evaluator, 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
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the distribution to Certificateholders of record as of the business day prior to
the evaluation being made. The Evaluator may determine the value of the
Securities in the Trust in the following manner: the net asset value of the Fund
Shares and the bid side evaluation of the Treasury Obligations. The evaluation
shall generally be based on the closing purchase price in the over-the-counter
market (unless the Evaluator deems these prices inappropriate as a basis for
evaluation) or if there is no such closing purchase price, then the Evaluator
may ascertain the values of the Treasury Obligations using any of the following
methods, or a combination thereof, which it deems appropriate: (a) on the basis
of the current bid prices for the Treasury Obligations as obtained from
investment dealers or brokers who customarily deal in securities comparable to
those held in the Trust, (b) if bid prices are not available for the Treasury
Obligations, on the basis of current bid prices for comparable securities, (c)
by appraising the value of the Treasury Obligations on the bid side of the
market or (d) by any combination of the above.
The Trustee is irrevocably authorized in its discretion, if the Sponsor
does not elect to purchase a Unit tendered for redemption or if the Sponsor
tenders 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
Certificateholder at prices which will return to the Certificateholder 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 Certificateholder on
the day he would otherwise be entitled to receive payment of the Redemption
Price.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on that Exchange is restricted or during which
(as determined by the Securities and Exchange Commission) an emergency exists as
a result of which disposal or evaluation of the Securities is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit. The Trustee and the Sponsor 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 Certificateholder who wishes to dispose of his Units should inquire of
his bank or broker in order to determine if there is a current secondary market
price in excess of the Redemption Price.
TOTAL REINVESTMENT PLAN
Distributions of dividend income and capital gain, if any, from the Trust
are made to Certificateholders annually. The Certificateholder has the option,
however, of either receiving his distribution check, together with any other
payments, from the Trustee or participating in a reinvestment program offered by
the Sponsor in shares of the Treasurer's Fund, Inc., U.S. Treasury Money Market
Portfolio (the "Treasurer's Fund"). Participation in the reinvestment option is
conditioned on the Treasurer's Fund's lawful qualification for sale in the state
in which the Certificateholder is a resident. For income tax purposes, however,
Certificateholders who participate in the Total Reinvestment Plan are taxed in
the same manner as those Certificateholders who do not participate in the plan.
Upon enrollment in the reinvestment option, the Trustee will direct
dividend and/or other distributions, if any, to the Treasurer's Fund. The
Treasurer's Fund seeks to maximize current income and to maintain liquidity and
a stable net asset value by investing in short term U.S. Treasury Obligations
which have effective maturities of 397 days or less. For more complete
information concerning the Treasurer's Fund, including charges and expenses, the
Certificateholder should fill out and mail the card attached to the inside back
cover of the Prospectus. The prospectus for the Treasurer's Fund will be sent to
Certificateholders. The Certificateholder should read the prospectus for the
Treasurer's Fund carefully before deciding to participate.
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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, is not
managed and therefore the adverse financial condition of an issuer will not
necessarily require the sale of its Securities from the Portfolio. However, the
Sponsor 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; or
4. decline in price as a direct result of serious adverse credit
factors affecting the issuer of a Security which, in the opinion of
the Sponsor, would make the retention of the Security detrimental to
the Trust or Certificateholders.
If a default in the payment of amounts due on any Security occurs and if
the Sponsor fails to give immediate instructions to sell or hold that Security,
the Trust Agreement provides that the Trustee, within 30 days of that failure by
the Sponsor, may sell the Security.
The Trust Agreement provides that it is the responsibility of the Sponsor
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, except that the Sponsor may
instruct the Trustee to accept such an offer or to take any other action with
respect thereto as the Sponsor may deem proper if the issuer failed to declare
or pay, or the Sponsor anticipates such issuer will fail to declare or pay,
anticipated dividends with respect thereto.
