<PAGE> 1
File No. 333-02833
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 2
to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Fidelity Defined Trusts, Series 2
(Exact Name of Trust)
National Financial Services Corporation
(Exact Name of Depositor)
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
(Complete address of Depositor's principal executive offices)
National Financial Services Corporation Chapman and Cutler
Attention: David J. Pearlman Attention: Mark J. Kneedy
82 Devonshire Street N7A 111 West Monroe Street
Boston, Massachusetts 02109-3614 Chicago, Illinois 60603
(Name and complete address of agents for service)
(X) Check if it is proposed that this filing will become effective on October 5,
1998 pursuant to paragraph (b) of Rule 485.
<PAGE> 2
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- --------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS SERIES 2
PROSPECTUS - PART I
OCTOBER 5, 1998
ROLLING GOVERNMENT SERIES 2, GNMA PORTFOLIO
INVESTMENT GRADE SERIES 1, INTERMEDIATE INSURED UTILITY PORTFOLIO
INVESTMENT GRADE SERIES 2, CORPORATE PORTFOLIO
This Part I of the Prospectus may not be distributed unless accompanied by Part
II of the Prospectus. Both Parts I and II of the Prospectus should be retained
for future reference.
FIDELITY
INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 3
This Prospectus does 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.
---------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are registered
as unit investment trusts under the Investment Company Act of 1940. Such
registration does not imply that the Trusts or the Units have been guaranteed,
sponsored, recommended or approved by the United States or any state or any
agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in any state to any person to whom
it is not lawful to make such offer in such state.
-2-
<PAGE> 4
FIDELITY DEFINED TRUSTS, SERIES 2
PROSPECTUS
Part I
October 5, 1998
The Trusts
Fidelity Defined Trusts, Series 2 consists of three underlying unit investment
trusts: Rolling Government Series 2, GNMA Portfolio; Investment Grade Series 1,
Intermediate Insured Utility Portfolio and Investment Grade Series 2, Corporate
Portfolio. Each underlying unit investment trust may be referred to herein as a
"Trust," or collectively as the "Trusts."
ROLLING GOVERNMENT SERIES 2, GNMA PORTFOLIO
Rolling Government Series 2, GNMA Portfolio ("Rolling Government Series 2") was
formed for the purpose of providing safety of capital as is consistent with
current income and current monthly distributions of interest income through an
investment in a portfolio consisting of taxable mortgage-backed securities of
the fully modified pass-through type, the payments of principal and interest on
which are fully guaranteed by the Government National Mortgage Association
("GNMA"). Rolling Government Series 2 has been designed to minimize the effect
of principal payments and prepayments by providing for the reinvestment of all
distributions of principal into additional GNMA securities which have similar
maturities and interest rates as the GNMA securities upon which the principal
was received. The Sponsor will direct the Trustee to reinvest such distributions
during the period when, in the opinion of the Sponsor, such reinvestment is
practical (the "Reinvestment Period").
During the Reinvestment Period, the Sponsor will direct the trustee to reinvest
all payments and prepayments of principal from the underlying Ginnie Maes into
additional Ginnie Mae securities which have similar maturities and interest
rates as the Securities upon which the principal was received. Reinvestment of
principal into additional Ginnie Maes during periods when interest rates are at
a level different from those prevailing at the Initial Date of Deposit of the
Trust will have the effect of increasing or decreasing monthly distributions of
interest income from the Trust. Reinvestment of principal into the Ginnie Maes
eligible for inclusion in the Trust will also have the effect of increasing the
par value of the Units for reinvestment during periods of increasing interest
rates from those prevailing at the Trust's Initial Date of Deposit and during
periods of declining interest rates the par value of the Units will decrease.
There may be times when the Principal Account of the Trust has cash which cannot
be reinvested because additional Ginnie Maes are not available or the amount of
cash in the Principal Account is insufficient to buy additional Ginnie Maes
without the Trust incurring disproportionate expenses. During these periods, the
amounts in the Principal Account will remain uninvested, thus reducing the
return to Unitholders. Amounts, if any, which cannot be reinvested during the
Reinvestment Period will be distributed to Unitholders semiannually unless the
amount available for distribution is less
-3-
<PAGE> 5
than $0.01 per Unit. In such circumstance, Unitholders should be aware that at
the time of the receipt of such principal they may not be able to reinvest such
principal in other securities at a yield equal to or in excess of the yield
which such principal would have earned to Unitholders had the principal been
reinvested. In addition, principal will not be reinvested and will be
distributed to Unitholders if required to maintain the status of the Trust as a
"regulated investment company." See "Trust Information - Tax Status - Regulated
Investment Company" in Part II of this Prospectus. The costs of acquiring the
additional Ginnie Maes will be borne by the Trust and hence, the Unitholders.
Although it is currently anticipated that the Trustee will purchase Ginnie Maes
directly from market makers, the Trustee may retain the Sponsor to purchase the
additional Ginnie Maes and pay them usual and customary brokerage commissions.
There will be no attempt to time or delay the purchase of additional Ginnie Maes
for reinvestment to take advantage of market movements.
Tax Status - Rolling Government Series 2 may be an appropriate investment for
investors who desire to participate in a portfolio of taxable, mortgage-backed
securities of the fully modified pass-through type, the payment of principal and
interest on which is fully guaranteed by GNMA. Rolling Government Series 2 has
been created as a regulated investment company for federal tax reasons. See "Tax
Status" in Part II of this Prospectus.
INVESTMENT GRADE SERIES 1, INTERMEDIATE INSURED UTILITY PORTFOLIO
Investment Grade Series 1, Intermediate Insured Utility Portfolio ("Investment
Grade Series 1") was formed for the purpose of providing a high level of current
income through an investment in a fixed portfolio consisting of corporate debt
obligations ("Bonds") issued after July 18, 1984 by utility companies. The
Trust's portfolio has been laddered so that approximately 20% of the securities
included in the portfolio will mature and the proceeds thereof will be
distributed to Unitholders annually commencing in 2003. Insurance guaranteeing
the scheduled payment of principal and interest on all of the Bonds in the Trust
has been obtained directly by the issuer of such Bonds or by the Sponsor from
MBIA Insurance Corporation or other insurers. The insurance does not relate to
the Units offered hereby or to their market value. As of the Trust's Initial
Date of Deposit, all of the Bonds in the Trust's portfolio were rated "Aaa" by
Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's, a
Division of The McGraw-Hill Companies ("Standard & Poor's"). For foreign
investors who are not United States citizens or residents, interest income from
Investment Grade Series 2 may not be subject to federal withholding taxes if
certain conditions are met. See "Trust Information - Tax Status - Grantor Trust"
in Part II of this Prospectus.
Tax Status - Investment Grade Series 1 may be an appropriate investment for
investors who desire to participate in a portfolio of taxable, fixed income
securities offering a high level of current income Investment Grade Series 1 has
been created as a grantor trust for federal tax reasons. See "Tax Status" in
Part II of this Prospectus.
-4-
<PAGE> 6
INVESTMENT GRADE SERIES 2, CORPORATE PORTFOLIO
Investment Grade Series 2, Corporate Portfolio ("Investment Grade Series 2") was
formed for the purpose of providing a high level of current income through an
investment in a fixed portfolio consisting of intermediate-term investment grade
corporate debt obligations ("Bonds") issued after July 18, 1984. For foreign
investors who are not United States citizens or residents, interest income from
Investment Grade Series 2 may not be subject to federal withholding taxes if
certain conditions are met. See "Trust Information - Tax Status - Grantor Trust"
in Part II of this Prospectus. As of the Trust's Initial Date of Deposit, all of
the Bonds in the Trust's portfolio were rated "A" or better by Moody's, Standard
& Poor's or Duff & Phelps. See "Trust Information - Description of Ratings" in
Part II of this Prospectus.
Tax Status - Investment Grade Series 2 may be an appropriate investment vehicle
for investors who desire to participate in a portfolio of intermediate term
taxable fixed income securities issued by corporate obligors with greater
diversification than investors might be able to acquire individually. Investment
Grade Series 2 has been created as a grantor trust for federal tax reasons. See
"Tax Status" in Part II of this Prospectus.
-5-
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
THE UNITHOLDERS, SPONSOR AND TRUSTEE
FIDELITY DEFINED TRUSTS SERIES 2
(Rolling Government Series 2, GNMA Portfolio; Investment Grade Series 1,
Intermediate Insured Utility Portfolio; and Investment Grade Series 2,
Corporate Portfolio)
We have audited the statements of financial condition and schedules of portfolio
securities of Fidelity Defined Trusts Series 2 (Rolling Government Series 2,
GNMA Portfolio; Investment Grade Series 1, Intermediate Insured Utility
Portfolio; and Investment Grade Series 2, Corporate Portfolio)as of May 31,
1998, and the related statements of operations and changes in net assets for the
period from June 7, 1996 (date of deposit) to May 31, 1998. These financial
statements are the responsibility of the Trustee (see Footnote (a)(1)). 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 the securities owned as of May 31, 1998 as shown in the
statements of financial condition and schedules of portfolio securities by
correspondence with The Chase Manhattan Bank, the Trustee. An audit also
includes assessing the accounting principles used and the 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 positions of Fidelity Defined Trusts Series
2 (Rolling Government Series 2, GNMA Portfolio; Investment Grade Series 1,
Intermediate Insured Utility Portfolio; and Investment Grade Series 2, Corporate
Portfolio) as of May 31, 1998, and the results of their operations and the
changes in their net assets for the period from June 7, 1996 (date of deposit)
to May 31, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
September 25, 1998
New York, New York
6
<PAGE> 8
SUMMARY OF ESSENTIAL INFORMATION
FIDELITY DEFINED TRUSTS SERIES 2
AS OF MAY 31, 1998
SPONSOR: NATIONAL FINANCIAL SERVICES CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
EVALUATOR: MULLER DATA CORPORATION
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 50,000 Units of a Trust. Unitholders
purchasing 50,000 Units or more of a Trust will receive a slightly higher return
because of the reduced sales charge for larger purchases.