The Trust Agreement also authorizes the Sponsor 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 within 90 days subsequent to the initial Date of
Deposit, provided that the original proportionate relationship between the Fund
Shares and Treasury Obligations established on the initial Date of Deposit is
maintained to the extent practicable. Deposits of Additional Securities in the
Trust subsequent to the initial Date of Deposit must replicate exactly the
proportionate relationship between the Fund Shares and Treasury Obligations in
the Trust portfolio at the end of the initial 90-day period.
With respect to deposits of Additional Securities (or cash or a letter of
credit with instructions to purchase Additional Securities), in connection with
creating additional Units of the Trust, the Sponsor 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 Sponsor may (1) deposit
cash or a letter of credit with instructions to purchase the Security when it
becomes
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available, or (2) 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 Sponsor without
the consent of any of the Certificateholders: (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 Certificateholders.
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 the holders of
Certificates evidencing 662/3% of the Units then outstanding for the purpose of
modifying the rights of Certificateholders; provided that no such amendment or
waiver shall reduce any Certificateholder'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 Certificates. The
Trust Agreement may not be amended, without the consent of the holders of all
Certificates 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
Certificateholders, in writing, of the substance of any such amendment.
Trust Termination
The Trust Agreement provides that the Trust shall terminate upon the
maturity, redemption or other disposition, as the case may be, of the last of
the Securities held in such Trust but 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 Sponsor,
terminate the Trust. The Trust may also be terminated at any time with the
consent of the holders of Certificates representing 100% of the Units then
outstanding. The Trustee may utilize the services of the Sponsor for the sale of
all or a portion of the Securities in the Trust. In the event of termination,
written notice thereof will be sent by the Trustee to all Certificateholders.
Such notice will provide Certificateholders with three options by which to
receive their pro rata share of the net asset value of the Trust.
1. A Certificateholder who owns at least 2,500 units and who so
elects by notifying the Trustee prior to the commencement of the
Liquidation Period by returning a properly completed election request (to
be supplied to Certificateholders at least 20 days prior to such date)
(see Part A ---"Summary of Essential Information" for the date of the
commencement of the Liquidation Period) will have his Units redeemed on
commencement of the Liquidation Period by distribution of the
Certificateholder's pro rata share of the net asset value of the Trust on
such date distributed in kind to the extent represented by Fund Shares and
the balance in cash to the extent represented by Treasury Obligations,
within 7 calendar days next following the commencement of the Liquidation
Period. Certificateholders subsequently selling such distributed Fund
Shares will incur brokerage costs when disposing of such Fund Shares. An
election of this option will not prevent the Certificateholder from
recognizing taxable gain or loss as a result of the liquidation of the
Treasury Obligations. Certificateholders should consult their own tax
advisers in this regard.
A Certificateholder may also elect prior to the Mandatory Termination Date
by so specifying in a properly completed election request, the following two
options with regard to the termination distribution of such Certificateholder's
interest in the Trust as set forth below:
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2. to receive in cash such Certificateholder's pro rata share of the net
asset value of the Trust derived from the sale by the Sponsor as the agent
of the Trustee of the underlying Securities over a period not to exceed 60
days immediately following the commencement of the Liquidation Period. The
Certificateholder's Redemption Price per Unit on the settlement date of
the last trade of a Security in the Trust will be distributed to such
Certificateholder within 7 days of the settlement of the trade of the last
Security to be sold; and/or
3. upon the receipt by the Trust of an appropriate exemptive order from
the Securities and Exchange Commission, to invest such Certificateholder's
pro rata share of the net asset value of the Trust derived from the sale
by the Sponsor as agent of the Trustee of the underlying Securities over a
period not to exceed 60 days immediately following the commencement of the
Liquidation Period, in units of a subsequent series of Equity Securities
Trust, Signature Series (the "New Series"). The Units of a New Series will
be purchased by the Certificateholder within 7 days of the settlement of
the trade for the last Security to be sold. Such purchaser will be
entitled to a reduced sales load of approximately 2.5% of the Public
Offering Price 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 Certificateholder'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 Certificateholder of Units of a New Series such
Certificateholder 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 Certificateholder 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.
Certificateholders should consult their own tax advisers in this regard.