<TABLE>
<CAPTION>
ROLLING INVESTMENT INVESTMENT
GOVERNMENT GRADE GRADE
SERIES 2 SERIES 1 SERIES 2
<S> <C> <C> <C>
Public Offering Price per Units (1).......................................... $ 10.19097 $ 10.2618 $ 10.62457
Principal Amount of Securities per Units..................................... $ 9.8531 $ 9.9884 $ 10.0349
Estimated Current Return based on Public Offering Price (2)(4)(5)............ 7.301% 5.898% 6.388%
Estimated Long-Term Return (2)(3)(4)(5)(6)................................... 6.407% 5.059% 5.441%
Estimated Normal Annual Distribution per Unit(6)............................. $ .7613 $ .6342 $ .7019
Principal Amount of Securities............................................... $17,887,009 $9,525,000 $11,970,000
Number of Units.............................................................. 1,815,357 953,600 1,192,841
Fractional Undivided Interest per Units...................................... 1/1,815,357 1/953,600 1/1,192,841
Calculation of Public Offering Price:
Aggregate Offering Price of Securities including receivables
from Broker............................................................. $18,429,164 $9,771,031 $12,635,396
Aggregate Offering Price of Securities per Unit........................... $ 10.1518 $ 10.2464 $ 10.5926
Plus Sales Charge per Units (2)........................................... $ 0.03627 $ .0341 $ 0.03627
Principal Cash per Unit................................................... $ 0.0029 $ (0.0187) $ (0.0043)
Public Offering Price per Unit (1) ..................................... $ 10.19097 $ 10.2618 $ 10.62457
Calculation of Estimated Net Annual Interest Income per Unit: (10)
Estimated Annual Interest................................................. $ 0.7613 $ 0.6342 $ 0.7019
Less: Estimated Annual Expense............................................ $ 0.0172 $ 0.0289 $ 0.0285
Estimated Net Annual Interest............................................. $ 0.7441 $ 0.6053 $ 0.6734
Estimated Daily Rate of Net Interest......................................... $ 0.00206 $ 0.00168 $ 0.00187
Estimated Average Life of Securities......................................... 10.99 6.68 8.681
Minimum Principal Value of the Trust under which Trust Agreement
may be terminated (6)..................................................... 40% 20% 20%
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made as of
the close of business of the Sponsor (currently 4:15pm Eastern Time) next
following receipt of an order for a sale or purchase of Units or receipt by the
Trustee of Units tendered for redemption.
<TABLE>
<CAPTION>
ROLLING INVESTMENT INVESTMENT
GOVERNMENT GRADE GRADE
SERIES 2 SERIES 1 SERIES 2
<S> <C> <C> <C>
Trustee's Annual Fee per $1,000 principal amount of Securities (7)........... $ 0.88 $ 1.43 $ 1.50
Estimated net annual interest income per Unit................................ $ 0.7613 $ 0.6342 $ 0.7019
Estimated Normal Monthly Distribution per Unit (8)........................... $ 0.7803 $ 0.7175 $ 0.7067
Sales Charge (2):
As a percentage of Public Offering Price per Unit......................... % 4.101% $ 4.101% $ 4.101%
As a percentage of net amount invested.................................... % 4.276% 4.276% $ 4.276%
Date Trusts Established...................................................... 06/07/96 06/07/96 06/07/96
Mandatory Termination Date................................................... 12/31/27 01/01/08 08/15/09
Maximum Evaluator's Annual Evaluation Fee per Evaluation..................... $ 6.00 $ 8.00 $ 8.00
Maximum Sponsor's Annual Surveillance Fee per $1,000 Principal
Amount of Securities...................................................... $ 0.10 $ 0.10 $ 0.10
Estimated Annual Organizational Expenses per Unit (9)........................ $ 0.0033 $ 0.0093 $ 0.0073
</TABLE>
7
<PAGE> 9
- ----------
(1) Anyone ordering Units will pay accrued interest from the preceding record
date to the date of settlement (normally three business days after order).
(2) The Maximum Sales Charge per Unit consists of an initial sales charge and a
deferred sales charge. See "Fee Table" contained herein and "Trust
Information - Public Offering of Units" for additional information
regarding these charges. The Estimated Current Return and Estimated
Long-Term Return are increased for transactions entitled to a reduced sales
charge. See "Trust Information - Public Offering of Units - Public Offering
Price." The sales charge as a percentage of the net amount invested in
earning assets will increase as accrued interest increases. Transactions
subject to quantity discounts (see "Trust Information - Public Offering of
Units - Public Offering Price") will have reduced sales charges, thereby
reducing all percentages in the table. Units tendered for redemption or
sold prior to the collection of the entire deferred sales charge will be
assessed the amount of the remaining sales charge at the time of redemption
or sale.
(3) Estimated Long Term Returns for the Trusts are calculated using a formula
which takes into consideration the market values, yield and the expected
retirement dates (estimated average life of the Securities in Rolling
Government Series 2) of all of the Securities in the applicable Trust, a
compounding factor and the expenses and sales charge associated with each
Trust Unit. Estimated Current Returns are calculated by dividing the
estimated net annual interest income per Unit by the Public Offering Price,
and in contrast to Estimated Long Term Return does not reflect the
amortization of premium of accretion of discount, if any. For additional
information see "Interest, Estimated Long-Term Return and Estimated Current
Return."
(4) This figure is based on estimated per Unit cash flows. Estimated cash flows
will vary with changes in fees and expenses, with changes in current
interest rates and with the principal prepayment, redemption, maturity,
call, exchange or sale of the underlying Securities. The estimated cash
flows to Unitholders for the Trusts are available upon request at no charge
from the Sponsor.
(5) The actual net annual interest income per Unit will vary with changes in
fees and expenses and principal prepayment, redemption, maturity, call,
exchange or sale of the underlying Securities. See "The Trusts" and "Trust
Information Interest, Estimated Long-Term Return and Estimated Current
Return."
(6) The minimum principal value of each Trust under which the Trust Agreement
may be terminated is 20% (40% for Rolling Government Series 2) of the total
aggregate principal amount of securities deposited in each Portfolio during
the initial offering period.
(7) The Trustee's annual fee includes $.07 per Unit which is paid to the
Sponsor in return for its providing certain bookkeeping and administrative
services to its customers. See "Trust Information - Trust Expenses".
(8) Unitholders will receive interest distributions monthly. The Record Date is
the 10th day of the month, and the Distribution Date is the 20th day of the
month for the Investment Grade Series 1 and 2. The Record Date is the 1st
day of the month and the Distribution Date is the 20th of the month for the
Rolling Government Series 2.
(9) Each Trust (and therefore the Unitholders of the respective Trust) will
bear all or a portion of its organizational costs (including costs of
preparing the registration statement, the Trust indenture and other closing
documents, registering Units with the Securities and Exchange Commission
and states, the initial audit of the Trust portfolios, legal fees and the
initial fees and expenses of the Trustee but not including the expenses
incurred in the preparation and printing of brochures and other advertising
materials and other selling expenses) as is common for mutual funds. Total
organizational expenses will be amortized over a five-year period or over
the life of a Trust if the term of such Trust is less than five years. See
"Trust Information - Trust Expenses" and "Statements of Financial
Condition". Historically, the Sponsors of unit investment trusts have paid
all of the costs of establishing such trusts.
8
<PAGE> 10
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
MAY 31, 1998
<TABLE>
TRUST PROPERTY
<S> <C> <C>
Investments in Securities at market value (cost
$17,860,832) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $18,429,164
Accrued interest receivable 110,673
Receivable from Broker 262,286
Deferred organizational cost 19,733
Cash 1,388,851
-----------
Total 20,210,707
-----------
LIABILITIES AND NET ASSETS
Less Liabilities:
Deferred Sales Charge payable 90,269
Deferred Organizational costs payable 22,781
Redemption payable 908,753
Subsequent purchase 457,868
Accrued Trustee fees and expenses 11,988
Accrued Sponsor fees 2,338
-----------
Total liabilities 1,493,997
-----------
Net assets:
Balance applicable to 1,815,357 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus unrealized market
appreciation of $568,332 $18,618,950
Undistributed net investment income
(Note (b)) 97,760
-----------
Net assets $18,716,710
===========
Net asset value per Unit ($18,716,710 divided
by 1,815,357 Units) $ 10.3102
===========
</TABLE>
See notes to financial statements
9
<PAGE> 11
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Investment income - interest $1,437,831 $564,110
---------- --------
Less Expenses:
Trustee fees and expenses 24,847 11,944
Sponsor fees 1,926 859
Amortization of organizational costs 6,072 4,554
---------- --------
Total expenses 32,845 17,357
---------- --------
Investment income - net 1,404,986 546,753
---------- --------
Net gain on investments:
Realized gain on securities sold 30,668 923
Unrealized market appreciation 557,940 10,392
---------- --------
Net gain on investments 588,608 11,315
---------- --------
Net increase in net assets resulting from
operations $1,993,594 $558,068
========== ========
</TABLE>
See notes to financial statements
10
<PAGE> 12
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Operations:
Investment income - net $ 1,404,986 $ 546,753
Realized gain on securities sold 30,668 923
Unrealized market appreciation 557,940 10,392
----------- -----------
Net increase in net assets
resulting from operations 1,993,594 558,068
----------- -----------
Capital Share Transactions:
Creation on 49,751 Units and 1,893,935
Units, respectively 488,711 19,065,072
Redemption of 177,710 Units and 321
Units, respectively (1,831,287) (3,213)
Deferred sales charge (2,492) (113,806)
----------- -----------
Total capital share trans-
actions (1,345,068) 18,948,053
----------- -----------
Net investment income distributions (1,416,532) (510,918)
----------- -----------
Net increase in net assets 768,006 18,995,203
Net assets:
Beginning of period (Note (c)) 19,484,716 489,513
----------- -----------
End of period (including undistributed
net investment income of $98,880
and $117,423, respectively) $18,716,710 $19,484,716
=========== ===========
</TABLE>
See notes to financial statements
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
MAY 31, 1998
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of the significant accounting
policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of
the Trust and is responsible for establishing and maintaining a
system of internal controls directly related to, and designed to
provide reasonable assurance as to the integrity and reliability of,
financial reporting of the Trust. The Trustee is also responsible
for all estimates and accruals reflected in the Trust's financial
statements. The Evaluator determines the price for each underlying
Security included in the Trust's Portfolio of Securities on the
basis set forth in Part II of this Prospectus, "Public Offering of
Units - Public Offering Price". Under the Securities Act of 1933
("the Act"), as amended, the Sponsor is deemed to be an issuer of
the Trust Units. As such, the Sponsor has the responsibility of an
issuer under the Act with respect to financial statements of the
Trust included in the Trust's Registration Statement under the Act
and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the offering side evaluations on the last day of
trading during the period. The offering side values on the dates of
deposit represents the cost of investments to the Trust.
(3) Income Taxes
No provision for Federal income taxes has been made in the
accompanying financial statements because the Trust intends to
continue to qualify for the tax treatment applicable to "Regulated
Investment Companies" under the Internal Revenue Code. Under
existing law, if the Trust so qualifies, it will not be subject to
Federal income tax on net income and capital gains that are
distributed to Unit Holders.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses, Sponsor's
fees and Evaluator's fees, and may incur additional charges as
explained and under "Trust Expenses" in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unitholders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Unitholders - Distributions to Unitholders in Part II of this Prospectus.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
MAY 31, 1998
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (June 7, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of May 31, 1998 follows:
<TABLE>
<S> <C>
Original cost to investors $ 510,363
Less: Gross underwriting commissions (sales charge) 20,850
-----------
Net cost to investors 489,513
Cost of supplemental creations of units 19,471,487
Realized gain on securities sold 31,591
Deferred sales charge (116,298)
Unrealized market appreciation 568,332
Redemption of Units (1,825,675)
-----------
Net amount applicable to investors $18,618,950
===========
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Income distributions
during period $ 0.73419 $ .6550
========= =========
Net asset value at end
of period 10.31083 $ 10.0265
========= =========
Trust Units outstanding at
end of period 1,815,357 1,943,316
========= =========
</TABLE>
13
<PAGE> 15
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
MAY 31, 1998
<TABLE>
<CAPTION>
PORT- YEARS OF
FOLIO FACE COUPON STATED MARKET
NO. TITLE OF SECURITIES AMOUNT RATE MATURITY VALUE(1)(2)
<S> <C> <C> <C> <C>
1. GNMA, Modified Pass-Through
Mortgage-Backed Securities $17,887,009 7.500% 2026-2027 $18,429,164
=========== ===========
</TABLE>
See notes to schedule of portfolio securities
14
<PAGE> 16
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
ROLLING GOVERNMENT SERIES 2
MAY 31, 1998
(1) The market value of the Securities as of May 31, 1998 was determined by
the Evaluator on the basis of offering side evaluations for the securities
on the last trading date of the period (May 29, 1998).
(2) At May 31, 1998, the unrealized market appreciation of all Securities was
comprised of the following:
<TABLE>
<S> <C>
Gross unrealized market appreciation $568,332
Gross unrealized market depreciation --
--------
Unrealized market appreciation $568,332
========
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$17,860,832 at May 31, 1998.
15
<PAGE> 17
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
MAY 31, 1998
<TABLE>
<CAPTION>
TRUST PROPERTY
<S> <C> <C>
Investments in Securities at market value (cost
$9,200,921) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $9,771,031
Accrued interest receivable 186,570
Deferred organizational cost 33,817
----------
Total 9,991,418
----------
LIABILITIES AND NET ASSETS
Less Liabilities:
Advance from Trustee 146,686
Accrued Trustee fees and expenses 3,352
Accrued Sponsor fees 1,486
Deferred Sales Charges payable 28,600
Deferred Organizational Cost payable 34,030
----------
Total liabilities 214,154
----------
Net assets:
Balance applicable to 953,600 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus unrealized market appreciation
of $570,109 $9,729,649
Undistributed net investment income (Note (b)) 47,615
----------
Net assets $9,777,264
==========
Net asset value per Unit ($9,777,264 divided by 953,600 Units) $ 10.26
==========
</TABLE>
See notes to financial statements
16
<PAGE> 18
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Investment income - interest $ 732,589 $480,176
--------
Less Expenses:
Trustee fees and expenses 21,027 16,351
Sponsor fees 1,073 794
Amortization of organizational costs 8,944 6,708
---------- --------
Total expenses 31,044 23,853
---------- --------
Investment income - net 701,545 456,323
---------- --------
Net gain on investments:
Realized gain on securities sold
or redeemed 94,060 --
Unrealized market appreciation 530,076 40,033
---------- --------
Net gain on investments 624,136 40,033
---------- --------
Net increase in net assets resulting from
operations $1,325,681 $496,356
========== ========
</TABLE>
See notes to financial statements
17
<PAGE> 19
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Operations:
Investment income - net $ 701,545 $ 456,323
Realized gain on securities sold or
redeemed 94,060 --
Unrealized market appreciation 530,076 40,033
----------- -----------
Net increase in net assets
resulting from operations 1,325,681 496,356
----------- -----------
Less Capital Share Transactions:
Creation on 91,104 Units and 1,242,540
Units, respectively 975,631 12,121,119
Redemption of 512,59 Units (5,101,543) --
Deferred sales charge (3,142) (74,677)
Accrued interest on redemption (11,057) --
Total capital share transactions (4,140,111) 12,046,442
----------- -----------
Distribution to Units Holders (684,237) (447,596)
----------- -----------
Net (decrease) increase in net assets (3,498,667) 12,095,202
Net assets:
Beginning of period (Note (c)) 13,275,930 1,180,728
----------- -----------
End of period (including undistributed
net investment income of $47,615
and $41,363, respectively) $ 9,777,264 $13,275,930
=========== ===========
</TABLE>
See notes to financial statements
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
MAY 31, 1998
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of the significant accounting
policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of
the Trust and is responsible for establishing and maintaining a
system of internal controls directly related to, and designed to
provide reasonable assurance as to the integrity and reliability of,
financial reporting of the Trust. The Trustee is also responsible
for all estimates and accruals reflected in the Trust's financial
statements. The Evaluator determines the price for each underlying
Security included in the Trust's Portfolio of Securities on the
basis set forth in Part II of this Prospectus, "Public Offering of
Units - Public Offering Price". Under the Securities Act of 1933
("the Act"), as amended, the Sponsor is deemed to be an issuer of
the Trust Units. As such, the Sponsor has the responsibility of an
issuer under the Act with respect to financial statements of the
Trust included in the Trust's Registration Statement under the Act
and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the offering side evaluations on the last day of
trading during the period. The offering side values on the dates of
deposit represents the cost of investments to the Trust.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses, Sponsor's
fees and Evaluator's fees, and may incur additional charges as
explained and under "Trust Expenses" in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unitholders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Unitholders - Distributions to Unitholders" in Part II of this
Prospectus.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
MAY 31, 1998
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (June 7, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of May 31, 1998 follows:
<TABLE>
<S> <C>
Original cost to investors $ 1,231,291
Less: Gross underwriting commissions (sales charge) 50,563
-----------
Net cost to investors 1,180,728
Cost of supplemental creations of units 13,064,113
Cost of securities sold or redeemed (5,101,543)
Deferred sales charge (77,819)
Realized gain/loss 94,060
Unrealized market appreciation 570,109
-----------
Net amount applicable to investors $ 9,729,649
===========
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Income distributions
during period $ .6160 $ .5632
======= =========
Net asset value at end
of period $ 10.26 $ 9.7132
======= =========
Trust Units outstanding
at end of period 953,600 1,366,794
======= =========
</TABLE>
20
<PAGE> 22
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
MAY 31, 1998
<TABLE>
<CAPTION>
PORT- RATINGS(3)
FOLIO FACE COUPON MATURITY STANDARD & REDEMPTIONS MARKET
NO. TITLE OF SECURITIES AMOUNT RATE DATE MOODY'S POOR'S PROVISIONS (4) VALUE(1)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
1. Pacific Bell Company $1,905,000 6.250% 03/01/05 Aaa AAA Non-callable $1,954,130
2. Pacific Gas and Electric
Company 1,905,000 6.250 03/01/04 Aaa AAA Non-callable 1,941,386
3. PECO Energy Company 1,905,000 6.625 03/01/03 Aaa AAA Non-callable 1,966,855
4. Public Service Electric
and Gas Company 1,905,000 6.250 01/01/07 Aaa AAA Non-callable 1,947,424
5. Southern California Edison
Company 1,905,000 6.375 01/15/06 Aaa AAA Non-callable 1,961,236
---------- ----------
$9,525,000 $9,771,031
========== ==========
</TABLE>
See notes to schedule of portfolio securities
21
<PAGE> 23
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 1
MAY 31, 1998
(1) The market value of the Securities as of May 31, 1998 was determined by
the Evaluator on the basis of offering side evaluations for the securities
on the last trading date of the period (May 29, 1998).
(2) At May 31, 1998, the unrealized market appreciation of all Securities was
comprised of the following:
<TABLE>
<S> <C>
Gross unrealized market appreciation $570,109
Gross unrealized market depreciation --
--------
Unrealized market appreciation $570,109
========
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$9,200,921 at May 31, 1998.
(3) All Bonds in the Trust are insured by MBIA. See "Trust Information -
Insurance of the Bonds" in this Prospectus.
(4) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year,
unless otherwise indicated. Each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to the Trust. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption provisions under certain unusual or extraordinary circumstances
specified in the instruments setting forth the terms and provisions of
such bonds. "S.F." indicates that a sinking fund is established with
respect to that issue of Bonds.