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 Sponsor
may purchase a large amount of securities for the New Series in a short period
of time. The actual market impact of the Sponsor's 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 60 day period
immediately following the commencement of the Liquidation Period. The Sponsor
believes that the sale of underlying Securities over a 60 day period as
described above is in the best interest of a Certificateholder 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 60 days if, in
the Sponsor's judgment, such sales are in the best interest of
Certificateholders. The Sponsor, 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 Certificateholders. There can be no assurance,
however, that any adverse price consequences of heavy trading will be mitigated.
Certificateholders who do not make any election will be deemed to have
elected to receive the Redemption Price per Unit in cash (option number 2).
The Sponsor may for any reason, in its sole discretion, decide not to
sponsor any subsequent series of the Trust, without penalty or incurring
liability to any Certificateholder. If the Sponsor so decides, the Sponsor will
notify the Trustee of that decision, and the Trustee will notify the
Certificateholders before the Termination Date. All Certificateholders will then
elect either option 1 or option 2.
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By electing to reinvest in the New Series, the Certificate holder
indicates his interest in having his terminating distribution from the Trust
invested only in the New Series created following termination of the Trust; the
Sponsor expects, however, that a similar reinvestment program will be offered
with respect to all subsequent series of the Trust, thus giving
Certificateholders a yearly opportunity to elect to "rollover" their termination
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 Certificateholder's election to participate in the
reinvestment program will be treated as an indication of interest only. The
Sponsor intends 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 Sponsor reserves the right to modify, suspend or terminate the
reinvestment privilege at any time.
The Sponsor
The Sponsor, Reich & Tang Distributors L.P. (successor to the Unit Investment
Trust Division of Bear, Stearns & Co. Inc.), a Delaware limited partnership, is
engaged in the brokerage business and is a member of the National Association of
Securities Dealers, Inc. Reich & Tang is also a registered investment adviser.
Reich & Tang maintains its principal business offices at 600 Fifth Avenue, New
York, New York 10020. Reich & Tang Asset Management L.P. ("RTAM LP"), a
registered investment adviser, having its principal place of business at 399
Boylston Street, Boston, MA 02116, is the 99% limited partner of the Sponsor.
RTAM LP is 99.5% owned by New England Investment Companies, LP ("NEIC LP") and
Reich & Tang Asset Management, Inc., a wholly owned subsidiary of NEIC LP, owns
the remaining. 5% interest of TRAM OP ad is its general partner. NEIC LP's
general partner is New England Investment Companies, Inc. ("NEIC"), a holding
company offering a broad array of investment styles across a wide range of asset
categories through ten investment advisory/management affiliates and two
distribution affiliates. These affiliates in the aggregate are investment
advisers or managers of over 57 registered investment companies. Reich & Tang is
the successor sponsor 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); Mortgage Securities Trust, Series 1 (and Subsequent Series); Insured
Municipal Securities Trust, Series 1 (and Subsequent Series), 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 sponsor and its ability to carry out its
contractual obligations.
The information included herein is only for the purpose of informing
investors as to the financial responsibility of the Sponsor and their ability to
carry out their contractual obligations.
The Sponsor will be under no liability to Certificateholders 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 Sponsor may resign at any time by delivering to the Trustee an
instrument of resignation executed by the Sponsor.
If at any time the Sponsor 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.
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The Trustee
The Trustee is The Chase Manhattan Bank (National Association), a national
banking association with its principal executive office located at 1 Chase
Manhattan Plaza, New York, New York 10081 and its unit investment trust office
at 770 Broadway, New York, New York 10003 (800) 882-9898. The Trustee is subject
to the supervision by the Comptroller of the Currency, 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 Certificates in accordance with the Trust Agreement,
except in cases of its own willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties; provided, however, that the
Trustee shall not in any event be liable or responsible for any evaluation made
by any independent evaluation service employed by it. In addition, the Trustee
shall not be liable for any taxes or other governmental charges imposed upon or
in respect of the Securities or the Trust which it may be required to pay under
current or future law of the United States or any other taxing authority having
jurisdiction. The Trustee shall not be liable for depreciation or loss incurred
by reason of the sale by the Trustee of any of the Securities pursuant to the
Trust Agreement.