22
<PAGE> 24
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
MAY 31, 1998
<TABLE>
TRUST PROPERTY
<S> <C> <C>
Investments in Securities at market value (cost
$11,788,177) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $12,635,396
Accrued interest receivable 146,286
Deferred organizational cost 28,417
-----------
Total 12,810,099
-----------
LIABILITIES AND NET ASSETS
Less Liabilities:
Accrued organizational costs 33,247
Advance from Trustee 109,739
Accrued Trustee fees and expenses 4,109
Accrued Sponsor fees 1,931
Deferred sales charges payable 33,602
-----------
Total liabilities 182,628
-----------
Net assets:
Balance applicable to 1,192,841 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus net unrealized market
appreciation of $847,219 $12,596,603
Undistributed net investment income
(Note (b)) 30,868
-----------
Net assets $12,627,471
===========
Net asset value per Unit ($12,627,471 divided
by 1,192,841 Units) $ 10.5861
===========
</TABLE>
See notes to financial statements
23
<PAGE> 25
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Investment income - interest $ 875,876 $459,319
---------- --------
Less Expenses:
Trustee fees and expenses 25,099 14,575
Sponsor fees 1,243 688
Amortization of organizational costs 8,743 6,558
---------- --------
Total expenses 35,085 21,821
---------- --------
Investment income - net 840,791 437,498
---------- --------
Net gain on investments:
Realized gain on securities sold
or redeemed 39,313 --
Net unrealized market appreciation 846,296 923
---------- --------
Net gain on investments 885,609 923
---------- --------
Net increase in net assets resulting from
operations $1,726,400 $438,421
========== ========
</TABLE>
See notes to financial statements
24
<PAGE> 26
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Operations:
Investment income - net $ 840,791 $ 437,498
Realized gain on securities sold
or redeemed 39,313 --
Net unrealized market appreciation 846,296 923
----------- -----------
Net increase in net assets
resulting from operations 1,726,400 438,421
----------- -----------
Capital Share Transactions:
Creation on 149,106 Units and 745,525
Units, respectively 1,489,390 7,465,225
Redemption of 74,553 Units
Principal (774,324) --
Income (3,810) --
Deferred sales charge (4,728) (44,806)
----------- -----------
Total capital share transactions 699,537 7,420,419
----------- -----------
Net investment income distributions (842,982) (426,807)
----------- -----------
Net increase in net assets 1,582,955 7,432,033
Net assets:
Beginning of period (Note (c)) 11,044,516 3,612,483
----------- -----------
End of period (including undistributed
net investment income of $30,868
and $36,869, respectively) $12,627,471 $11,044,516
=========== ===========
</TABLE>
See notes to financial statements
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
MAY 31, 1998
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of the significant accounting
policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of
the Trust and is responsible for establishing and maintaining a
system of internal controls directly related to, and designed to
provide reasonable assurance as to the integrity and reliability of,
financial reporting of the Trust. The Trustee is also responsible
for all estimates and accruals reflected in the Trust's financial
statements. The Evaluator determines the price for each underlying
Security included in the Trust's Portfolio of Securities on the
basis set forth in Part II of this Prospectus, "Public Offering of
Units - Public Offering Price". Under the Securities Act of 1933
("the Act"), as amended, the Sponsor is deemed to be an issuer of
the Trust Units. As such, the Sponsor has the responsibility of an
issuer under the Act with respect to financial statements of the
Trust included in the Trust's Registration Statement under the Act
and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the offering side evaluations on the last day of
trading during the period. The offering side values on the dates of
deposit represents the cost of investments to the Trust.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained and
under "Trust Expenses" in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unitholders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Unitholders - Distributions to Unitholders" in Part II of this
Prospectus.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
MAY 31, 1998
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (June 7, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of May 31, 1998 follows:
<TABLE>
<S> <C>
Original cost to investors $ 3,766,721
Less: Gross underwriting commissions (sales charge) 154,238
-----------
Net cost to investors 3,612,483
Cost of supplemental creations of units 8,921,446
Deferred sales charge (49,534)
Realized gain 39,313
Redemption of Units (774,324)
Unrealized market appreciation 847,219
-----------
Net amount applicable to investors $12,596,603
===========
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 7, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT)
MAY 31, 1998 TO MAY 31, 1997
<S> <C> <C>
Income distributions
during period $ .6818 $ .6217
========= =========
Net asset value at end
of period $ 10.5861 $ 9.8763
========= ========
Trust Units outstanding at
end of period 1,192,841 1,118,288
========= =========
</TABLE>
27
<PAGE> 29
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
MAY 31, 1998
<TABLE>
<CAPTION>
PORT- RATINGS(2)
FOLIO FACE COUPON MATURITY STANDARD & REDEMPTIONS MARKET
NO. TITLE OF SECURITIES AMOUNT RATE DATE MOODY'S POOR'S PROVISIONS (3) VALUE(1)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
1. BankAmerica $ 798,000 6.200% 02/15/06 A2 A Non-callable $ 804,177
2. Bankers Trust 798,000 7.375 05/01/08 A3 A- Non-callable 860,914
3. Chase Manhattan 798,000 6.750 08/15/08 A2 A- Non-callable 831,787
4. Citicorp 798,000 6.750 08/15/05 A2 A Non-callable 829,066
5. Walt Disney Corp. 798,000 6.750 03/30/06 A2 A Non-callable 835,394
6. First Union Corp. 798,000 7.000 03/15/06 A2 A- Non-callable 842,417
7. Fleet Financial 798,000 7.125 04/15/06 A3 BBB+ Non-callable 844,898
8. Ford Motor Credit 798,000 6.750 08/15/08 A1 A+ Non-callable 830,558
9. General Motors 798,000 6.625 10/15/05 A3 A- Non-callable 824,787
10. Household Financial 798,000 7.650 05/15/07 A2 A Non-callable 876,842
11. Lehman Brothers 798,000 8.500 05/01/07 Baa1 A Non-callable 909,576
12. Mellon Financial 798,000 6.700 03/01/08 A3 A- Non-callable 826,536
13. Merrill Lynch 798,000 7.375 05/15/06 A1 A+ Non-callable 864,019
14. NationsBank Corp. 798,000 6.500 03/15/06 A3 A- Non-callable 818,437
15. Wells Fargo 798,000 6.875 04/01/06 A2 BBB+ Non-callable 835,978
----------- -----------
$11,970,000 $12,635,396
=========== ===========
</TABLE>
See notes to schedule of portfolio securities
28
<PAGE> 30
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 2
INVESTMENT GRADE SERIES 2
MAY 31, 1998
(1) The market value of the Securities as of May 31, 1998 was determined by
the Evaluator on the basis of offering side evaluations for the securities
on the last trading date of the period (May 29, 1998).
(2) A brief description of the applicable Standard & Poor's, Moody's and Duff
& Phelps rating symbols and their meanings is set forth under "Trust
Information - Description of Ratings" in this Prospectus. "N.R." indicates
that the issue has not been rated by that rating agency.
(3) There is shown under this heading the year in which each issue of Bonds is
initially or currently redeemable and the redemption price for that year.
Unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter but not below par value. The prices at which
the Bonds may redeemed or called prior to maturity may or may not include
a premium and, in certain cases, may be less than the cost of the Bonds to
Trust. In addition, certain bonds in the portfolio may be redeemed in
whole or in part other than by operation of the stated redemption
provisions under certain unusual or extraordinary circumstances specified
in the instruments setting forth the terms and provisions of such Bonds.
(4) At May 31, 1998, the net unrealized market appreciation of all Securities
was comprised of the following:
<TABLE>
<S> <C>
Gross unrealized market appreciation $847,219
Gross unrealized market depreciation --
--------
Net unrealized market appreciation $847,219
========
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$11,788,177 at May 31, 1998.
29
<PAGE> 31
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report, dated September 25, 1998, accompanying the
financial statements of the Fidelity Defined Trusts Series 2 (Rolling Government
Series 2, GNMA Portfolio; Investment Grade Series 1, Intermediate Insured
Utility Portfolio; and Investment Grade Series 2, Corporate Portfolio)included
herein and to the reference to our Firm as experts under the heading "Auditors"
in the prospectus which is a part of this registration statement.
DELOITTE & TOUCHE LLP
September 30, 1998
New York, New York
30
<PAGE> 32
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- -------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS
PROSPECTUS - PART II
SEPTEMBER 28, 1998
This Part II of the Prospectus may not be distributed unless accompanied by
Part I of the Prospectus. Both Parts I and II of the Prospectus should be
retained for future reference.
FIDELITY
INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 33
TABLE OF CONTENTS
PAGE
THE TRUSTS..................................................................4
GENERAL INFORMATION.........................................................4
RISK FACTORS................................................................5
RATING OF UNITS............................................................12
INSURANCE ON THE CORPORATE BONDS...........................................12
RETIREMENT PLANS...........................................................14
TAX STATUS.................................................................14
DISTRIBUTION REINVESTMENT..................................................23
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN..........24
PUBLIC OFFERING OF UNITS...................................................24
MARKET FOR UNITS...........................................................29
REDEMPTION.................................................................29
UNITHOLDERS................................................................31
INVESTMENT SUPERVISION.....................................................35
TRUST ADMINISTRATION.......................................................36
TRUST EXPENSES.............................................................38
THE SPONSOR................................................................40
LEGAL OPINIONS.............................................................41
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...................................41
-2-
<PAGE> 34
This Prospectus does 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.
-------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are
registered as unit investment trusts under the Investment Company Act of 1940.
Such registration does not imply that the Trusts or the Units have been
guaranteed, sponsored, recommended or approved by the United States or any
state or any agency or officer thereof.
-------------
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, securities in any state to any person to whom it is not lawful
to make such offer in such state.
-3-
<PAGE> 35
THE TRUSTS
Fidelity Defined Trusts are unit investments trusts consisting of
portfolios containing U.S. Treasury obligations, mortgage-backed securities of
the fully modified pass-through type, the payments of principal and interest on
which are fully guaranteed by the Government National Mortgage Association
("GNMA Securities") and/or corporate debt obligations ("Corporate Bonds"). See
Part I of the Prospectus for a description of the portfolio for each trust. The
various trusts are collectively referred to herein as the "Fidelity Defined
Trusts," the "Fidelity Advisor Defined Trusts" or the "Trusts." Each Trust is
divided into "Units" representing equal shares of the underlying assets of such
Trust. Trusts which contain a laddered portfolio of U.S. Treasury Obligations
are sometimes referred to herein as "Laddered Trusts." Trusts which contain a
portfolio of U.S. Treasury Obligations or GNMA Securities which provide for the
reinvestment of principal distributions into additional U.S. Treasury
Obligations or GNMA Securities, respectively, over a specific period (as set
forth in Part I) are sometimes referred to herein as "Rolling Trusts." Trusts
which contain a portfolio of corporate debt obligations and, in certain Trusts,
U.S. Treasury Obligations are sometimes referred to herein as "Corporate
Trusts." Certain Corporate Trusts may contain a portfolio of insured corporate
debt obligations, in which case they shall sometimes be referred to herein as
"Insured Corporate Trusts." As used herein, "Securities" shall collectively
refer to the U.S. Treasury Obligations, GNMA Securities or Corporate Bonds
deposited in the Trusts. Each of the Trusts is separate and is designated by a
different series number. Each of the Trusts was created under the laws of the
State of New York pursuant to a trust indenture dated the Initial Date of
Deposit (the "Trust Agreement") between National Financial Services Corporation
(the "Sponsor"), The Chase Manhattan Bank (the "Trustee") and for Trusts in
which Muller Data corporation acts as Evaluator (as set forth in Part I), Muller
Data Corporation (the "Evaluator").(1)
GENERAL INFORMATION
Because certain of the Securities in certain of the Trusts may from time
to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that a Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the Trustee shall be liable in anyway for
any default, failure or defect in any Security.