For further information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Certificateholders."
The Trustee may resign by executing an instrument in writing and filing
the same with the Sponsor, and mailing a copy of a notice of resignation to all
Certificateholders. In such an event the Sponsor is 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 Sponsor 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 Certificateholder by the Sponsor. 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.
The Evaluator
The Evaluator is Kenny S&P Evaluation Services, a division of J.J. Kenny
Co., Inc., with its main offices located at 65 Broadway, New York, New York
10006. The Evaluator is a wholly-owned subsidiary of McGraw-Hill, Inc. The
Evaluator is a registered investment advisor and also provides financial
information services.
The value of the Securities in the Trust portfolio is determined in good
faith by the Evaluator on the basis set forth under "Public Offering--Offering
Price." The Sponsor, the Trustee and the Certificateholders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the
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best information available to it, provided, however, that the Evaluator shall be
under no liability to the Sponsor, the Trustee or Certificateholders 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 Evaluator may resign or may be removed by the Sponsor and the Trustee,
and the Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective upon
the acceptance of appointment by the successor Evaluator. If upon resignation of
the Evaluator no successor has accepted appointment within the thirty days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
TRUST EXPENSES AND CHARGES
At no cost to the Trust, the Sponsor has borne all the expenses of
creating and establishing the Trust, including the cost of 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, the
initial preparation and printing of the Certificates, legal expenses,
advertising and selling expenses, expenses of the Trustee, initial fees and
other out-of-pocket expenses.
The Sponsor will not charge the Trust a fee for their services as such.
(See "Sponsor's and Underwriters' Profits.")
The Trustee receives, for its ordinary recurring services to the Trust, an
annual fee in the amount set forth under "Summary of Essential Information" in
Part A. Such fee shall be reduced directly by any Rule 12b- 1 fees paid by the
Fund's distributor to the Trustee for performing servicing functions with
respect to the Fund Shares. There can be no assurance that the Trustee will
receive any Rule 12b-1 fees in the future. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust Agreement,
see "Trust Administration" and "Rights of Certificateholders."
For each evaluation of the Treasury Obligations in the Trust, the
Evaluator shall receive a fee as set forth in the "Summary of Essential
Information."
The Trustee's fees and the Evaluator's fees applicable to a Trust are
payable annually as of the Record Date from the Income Account of the Trust to
the extent funds are available and then from the Principal Account. Both fees
may be increased without approval of the Certificateholders 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 Certificateholders; 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
Sponsor for any losses, liabilities and expenses incurred in acting as sponsor
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 Sponsor, 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.
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The fees and expenses set forth herein are payable out of the Trust and
when paid by or owing to the Trustee are secured by a lien on the Trust. If the
cash dividend, capital gains distributions and Rule 12b-1 fees paid to the
Trustee by the Fund's distributor are insufficient to provide for amounts
payable by the Trust, the Trustee has the power to sell Fund Shares (not
Treasury Obligations) to pay such amounts. To the extent Fund Shares are sold,
the size of the Trust will be reduced and the proportions of the types of
Securities will change. Such sales might be required at a time when Fund Shares
would not otherwise be sold and might result in lower prices than might
otherwise be realized. Moreover, due to the minimum amount in which Fund Shares
may be required to be sold, the proceeds of such sales may exceed the amount
necessary for the payment of such fees and expenses. If the cash dividends,
capital gains distributions, Rule 12b-1 fees paid to the Trustee by the Fund's
distributor and proceeds of Fund Shares sold after deducting the ordinary
expenses are insufficient to pay the extraordinary expenses of the Trust, the
Trustee has the power to sell Treasury Obligations to pay such extraordinary
expenses.
The accounts of the Trust shall be audited not less than annually by
independent public accountants selected by the Sponsor. The expenses of the
audit shall be an expense of the Trust. So long as the Sponsor maintains a
secondary market, the Sponsor will bear any audit expense which exceeds 50(cent)
per Unit. Certificateholders covered by the audit during the year may receive a
copy of the audited financials upon request.
EXCHANGE PRIVILEGE AND CONVERSION OFFER
Certificateholders will be able to elect to exchange any or all of their
Units of this Trust for Units of one or more of any available series of Equity
Securities Trust, Mortgage Securities Trust, Insured Municipal Securities Trust,
Municipal Securities Trust, or New York Municipal Trust (the "Exchange Trusts")
at a reduced sales charge as set forth below. Under the Exchange Privilege, the
Sponsor's repurchase price during the initial offering period of the Units being
surrendered will be based on the market value of the Securities in the Trust
portfolio or on the aggregate offer price of the securities in the other Trust
Portfolios; and, after the initial offering period has been completed, will be
based on the aggregate bid price of the securities in the particular Trust
portfolio. Units in an Exchange Trust then will be sold to the Certificateholder
at a price based on the aggregate offer price of the Bonds in the Exchange Trust
portfolio during the initial public offering period of the Exchange Trust; and
after the initial public offering period has been completed, based on the
aggregate bid price of the Securities in the Exchange Trust portfolio, if its
initial offering has been completed, plus accrued interest and a reduced sales
charge as set forth below.
Except for unitholders who wish to exercise the Exchange Privilege within
the first five months of their purchase of Units of the Trust, the sales charge
applicable to the purchase of units of an Exchange Trust shall be approximately
1.5% of the price of each Exchange Trust unit (or 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust). For unitholders
who wish to exercise the Exchange Privilege within the first five months of
their purchase of Units of the Trust, the sales charge applicable to the
purchase of units of an Exchange Trust shall be the greater of (i) approximately
1.5% of the price of each Exchange Trust unit (or 1,000 Units for the Mortgage
Securities Trust or 100 Units for the Equity Securities Trust), or (ii) an
amount which when coupled with the sales charge paid by the unitholder upon his
original purchase of Units of the Trust at least equals the sales charge
applicable in the direct purchase of units of an Exchange Trust. The Exchange
Privilege is subject to the following conditions:
1. The Sponsor must be maintaining a secondary market in both the
Units of the Trust held by the Certificateholder and the Units of the
available Exchange Trust. While the Sponsor has indicated its intention to
maintain a market in the Units of all Trusts sponsored by it, the Sponsor
is under no obligation to continue to maintain a secondary market and
therefore there is no assurance that the Exchange Privilege will be
available to a Certificateholder at any specific time in the future. At
the time of the Certificateholder's election to participate in the
Exchange Privilege, there also must be
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<PAGE>
Units of the Exchange Trust available for sale, either under the initial
primary distribution or in the Sponsor's secondary market.
2. Exchanges will be effected in whole units only. Any excess
proceeds from the Units surrendered for exchange will be remitted and the
selling Certificateholder will not be permitted to advance any new funds
in order to complete an exchange. Units of the Mortgage Securities Trust
may only be acquired in blocks of 1,000 Units. Units of the Equity
Securities Trust may only be acquired in blocks of 100 Units.
3. The Sponsor reserves the right to suspend, modify or terminate
the Exchange Privilege. The Sponsor will provide unitholders of the Trust
with 60 days prior written notice of any termination or material amendment
to the Exchange Privilege, provided that, no notice need be given if (i)
the only material effect of an amendment is to reduce or eliminate the
sales charge payable at the time of the exchange, to add one or more
series of the Trust eligible for the Exchange Privilege or to delete a
series which has been terminated from eligibility for the Exchange
Privilege, (ii) there is a suspension of the redemption of units of an
Exchange Trust under Section 22(e) of the Investment Company Act of 1940,
or (iii) an Exchange Trust temporarily delays or ceases the sale of its
units because it is unable to invest amounts effectively in accordance
with its investment objectives, policies and restrictions. During the 60
day notice period prior to the termination or material amendment of the
Exchange Privilege described above, the Sponsor will continue to maintain
a secondary market in the units of all Exchange Trusts that could be
acquired by the affected unitholders. Unitholders may, during this 60 day
period, exercise the Exchange Privilege in accordance with its terms then
in effect. In the event the Exchange Privilege is not available to a
Certificateholder at the time he wishes to exercise it, the
Certificateholder will immediately be notified and no action will be taken
with respect to his Units without further instructions from the
Certificateholder.