Subsequent to the date of Part I of this Prospectus, a Security may cease
to be rated or its rating may be reduced below any minimum required as of a
Trust's Initial Date of Deposit. Neither event requires the elimination of such
investment from a Trust, but may be
- -------------------
(1) Reference is made to the Trustee Agreement, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreement.
-4-
<PAGE> 36
considered in the Sponsor's determination to direct the Trustee to dispose of
such Security. See "Investment Supervision."
The Sponsor may not alter the portfolio of a Trust except upon the
occurrence of certain extraordinary circumstances or, in the case of a Rolling
Trust, in connection with a reinvestment of principal. See "Investment
Supervision." Certain of the Securities may be subject to optional call or
mandatory redemption pursuant to sinking fund provisions, in each case prior to
their stated maturity. A bond subject to optional call is one which is subject
to redemption or refunding prior to maturity at the option of the issuer, often
at a premium over par. A refunding is a method by which a bond issue is
redeemed, at or before maturity, by the proceeds of a new bond issue. A bond
subject to sinking fund redemption is one which is subject to partial call from
time to time at par with proceeds from a fund accumulated for the scheduled
retirement of a portion of an issue prior to maturity. Special or extraordinary
redemption provisions may provide for redemption at par of all or a portion of
an issue upon the occurrence of certain circumstances, which may be prior to
the optional call dates shown under "Portfolio" in Part I of this Prospectus
for each Trust. Redemption pursuant to optional call provisions is more likely
to occur, and redemption pursuant to special or extraordinary redemption
provisions may occur, when the Securities have an offering side evaluation
which represents a premium over par, that is, when they are able to be
refinanced at a lower cost. The proceeds from any such call or redemption
pursuant to sinking fund provisions, as well as proceeds from the sale of
Securities and from Securities which mature in accordance with their terms from
a Trust, unless utilized to pay for Units tendered for redemption, or
reinvested in the case of the Rolling Trust, will be distributed to Unitholders
of such Trust and will not be used to purchase additional Securities for such
Trust. Accordingly, any such call, redemption, sale or maturity will reduce the
size and diversity of a Trust and the net annual interest income of such Trust
and may reduce the Estimated Current Return and the Estimated Long-Term Return.
See "Interest, Estimated Long-Term Return and Estimated Current Return." The
call, redemption, sale or maturity of Securities also may have tax consequences
to a Unitholder. See "Tax Status." Information with respect to the call
provisions and maturity dates of the Securities is contained under "Portfolio"
in Part I of this Prospectus for each Trust.
Each Unit of a Trust represents an undivided fractional interest in the
Securities deposited therein, in the ratio shown under "Essential Information"
in Part I of this Prospectus. Units may be purchased and certificates, if
requested, will be issued in denominations of one Unit or any multiple or
fraction thereof, subject to each Trust's minimum investment requirement of one
Unit. Fractions of Units will be computed to three decimal points. To the
extent that Units of a Trust are redeemed, the principal amount of Securities
in such Trust will be reduced and the undivided fractional interest represented
by each outstanding Unit of such Trust will increase. See "Redemption."
RISK FACTORS
U.S. Treasury Obligations. U.S. Treasury Obligations are direct
obligations of the United States and are backed by its full faith and credit
although the Units are not so backed.
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The U.S. Treasury Obligations are not rated but in the opinion of the Sponsor
have credit characteristics comparable to those of securities rated "AAA" by
nationally recognized rating agencies.
An investment in Units of a Trust which contains U.S. Treasury Obligations
should be made with an understanding of the risks which an investment in fixed
rate debt obligations may entail, including the risk that the value of the
Securities and hence the Units will decline with increases in interest rates.
The high inflation of prior years, together with the fiscal measures adopted to
attempt to deal with it, have resulted in wide fluctuations in interest rates
and, thus, in the value of fixed rate debt obligations generally. The Sponsor
cannot predict whether such fluctuations will continue in the future.
During the Reinvestment Period for a Rolling Trust which contains U.S.
Treasury Obligations, the Sponsor will direct the Trustee to reinvest principal
payments on the U.S. Treasury Obligations into additional U.S. Treasury
Obligations as described in Part I of this Prospectus. Principal amounts which
cannot be reinvested will be distributed to Unitholders of such a Trust
semiannually unless the amount available for distribution is less than $0.01
per Unit. After the Reinvestment Period, principal will not be reinvested and
will be distributed monthly (subject to amount limitations) to Unitholders.
GNMA Securities. An investment in Units of a Rolling Trust which contains
GNMA Securities should be made with an understanding of the risks inherent
therein, including the risk that the value of the portfolio and hence of the
Units will decline with increases in interest rates. The value of the
underlying GNMA Securities will fluctuate inversely with changes in interest
rates. In addition, the potential for appreciation of the underlying GNMA
Securities, which might otherwise be expected to occur as a result of a decline
in interest rates, may be limited or negated by increased principal prepayments
in respect of the underlying mortgages. The high inflation of prior years,
together with the fiscal measures adopted to attempt to deal with it, have
resulted in wide fluctuations in interest rates and, thus, in the value of
fixed rate long term obligations generally. The Sponsor cannot predict whether
such fluctuations will continue in the future.
GNMA Securities included in a Rolling Trust are backed by the indebtedness
secured by underlying mortgage pools of long-term mortgages on 1- to 4-family
dwellings. The pool of mortgages which is to underlie a particular new issue of
Ginnie Maes is assembled by the proposed issuer of such Ginnie Maes. The issuer
is typically a mortgage banking firm, and in every instance must be a mortgagee
approved by and in good standing with the Federal Housing Administration
("FHA"). In addition, GNMA imposed its own criteria on the eligibility of
issuers, including a net worth requirement.
During the Reinvestment Period for a Rolling Trust which contains GNMA
Securities, the Sponsor will direct the Trustee to reinvest principal payments
and prepayments on the Ginnie Maes into additional Ginnie Mae securities. While
precise duplication of the Ginnie Maes to be purchased with reinvested
principal is the goal of the Sponsor, this may not be possible because
fractions of Ginnie Maes may not be purchased and substantially similar
securities may not be available. Principal amounts which cannot be reinvested
will be
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distributed to Unitholders of such Trust semiannually unless the amount
available for distribution is less than $0.01 per Unit. After the Reinvestment
Period, principal will not be reinvested and will be distributed monthly
(subject to amount limitations) to Unitholders.
The mortgages underlying a Ginnie Mae may be prepaid at any time without
any significant premium or penalty at the option of the mortgagors. It has been
the experience of the mortgage industry that the average life of mortgages
comparable to those contained in a Rolling Trust, owing to prepayments,
refinancings and payments from foreclosures is considerably less than the stated
maturity set forth in "Essential Information" in Part I of this Prospectus. A
lower or higher return on Units may occur depending on (i) whether the price at
which the respective Ginnie Maes were acquired by a Trust is lower or higher
than par (which represents the price at which such Ginnie Maes will be redeemed
upon prepayment), (ii) whether principal is reinvested or distributed to
Unitholders and (iii) if reinvestment occurs, whether the Ginnie Maes purchased
by the Trustee with reinvested principal are purchased at a premium or discount
from par. During periods of declining interest rates, prepayments of Ginnie Maes
may occur with increasing frequency because, among other reasons, mortgagors may
be able to refinance their outstanding mortgages at lower interest rates. In
such a case, (i) the reinvestment of principal may be at prices which result in
a lower return on Units or (ii) principal will be distributed to Unitholders who
cannot reinvest such principal distributions in other securities at an
attractive yield.
The Ginnie Maes in a Rolling Trust are guaranteed as to timely payment of
principal and interest by GNMA. Funds received by the issuers on account of the
mortgages backing the Ginnie Maes in the Rolling Trust are intended to be
sufficient to make the required payments of principal of and interest on such
Ginnie Maes but, if such funds are insufficient for that purpose, the guaranty
agreements between the issuers and GNMA require the issuers to make advances
sufficient for such payments. If the issuers fail to make such payments, GNMA
will do so. Any statement in this Prospectus that a particular Security is
backed by the full faith and credit of the United States is based upon the
opinion of an Assistant Attorney General of the United States and should be so
construed.
The GNMA guaranties referred to herein relate only to payment of principal
of and interest on the Ginnie Maes in the portfolio and not the Units offered
hereby.
A number of factors, including homeowners' mobility, change in family size
and mortgage market interest rates will affect the average life of the Ginnie
Maes in a Rolling Trust. For example, Ginnie Maes issued during a period of high
interest rates will be backed by a pool of mortgage loans bearing similarly high
rates. In general, during a period of declining interest rates, new mortgage
loans with interest rates lower than those charged during periods of high rates
will become available. To the extent a homeowner has an outstanding mortgage
with a high rate, he may refinance his mortgage at a lower interest rate or he
may rapidly repay his old mortgage. Should this happen, a Ginnie Mae issued with
a high interest rate may experience a rapid prepayment of principal as the
underlying mortgage loans prepay in whole or in part. Accordingly, there can be
no assurance that the prepayment levels which will be actually realized will
conform to the experience of the FHA, other mortgage lenders or other Ginnie Mae
investors. It is not possible to
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meaningfully predict prepayment levels regarding the Ginnie Maes in a Rolling
Trust. Therefore, the termination of a Rolling Trust which contains GNMA
Securities might be accelerated as a result of prepayments made as described
herein.
Public Utility Issues. Certain of the Corporate Bonds in a Corporate Trust
may be obligations of public utility issuers. In general, public utilities are
regulated monopolies engaged in the business of supplying light, water, power,
heat, transportation or means of communication. Historically, the utilities
industry has provided investors with high levels of reliability, stability and
relative total return on their investments. However, an investment in a
Corporate Trust containing obligations of public utility issuers should be made
with an understanding of the characteristics of such issuers and the risks which
such an investment may entail. General problems of such issuers include the
difficulty in financing large construction programs in an inflationary period,
the limitations on operations and increased costs and delays attributable to
environmental considerations, the difficulty of the capital markets in absorbing
utility debt, the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, federal, state and
municipal governmental authorities may from time to time review existing, and
impose additional, regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of the
issuers of certain of the Corporate Bonds in a Corporate Trust to make payments
of principal and/or interest on such Corporate Bonds.