To exercise the Exchange Privilege, a Certificateholder should notify the
Sponsor of his desire to exercise his Exchange Privilege. If Units of a
designated, outstanding series of an Exchange Trust are at the time available
for sale and such Units may lawfully be sold in the state in which the
Certificateholder is a resident, the Certificateholder will be provided with a
current prospectus or prospectuses relating to each Exchange Trust in which he
indicates an interest. He may then select the Trust or Trusts into which he
desires to invest the proceeds from his sale of Units. The exchange transaction
will operate in a manner essentially identical to a secondary market transaction
except that units may be purchased at a reduced sales charge.
Example: Assume that after the initial public offering has been completed, a
Certificateholder has five units of a Trust with a current value of $700 per
unit which he has held for more than 5 months and the Certificateholder wishes
to exchange the proceeds for units of a secondary market Exchange Trust with a
current price of $725 per unit. The proceeds from the Certificateholder's
original units will aggregate $3,500. Since only whole units of an Exchange
Trust may be purchased under the Exchange Privilege, the Certificateholder would
be able to acquire four units (or 4,000 Units of the Mortgage Securities Trust
or 400 Units of the Equity Securities Trust) for a total cost of $2,943.50
($2,900 for units and $43.50 for the sales charge). The remaining $556.50 would
be remitted to the Certificateholder in cash. If the Certificateholder acquired
the same number of units at the same time in a regular secondary market
transaction, the price would have been $3,059.50 ($2,900 for units and $159.50
for the sales charge, assuming a 5 1/2% sales charge times the public offering
price).
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<PAGE>
The Conversion Offer
Unit owners of any registered unit investment trust for which there is no
active secondary market in the units of such trust (a "Redemption Trust") will
be able to elect to redeem such units and apply the proceeds of the redemption
to the purchase of available Units of one or more series of Mortgage Securities
Trust, Municipal Securities Trust, Insured Municipal Securities Trust, New York
Municipal Trust or Equity Securities Trust (the "Conversion Trust") at the
Public Offering Price for units of the Conversion Trust based on a reduced sales
charge as set forth below. Under the Conversion Offer, units of the Redemption
Trust must be tendered to the trustee of such trust for redemption at the
redemption price, which is based upon the market value of the underlying
securities in the Trust portfolio or the aggregate bid side evaluation of the
underlying bonds in other Trust portfolios and is generally about 1 1/2% to 2%
lower than the offering price for such bonds. The purchase price of the units
will be based on the aggregate offer price of the underlying bonds in the
Conversion Trust portfolio during its initial offering period; or, at a price
based on the aggregate bid price of the underlying bonds if the initial public
offering of the Conversion Trust has been completed, plus accrued interest and a
sales charge as set forth below.
Except for unitholders who wish to exercise the Conversion Offer within
the first five months of their purchase of units of a Redemption Trust, the
sales charge applicable to the purchase of Units of the Conversion Trust shall
be approximately 1.5% of the price of each Unit (or per 1,000 Units for the
Mortgage Securities Trust or 100 Units for the Equity Securities Trust). For
unitholders who wish to exercise the Conversion Offer within the first five
months of their purchase of units of a Redemption Trust, the sales charge
applicable to the purchase of Units of a Conversion Trust shall be the greater
of (i) approximately 1.5% of the price of each Unit (or per 1,000 Units for the
Mortgage Securities Trust or 100 Units for the Equity Securities Trust) or (ii)
an amount which when coupled with the sales charge paid by the unitholder upon
his original purchase of units of the Redemption Trust at least equals the sales
charge applicable in the direct purchase of Units of a Conversion Trust. The
Conversion Offer is subject to the following limitations:
1. The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there is no
active secondary market at the time the Certificateholder elects to
participate in the Conversion Offer. At the time of the unit owner's
election to participate in the Conversion Offer, there also must be
available units of a Conversion Trust, either under a primary distribution
or in the Sponsor's secondary market.
2. Exchanges under the Conversion Offer will be effected in whole
units only. Unit owners will not be permitted to advance any new funds in
order to complete an exchange under the Conversion Offer. Any excess
proceeds from units being redeemed will be returned to the unit owner.
Units of the Mortgage Securities Trust may only be acquired in blocks of
1,000 units. Units of the Equity Securities Trust may only be acquired in
blocks of 100 Units.
3. The Sponsor reserves the right to modify, suspend or terminate
the Conversion Offer at any time without notice to unit owners of
Redemption Trusts. In the event the Conversion Offer is not available to a
unit owner at the time he wishes to exercise it, the unit owner will be
notified immediately and no action will be taken with respect to his units
without further instruction from the unit owner. The Sponsor also reserves
the right to raise the sales charge based on actual increases in the
Sponsor's costs and expenses in connection with administering the program,
up to a maximum sales charge of 2% per unit (or per 1,000 units for the
Mortgage Securities Trust or 100 Units for the Equity Securities Trust).
To exercise the Conversion Offer, a unit owner of a Redemption Trust
should notify his retail broker of his desire to redeem his Redemption Trust
Units and use the proceeds from the redemption to purchase Units of one or more
of the Conversion Trusts. If Units of a designated, outstanding series of a
Conversion Trust are at that time available for sale and if such Units may
lawfully be sold in the state in which the unit owner is a
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<PAGE>
resident, the unit owner will be provided with a current prospectus or
prospectuses relating to each Conversion Trust in which he indicates an
interest. He then may select the Trust or Trusts into which he decides to invest
the proceeds from the sale of his Units. The transaction will be handled
entirely through the unit owner's retail broker. The retail broker must tender
the units to the trustee of the Redemption Trust for redemption and then apply
the proceeds to the redemption toward the purchase of units of a Conversion
Trust at a price based on the aggregate offer or bid side evaluation per Unit of
the Conversion Trust, depending on which price is applicable, plus accrued
interest and the applicable sales charge. The certificates must be surrendered
to the broker at the time the redemption order is placed and the broker must
specify to the Sponsor that the purchase of Conversion Trust Units is being made
pursuant to the Conversion Offer. The unit owner's broker will be entitled to
retain $5 of the applicable sales charge.
Example: Assume a unit owner has five units of a Redemption Trust which he has
held for more than 5 months with a current redemption price of $675 per unit
based on the aggregate bid price of the underlying bonds and the unit owner
wishes to participate in the Conversion Offer and exchange the proceeds for
units of a secondary market Conversion Trust with a current price of $750 per
Unit. The proceeds for the unit owner's redemption of units will aggregate
$3,375. Since only whole units of a Redemption Trust may be purchased under the
Conversion Offer, the unit owner will be able to acquire four units of the
Conversion Trust (or 4,000 units of the Mortgage Securities Trust or 400 Units
of the Equity Securities Trust) for a total cost of $3,045 ($3,000 for units and
$45 for the sales charge). The remaining $330 would be remitted to the unit
owner in cash. If the unit owner acquired the same number of Conversion Trust
units at the same time in a regular secondary market transaction, the price
would have been $3,165 ($3,000 for units and $165 for the sales charge, assuming
a 5 1/2% sales charge times the public offering price).
Tax Consequences of the Exchange Privilege and the Conversion Offer
A surrender of units pursuant to the Exchange Privilege or the Conversion
Offer will constitute a "taxable event" to the Certificateholder under the
Internal Revenue Code. The Certificateholder will realize a tax gain or loss
that will be of a long-or short-term capital or ordinary income nature depending
on the length of time the units have been held and other factors. (See "Tax
Status".) A Certificateholder's tax basis in the Units acquired pursuant to the
Exchange Privilege or Conversion Offer will be equal to the purchase price of
such Units. Investors should consult their own tax advisers as to the tax
consequences to them of exchanging or redeeming units and participating in the
Exchange Privilege or Conversion Offer.