Utilities are generally subject to extensive regulation by state utility
commissions which, for example, establish the rates which may be charged and
the appropriate rate of return on an approved asset base, which must be
approved by the state commissions. Certain utilities have had difficulty from
time to time in persuading regulators, who are subject to political pressures,
to grant rate increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on rate adjustments
(for example, by initiative or referendum). Any unexpected limitations could
negatively affect the profitability of utilities whose budgets are planned far
in advance. Also, changes in certain accounting standards currently under
consideration by the Federal Accounting Standards Board could cause significant
write-downs of assets and reductions in earnings for many investor-owned
utilities. In addition, gas pipeline and distribution companies have had
difficulties in adjusting to short and surplus energy supplies, enforcing or
being required to comply with long-term contracts and avoiding litigation from
their customers, on the one hand, or suppliers, on the other hand.
Certain of the issuers of the Bonds in a Corporate Trust may own or operate
nuclear generating facilities. Governmental authorities may from time to time
review existing, and impose additional, requirements governing the licensing,
construction and operation of nuclear power plants. Nuclear generating projects
in the electric utility industry have experienced substantial cost increases,
construction delays and licensing difficulties. These have been caused by
various factors, including inflation, high financing costs, required design
changes and rework, allegedly faulty construction, objections by groups and
governmental officials, limits on the ability to finance, reduced forecasts of
energy requirements and economic conditions. This experience indicates that the
risk of significant
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cost increases, delays and licensing difficulties remains present through
completion and achievement of commercial operation of any nuclear project.
Also, nuclear generating units in service have experienced unplanned outages or
extensions of scheduled outages due to equipment problems or new regulatory
requirements sometimes followed by a significant delay in obtaining regulatory
approval to return to service. A major accident at a nuclear plant anywhere
could cause the imposition of limits or prohibitions on the operation,
construction or licensing of nuclear units in the United States.
In view of the uncertainties discussed above, there can be no assurance
that any bond issuer's share of the full cost of nuclear units under
construction ultimately will be recovered in rates or of the extent to which a
bond issuer could earn an adequate return on its investment in such units. The
likelihood of a significantly adverse event occurring in any of the areas of
concern described above varies, as does the potential severity of any adverse
impact. It should be recognized, however, that one or more of such adverse
events could occur and individually or collectively could have a material
adverse impact on the financial condition or the results of operations or on a
bond issuer's ability to make interest and principal payments on its
outstanding debt.
Other general problems of the gas, water, telephone and electric utility
industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to transport
fossil fuels, the uncertainty of transmission service costs for both interstate
and intrastate transactions, changes in tax laws which adversely affect a
utility's ability to operate profitably, increased competition in service costs,
reductions in estimates of future demand for electricity and gas in certain
areas of the country, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain availability and
increased cost of capital, unavailability of fuel for electric generation at
reasonable prices, including the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal, availability
and cost of natural gas for resale, technical and cost factors and other
problems associated with construction, licensing, regulation and operation of
nuclear facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials and the disposal
of radioactive wastes, the effects of energy conservation and the effects of
deregulation. Each of the problems referred to could adversely affect the
ability of the issuers of any utility bonds in a Corporate Trust to make
payments due on these bonds.
In addition, the ability of state and local joint action power agencies to
make payments on bonds they have issued is dependent in large part on payments
made to them pursuant to power supply or similar agreements. Courts in
Washington and Idaho have held that certain agreements between Washington Public
Power Supply System ("WPPSS") and the WPPSS participants are unenforceable
because the participants did not have the authority to enter into the
agreements. While these decisions are not specifically applicable to agreements
entered into by public entities in other states, they may cause a reexamination
of the legal structure and economic viability of certain projects financed by
joint action power agencies, which might exacerbate some of the problems
referred to above and possibly lead to legal
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proceedings questioning the enforceability of agreements upon which payment of
these bonds may depend.
Corporate Bonds. An investment in Units of a Corporate Trust should be made
with an understanding of the risks that an investment in fixed rate, investment
grade corporate debt obligations may entail, including the risk that the value
of the Units will decline with increases in interest rates. In recent years,
there have been wide fluctuations in interest rates and thus in the value of
fixed-rate debt obligations generally. Generally bonds with longer maturities
will fluctuate in value more than bonds with shorter maturities. A slowdown in
the economy, or a development adversely affecting an issuer's creditworthiness,
may result in the issuer being unable to maintain earnings or sell assets at the
rate and at the prices, respectively, that are required to produce sufficient
cash flow to meet its interest and principal requirements. The Sponsor cannot
predict future economic policies or their consequences or, therefore, the course
or extent of any similar market fluctuations in the future.
Should the issuer of any Corporate Bond default in the payment of principal
or interest, a Corporate Trust may incur additional expenses seeking payment on
the defaulted Corporate Bond. Because amounts (if any) recovered by a Trust in
payment under the defaulted Corporate Bond may not be reflected in the value of
the Units until actually received by a Corporate Trust, and depending upon when
a Unitholder purchases or sells his Units, it is possible that a Unitholder
would bear a portion of the cost of recovery without receiving any portion of
the payment recovered.
General. Certain of the Securities in certain of the Trusts may have been
acquired at a market discount from par value at maturity. The coupon interest
rates on discount securities at the time they were purchased and deposited in
the Trusts were lower than the current market interest rates for newly issued
bonds of comparable rating and type. If such interest rates for newly issued
comparable securities increase, the market discount of previously issued
securities will become greater, and if such interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Investors should also note
that the value of securities purchased at a market discount will increase in
value faster than securities purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of securities
purchased at a market discount will decrease faster than securities purchased at
a market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium securities and the prepayment benefit for lower
yielding, discount securities will be reduced. See "Tax Status." Market discount
attributable to interest changes does not indicate a lack of market confidence
in the issue. Neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any of the Securities.
Certain of the Securities in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on premium
securities at the time they were purchased and deposited in the Trusts were
higher than the current market interest rates for newly issued securities of
comparable rating and type. If such interest rates for newly issued and
otherwise comparable securities decrease, the market premium of
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previously issued securities will be increased, and if such interest rates for
newly issued comparable securities increase, the market premium of previously
issued securities will be reduced, other things being equal. The current
returns of securities trading at a market premium are initially higher than the
current returns of comparable securities of a similar type issued at currently
prevailing interest rates because premium securities tend to decrease in market
value as they approach maturity. Because part of the purchase price is thus
returned not at maturity but through current income payments, early redemption
of a premium bond at par or early prepayments of principal will result in a
reduction in yield. Redemption pursuant to call provisions generally will, and
redemption pursuant to sinking fund provisions may, occur at times when the
redeemed Securities have an offering side valuation which represents a premium
over par or, for original issue discount Securities, a premium over the
accreted value. To the extent that the Securities were deposited in the Trusts
at a price higher than the price at which they are redeemed, this will
represent a loss of capital when compared to the original Public Offering Price
of the Units. Because premium securities generally pay a higher rate of
interest than securities priced at or below par, the effect of the redemption
of premium securities would be to reduce Estimated Net Annual Unit Income by a
greater percentage than the par amount of such securities bears to the total
par amount of Securities in a Trust. Although the actual impact of any such
redemptions that may occur will depend upon the specific Securities that are
redeemed, it can be anticipated that the Estimated Net Annual Interest Income
will be significantly reduced after the dates on which such Securities are
eligible for redemption. See "Portfolio" in Part I of this Prospectus for each
Trust for the earliest scheduled call date and the initial redemption price for
each Security.
Certain of the Securities in certain of the Trusts may be "zero coupon"
bonds, i.e., an original issue discount bond that does not provide for the
payment of current interest. Zero coupon bonds are purchased at a deep discount
because the buyer receives only the right to receive a final payment at the
maturity of the bond and does not receive any periodic interest payments. The
effect of owning deep discount bonds which do not make current interest
payments (such as the zero coupon bonds) 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 such obligation. This implicit reinvestment of earnings at
the same rate eliminates the risk of being unable to reinvest the income on
such obligation 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, zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality which pay interest
currently. A Trust may be required to sell zero coupon bonds prior to maturity
(at their current market price which is likely to be less than their par value)
in the event that all the Securities in the portfolio other than the zero
coupon bonds are called or redeemed in order to pay expenses of a Trust or in
case a Trust is terminated. For the Federal tax consequences of original issue
discount securities such as the zero coupon bonds, see "Tax Status."
Litigation. To the best of the Sponsor's knowledge, there is no litigation
pending as of the date of Part I of this Prospectus in respect of any Security
which might reasonably be expected to have a material adverse effect on the
Trusts. At any time after the date of Part I
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of this Prospectus, 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 Trusts.
RATING OF UNITS
At the Initial Date of Deposit for each Laddered Trust, Rolling Trust and
Insured Corporate Trust, Standard & Poor's rated the Units of such Trusts
"AAA." Although each of these Trusts have elected not to renew this rating, in
the opinion of the Sponsor there has been no significant structural change to
any of these Trusts which would warrant a different rating than was originally
obtained. This is the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is very strong.
A Standard & Poor's rating (as described by Standard & Poor's) on the
units of an investment trust (hereinafter referred to collectively as "units"
or "trust") was, at the time it was given, a current assessment of
creditworthiness with respect to the investments held by such trust. This
assessment takes into consideration the financial capacity of the issuers and
of any guarantors, insurers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into account the extent to
which trust expenses or portfolio asset sales for less than the trust's
purchase price will reduce payment to the Unitholder of the interest and
principal required to be paid on the portfolio assets. In addition, the rating
is not a recommendation to purchase, sell, or hold units, inasmuch as the
rating does not comment as to market price of the units or suitability for a
particular investor. Trusts rated "AAA" are composed exclusively of assets that
are rated "AAA" by Standard & Poor's or have, in the opinion of Standard &
Poor's, credit characteristics comparable to assets rated "AAA," or certain
short-term investments. Standard & Poor's defines its "AAA" rating for such
assets as the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is very strong.
Securities in an Insured Corporate Trust for which insurance has been
obtained by the issuer or the Sponsor (all of which were rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's Investors Service, Inc. ("Moody's"))
may or may not have a higher yield than uninsured Securities rated "AAA" by
Standard & Poor's or "Aaa" by Moody's. In selecting Securities for an Insured
Corporate Trust, the Sponsor has applied the criteria hereinbefore described.
INSURANCE ON THE CORPORATE BONDS
All Corporate Bonds in an insured Corporate Trust ("Insured Corporate
Trust") (as set forth in Part I of this Prospectus) except for any U.S.
Treasury obligations are insured as to the scheduled payment of interest and
principal either by the issuer of the Corporate Bonds or by the Sponsor under a
financial guaranty insurance policy obtained from MBIA Insurance Corporation
("MBIA"). The premium for each such insurance policy has been paid in advance
by such issuer or the Sponsor and each such policy is non-cancellable and will
remain in force so long as such Corporate Bonds are outstanding and MBIA
remains in
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business. No premiums for such insurance are paid by an Insured Corporate
Trust. If MBIA is unable to meet its obligations under its policy or if the
rating assigned to the claims-paying ability of MBIA deteriorates, no other
insurer has any obligation to insure any issue adversely affected by either of
these events.
The aforementioned insurance guarantees the scheduled payment of principal
and interest on all of such Corporate Bonds in an Insured Corporate Trust
except for any U.S. Treasury obligations. It does not guarantee the market
value of the Bonds or the value of the Units of such Corporate Trust. This
insurance is effective so long as the Corporate Bond is outstanding, whether or
not held by an Insured Corporate Trust. Therefore, any such insurance may be
considered to represent an element of market value in regard to the Corporate
Bonds, but the exact effect, if any, of this insurance on such market value
cannot be predicted.
MBIA is the principal operating subsidiary of MBIA, Inc., a New York Stock
Exchange listed company. MBIA, Inc. is not obligated to pay the debts of or
claims against MBIA. MBIA is domiciled in the State of New York and licensed to
do business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA has two European branches, one in the Republic of
France and the other in the Kingdom of Spain. New York has laws prescribing
minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the insurer, changes in control and
transactions among affiliates. Additionally, MBIA is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
As of December 31, 1996, MBIA had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1997, MBIA had admitted assets of $4.5 billion
(unaudited), total liabilities of $3.0 billion (unaudited), and total capital
and surplus of $1.5 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA Corporation's financial statements prepared in
accordance with statutory accounting practices are available from MBIA
Corporation. The address of MBIA Corporation is 113 King Street, Armonk, New
York 10504.
Moody's rates all bond issues insured by MBIA "Aaa" and short-term loans
"MIG-1," both designated to be of the highest quality. Standard & Poor's rates
all new issues by MBIA "AAA."
Because the Corporate Bonds in an Insured Corporate Trust (other than U.S.
Treasury Obligations) are insured as to the scheduled payment of principal and
interest and on the basis of the financial condition and the method of
operation of MBIA, at the Initial Date of
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Deposit for each Insured Corporate Trust, Standard & Poor's assigned to Units
in an Insured Corporate Trust its "AAA" investment rating. While the sponsor
has elected not to renew this "AAA" rating on Insured Corporate Trust Units, in
the opinion of the Sponsor there has been no significant structural change to
any of these Trusts which would warrant a different rating than that originally
obtained. This is the highest rating assigned to securities by such rating
agency. These ratings should not be construed as an approval of the offering of
the Units by Standard & Poor's or as a guarantee of the market value of an
Insured Corporate Trust or the Units thereof.
Bonds in an Insured Corporate Trust for which insurance has been obtained
by the issuer thereof or by the Sponsor from MBIA (all of which were rated
"Aaa" by Moody's) may or may not have a higher yield than uninsured bonds rated
"Aaa" by Moody's. In selecting Corporate Bonds for the portfolio of an Insured
Corporate Trust, the Sponsor has applied the criteria hereinbefore described.
RETIREMENT PLANS
Units of the Trusts may be suitable for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other qualified retirement plans.
Generally, capital gains and income received under each of the foregoing plans
are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering placing an investment in a Trust on account of any such plan should
review specific tax laws related thereto and should consult their attorneys or
tax advisor. The Trusts will waive the $5,000 minimum investment requirement
for qualified retirement plans. The minimum investment is $250 for tax-deferred
plans such as IRA accounts. Fees and charges with respect to such plans may
vary. Consult your financial adviser regarding eligibility requirements.
TAX STATUS
Grantor Trust
The following discussion applies only to those Trusts classified as
Grantor Trusts under "TAX STATUS" in Part I of this Prospectus, which are
organized as grantor trusts for federal tax purposes. For purposes of the
following discussion and opinion, it is assumed that the Securities are debt
for federal income tax purposes and that interest on each Security is
includable in gross income for federal income tax purposes. In the opinion of
Chapman and Cutler, special counsel for the Sponsor, under existing law:
1. The Trusts are not associations taxable as corporations for
federal income tax purposes.
2. Each Unitholder will be considered the owner of a pro rata
portion of each of a Trust's assets for federal income tax purposes under
Subpart E,
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Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the "Code").
Each Unitholder will be considered to have received his pro rata share of
income derived from each Trust asset when such income is considered to be
received by a Trust. Each Unitholder will also be required to include in income,
for Federal income tax purposes, original issue discount with respect to his
interest in any Bonds held by a Trust at the same time and in the same manner as
though the Unitholder were the direct owner of such interest.
3. Each Unitholder will have a taxable event when a Security is disposed of
(whether by sale, exchange, liquidation, redemption, or payment at maturity) or
when the Unitholder redeems or sells his Units. A Unitholder's tax basis in his
Units will equal his tax basis in his pro rata portion of all the assets of the
Trust. Such basis is determined (before adjustments described below) by
apportioning the tax basis for the Units among each of the Trusts' assets,
according to value as of the valuation date nearest the date of acquisition of
the Units. Unitholders must reduce the tax basis of their Units for their share
of accrued interest received, if any, on Securities delivered after the date on
which the Unitholders pay for their Units to the extent that such interest
accrued on such Securities before the date the Trust acquired ownership of the
Securities (and the amount of this reduction may exceed the amount of accrued
interest paid to the sellers) and, consequently, such Unitholders may have an
increase in taxable gain or reduction in capital loss upon the disposition of
such Units.
Gain or loss upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis of the Units. If
the Trustee disposes of Securities (whether by sale, exchange, payment on
maturity, redemption or otherwise), gain or loss is recognized to the Unitholder
(subject to various non-recognition provisions of the Code). The amount of any
such gain or loss is measured by comparing the Unitholders pro rata share of the
total proceeds from such disposition with his basis for his fractional interest
in the asset disposed of. The basis of each Unit and of each Security which was
issued with original issue discount, including the U.S. Treasury obligations,
(or which has market discount) must be increased by the amount of accrued
original issue discount (and market discount if the Unitholder elects to include
market discount in income as it accrues) and the basis of each Unit and of each
Security which was purchased by a Trust at a premium must be reduced by the
annual amortization of bond premium with the Unitholder has properly elected to
amortize under Section 171 of the Code. The tax basis reduction requirements of
the Code relating to amortization of bond premium may, under some circumstances,
result in the Unitholder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to or less than his original cost.
A Trust may contain certain "zero coupon" Securities (the "Stripped
Treasury Securities") that are treated as bonds that were originally issued at
an original issue discount provided, pursuant to a Treasury Regulation ("the
Regulation") issued on December 28, 1992, that the amount of original issue
discount determined under Section 1286 of the Code is not less than a de minimis
amount as determined thereunder. Because the Stripped Treasury Securities
represent interests in "stripped"
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<PAGE> 47
U.S. Treasury bonds, a Unitholder's initial cost for his pro rata portion
of each Stripped Treasury Security held by a Trust (determined at the time
he acquires his Units, in the manner described above) shall be treated as
its "purchase price" by the Unitholder. Original issue discount is
effectively treated as interest for federal income tax purposes, and the
amount of original issue discount in this case is generally the difference
between the bond's purchase price and its stated redemption price at
maturity. A Unitholder will be required to include in gross income for each
taxable year the sum of his daily portions of original issue discount
attributable to the Stripped Treasury Securities held by a Trust as such
original issue discount accrues and will, in general, be subject to federal
income tax with respect to the total amount of such original issue discount
that accrues for such year even though the income is not distributed to the
Unitholders during such year. To the extent that the amount of such
discount is less than the respective de minimis amount, such discount shall
be treated as zero. In general, original issue discount accrues daily under
a constant interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Stripped Treasury
Securities, this method will generally result in an increasing amount of
income to the Unitholders each year. Unitholders should consult their tax
advisors regarding the Federal income tax consequences of and accretion of
original issue discount.
Premium - If a Unitholder's tax basis of his pro rata portion in any
Securities held by a Trust exceeds the amount payable by the issuer of the
Security with respect to such pro rata interest upon the maturity of the
Security, such excess would be considered "premium" which may be amortized by
the Unitholder at the Unitholder's election as provided in Section 171 of the
Code. Unitholders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
Original Issue Discount - Certain of the Securities in a Trust may have
been acquired with "original issue discount." In the case of any Securities in a
Trust acquired with "original issue discount" that exceeds a "de minimis" amount
as specified in the Code or in the case of the Stripped Treasury Securities as
specified in the Regulation, such discount is includable in taxable income of
the Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Securities are received. The Code provides a
complex set of rules regarding the accrual of original issue discount. These
rules provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Securities. Unitholders
should consult their tax advisers as to the amount of original issue discount
that accrues.
Special original issue discount rules apply if the purchase price of a
Security by a Trust exceeds its original issue price plus the amount of original
issue discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). Similarly, these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Security issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
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<PAGE> 48
It is possible that a Corporate Bond that has been issued at an original
issue discount may be characterized as a "high-yield discount obligation"
within the meaning of Section 163(e)(5) of the Code. To the extent that such an
obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g., dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
Market Discount - If a Unitholder's tax basis in his pro rata portion of
Securities is less than the allocable portion of such Security's stated
redemption price at maturity (or, if issued with original issue discount, the
allocable portion of its "revised issue price"), such difference will constitute
market discount unless the amount of market discount is "de minimis" as
specified in the Code. Market discount accrues daily computed on a straight-line
basis, unless the Unitholder elects to calculate accrued market discount under a
constant-yield method. The market discount rules do not apply to Stripped
Treasury Securities because they are stripped debt instruments subject to
special original issue discount rules discussed above. Unitholders should
consult their own tax advisers regarding whether an election should be made and
as to the amount of market discount which accrues.