OTHER MATTERS
Legal Opinions
The legality of the Units offered hereby and certain matters relating to
federal tax law have been passed upon by Messrs. Battler Fowler LLP, 75 East
55th Street, New York, New York 10022 as counsel for the Sponsor. Messrs.
Carter, Ledyard & Milburn, Two Wall Street, New York, New York 10005 have acted
as counsel for the Trustee.
Independent Auditors
The Statement of Condition and Portfolio are included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent auditors, and upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
Legal Matters
The Investment Company Act of 1940 (the "Act") limits the amounts that
registered investment companies (such as the Trust) can own of other registered
investment companies (such as the Fund). However, Section 12(d)(1)(E) of the Act
would exempt the Trust from these limitations if the Fund is the only
"investment security" held by the Trust. While the term "investment security" is
not defined in Section 12(d) of the Act, it is defined in another section of the
Act to exclude government securities (such as the Treasury Obligations) from its
scope. Therefore, since the Trust only owns shares of the Fund and Treasury
Obligations it complies with the exception of Section 12(d)(1)(E). Further, the
Office of Chief Counsel of the Division of Investment Management of the
Securities and Exchange Commission granted the Sponsor "no action" assurance on
this issue.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as Aaa securities or fluctuations of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
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<PAGE>
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately based, in which case the rating is not
published in Moody's Investors Service, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols, Aa-1,
A-1, Baa-1, and B-1.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Corporation ("S&P"). Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
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<PAGE>
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that S&P does not rate a
particular type of obligation as a matter of policy.
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<PAGE>
I am the owner of ____________ units of Equity Securities Trust, Series _____ I
would like to learn more about The Treasurer's Fund, Inc., U.S. Treasury Money
Market Portfolio including charges and expenses. I understand that my request
for more information about this fund in no way obligates me to participate in
the reinvestment option, and that this request form is not an offer to sell.
Please send me more information, including a copy of the current prospectus of
The Treasurer's Fund, Inc., U.S. Treasury Money Market Portfolio.
Date _________________________, 19___
__________________________________ ____________________________________
Registered Holder (Print) Registered Holder (Print)
__________________________________ ____________________________________
Register Holder top Signature Registered Holder Signature
(Two signatures if joint tenancy)
My Brokerage Firm's Name ______________________________________________________
Street Address ________________________________________________________________
City, State, Zip Code _________________________________________________________
Broker's Name ______________________________ Broker's No. _____________________
MAIL TO
The Treasurer's Fund, Inc.
19 Old Kings Highway South
Darien, Connecticut 06820-4526
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<PAGE>
No person is authorized to give any information or EST EQUITY SECURITIES
to make any representations not contained in Parts A TRUST SERIES 4
and B of the Prospectus; and any information or
representation not contained herein must not be GABELLI VALUE FUND AND
relied upon as having been authorized by the Trust, U.S. TREASURIES
the Trustee or the Sponsor. The Trust is registered
as a unit investment trust under the Investment EquiT's
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 agency or
officer thereof.
(Unit Investment Trust)
Prospectus
This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, securities in Dated: April 30, 1996
any state to any person to whom it is not lawful to
make such offer in such state.
Sponsor:
Table of Contents Reich & Tang Distributors L.P.
600 Fifth Avenue
Title Page New York, N.Y. 10020
212-830-5200
PART A
Summary of Essential Information .......A-2
Independent Auditors' Report............A-8
Statement of Condition..................A-9 Trustee:
Portfolio..............................A-10
Underwriting Syndicate.................A-11 The Chase Manhattan Bank, N.A.
770 Broadway
PART B New York, N.Y. 10003
The Trust.................................1
Risk Factors.............................14
Public Offering..........................17
Rights of Certificateholders.............21 Evaluator:
Tax Status...............................22
Liquidity................................25 Kenny S&P Evaluation Services
Total Reinvestment Plan..................27 65 Broadway
Trust Administration.....................28 New York, N.Y. 10006
Trust Expenses and Charges...............33
Exchange Privilege and Conversion Offer..34
Other Matters............................37
Description of Corporate Bond Ratings....38
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.
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