Accrued market discount is generally includible in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Securities, on the sale, maturity or
disposition of such Securities by a Trust, and on the sale by a Unitholder of
Units, unless a Unitholder elects to include the accrued market discount in
taxable income as such discount accrues. If a Unitholder does not elect to
annually include accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unitholder which is
incurred to purchase or carry his Units will be reduced by such accrued market
discount. In general, the portion of any interest expense which was not
currently deductible would ultimately be deductible when the accrued market
discount is included in income. Unitholders should consult their tax advisors
regarding whether an election should be made to include market discount in
income as it accrues and as to the amount of interest expense which may not be
currently deductible.
Computation of the Unitholder's Tax Basis - The tax basis of a Unitholder
with respect to his interest in a Security is increased by the amount of
original issue discount (and market discount, if the Unitholder elects to
include market discount, if any, on the Securities held by a Trust in income as
it accrues) thereon properly included in the Unitholder's gross income as
determined for Federal income tax purposes and reduced by the amount of any
amortized premium which the Unitholder has properly elected to amortize under
Section 171 of the Code. A Unitholder's tax basis in his Units will equal his
tax basis in his pro rata portion of all of the assets of a Trust.
Limitations on Deductibility of Trust Expenses by Unitholders - Each
Unitholders pro rata share of each expense paid by a Trust is deductible by the
Unitholder to the same extent as though the expense had been paid directly by
him. It should be noted that as a result of the Tax Reform Act of 1986, certain
miscellaneous itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses, may be deductible by
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<PAGE> 49
an individual only to the extent they exceed 2% of such individual's adjusted
gross income (similar limitations also apply to estates and trusts).
Unitholders may be required to treat some or all of the expenses paid by each
Trust as miscellaneous itemized deductions subject to this limitation.
Recognition of Taxable Gain or Loss upon Disposition of Obligations by a
Trust or Disposition of Unit - A Unitholder will recognize taxable capital gain
(or loss) when all or part of his pro rata interest in a Security is disposed of
in a taxable transaction for an amount greater (or less) than his tax basis
therefor (subject to various non-recognition provisions of the Code). (Any gain
recognized on a sale or exchange and not constituting a realization of accrued
"market discount," and any loss, will generally be capital gain or loss except
in the case of a dealer or financial institution.) As previously discussed, gain
realized on the disposition of the interest of a Unitholder in any Security
deemed to have been acquired with market discount will be treated as ordinary
income to the extent the gain does not exceed the amount of accrued market
discount not previously taken into income. Any capital gain or loss arising from
the disposition of a Security by a Trust or the disposition of Units by a
Unitholder will generally be determined by the period of time the Unitholder
held his Unit and the period of time the Trust held the Security. The Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Tax Act")
provides that for taxpayers other than corporations, net capital gain (which is
defined as net long-term capital gain over net short-term capital loss for the
taxable year) realized from property (with certain exclusions) is subject to a
maximum marginal stated tax rate of 20% (10% in the case of certain taxpayers in
the lowest tax bracket). Capital gain or loss is long-term if the holding period
for the asset is more than one year, and is short-term if the holding period for
the asset is one year or less. The date on which a Unit is acquired (i.e., the
"trade date") is excluded for purposes for determining the holding period of the
Unit. The legislation is generally effective retroactively for amounts properly
taken into account on or after January 1, 1998. Capital gains realized from
assets held for one year or less are taxed at the same rates as ordinary income.
The Taxpayer Relief Act of 1997 includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and opportunities for
gain (e.g. short sales, offsetting notional principal contracts, futures or
forward contracts or similar transactions) as constructive sales for purposes
of recognition of gain (but not loss) and for purposes of determining the
holding period. Unitholders should consult their own tax advisors with regard
to any such constructive sales rules.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
If the Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets, including his pro
rata portion of all of the Securities represented by the Unit. This may result
in a portion of the gain, if any, on such
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<PAGE> 50
sale being taxable as ordinary income under the market discount rules (assuming
no election was made by the Unitholder to include market discount in income as
it accrues) as previously discussed. The tax basis reduction requirements of
the Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder's realizing taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original cost.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident of a U.S. corporation,
partnership, estate or trust) will not be subject to United States federal
income taxes, including withholding taxes, on interest income (including any
original issue discount) on, or any gain from the sale or other disposition of,
his pro rata interest in any Security or the sale of his Units provided that
(i) the interest income or gain is not effectively connected to the conduct by
the foreign investor of a trade or business within the United States, (ii) with
respect to any gain, the foreign investor (if an individual) is not present in
the United States for 183 days or more during his taxable year, (iii) the
foreign investor provides all certification which may be required of his or her
status (foreign investors may contact the Sponsor to obtain a Form W-8 which
must be filed with the Trustee and refiled every three calendar years
thereafter) and (iv) if the interest is United States source income (which is
the case for most securities issued by United States issuers) and the Security
is issued after July 18, 1984, then the foreign investor does not own, directly
or indirectly, 10% or more of the total combined voting power of all classes of
voting stock of the issuer of the Security and the foreign investor is not a
controlled foreign corporation related (within the meaning of Section 864(d)(4)
of the Code) to the issuer of the Security. Foreign investors should consult
their tax advisers with respect to United States tax consequences of ownership
of Units.
It should be noted that certain provisions of the Code eliminate the
exemption from United States taxation, including withholding taxes, for certain
"contingent interest." The provision applies to interest received after
December 31, 1993. No opinion is expressed herein regarding the potential
applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should consult
with their tax advisors regarding the potential effect of this provision on
their investment in Units.
General - Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are
subject to back-up withholding. If the proper taxpayer identification number
and appropriate certification are not provided when requested, distributions by
a Trust to such Unitholder, including amounts received upon redemption of the
Units, will be subject to back-up withholding.
The foregoing discussion relates only to United States federal income
taxes. Unitholders may be subject to state and local taxation in other
jurisdictions (including a foreign investor's country of residence).
Unitholders should consult their tax advisers regarding potential state, local,
or foreign taxation with respect to the Units.
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<PAGE> 51
In the opinion of Carter, Ledyard & Milburn, special counsel to the Trusts
for New York tax matters the Trusts are not associations taxable as
corporations and the income of a Trust will be treated as the income of the
Unitholders under the existing income tax laws of the State and City of New
York.
Regulated Investment Company
The following discussion applies only to those Trusts classified as
regulated investment companies under "TAX STATUS" in Part I of this Prospectus,
which are structured to qualify as a regulated investment company for federal
tax purposes. In the opinion of Chapman and Cutler, counsel or the Sponsor,
under existing law:
Each Trust is an association taxable as a corporation under the Code and
intends to qualify on a continuing basis for and elect tax treatment as a
"regulated investment company" under the Code. If a Trust so qualifies and
timely distributes to Unitholders 90% or more of its taxable income (without
regard to its net capital gain, i.e., the excess of its net long-term capital
gain over its net short-term capital loss), it will not be subject to federal
income tax on the portion of its taxable income (including any net capital
gain) that it distributes to Unitholders. In addition, to the extent a Trust
timely distributes to Unitholders at least 98% of its 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." Each Trust intends to
timely distribute its taxable income (including any net capital gain) to avoid
the imposition of federal income tax or the excise tax. Distributions of the
entire net investment income of a Trust is required by the Indenture.
Each Trust intends to file its federal income tax return on a calendar
year basis. In any taxable year of a Trust, distributions of its income, other
than distributions which are designated as capital gains dividends, will, to
the extent of the earnings and profits of such Trust, constitute dividends for
federal income tax purposes which are taxable as ordinary income to
Unitholders. To the extent that distributions to a Unitholder in any year
exceed a Trust's current and accumulated earnings and profits, they will be
treated as a return of capital and will reduce the Unitholder's basis in his or
her Units and, to the extent that they exceed his or her basis, will be treated
as a gain from the sale of his or her Units as discussed below. Distributions
from a Trust will not be eligible for the 70% dividends-received deduction for
corporations.
Although distributions generally will be treated as distributed when paid,
distributions declared in October, November or December, payable to Unitholders
of record on a specified date in one of those months and paid during January of
the following year will be treated as having been distributed by each Trust (and
received by the Unitholders) on December 31 of the year such distributions are
declared.
Distributions of a Trust's net capital gain which a Trust properly
designates as capital gain dividends will be taxable to Unitholders thereof as
long-term capital gains, regardless of the length of time the Units have been
held by a Unitholder. However, if a Unitholder receives a long-term capital gain
dividend (or is allocated to a portion of a Trust's
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undistributed long-term capital gain) and sells his Units at a loss prior to
holding them for 6 months, such loss will be characterized as long-term capital
loss to the extent of such long-term capital gain received as a dividend or
allocated to a Unitholder. Distributions in partial liquidation, reflecting the
proceeds of prepayments, redemptions, maturities (including monthly mortgage
payments of principal) or sales of Securities from a Trust (exclusive of net
capital gain) will not be taxable to Unitholders of such Trust to the extent
that they represent a return of capital for tax purposes. The portion of
distributions which represents a return of capital will, however, reduce a
Unitholder's basis in his Units, and to the extent they exceed the basis of his
Units will be taxable as a capital gain. A Unitholder may recognize a taxable
gain (or loss) when his or her Units are sold or redeemed. Such gain or loss
generally will constitute either a long-term or short-term capital gain or loss
depending upon the length of time the Unitholder has held his Units. Any loss
on Units held six months or less will be treated as long-term capital loss to
the extent of any long-term capital gains dividends received (or deemed to have
been received) by the Unitholder with respect to such Units during the
six-month period or less that the Unitholder owns the Units. The Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Tax Act")
provides that for taxpayers other than corporations, net capital gain (which is
defined as net long-term capital gain over net short-term capital loss for the
taxable year) realized from property (with certain exclusions) is generally
subject to a maximum marginal stated tax rate of 20% (10% in the case of
certain taxpayers in the lowest tax bracket). Capital gain or loss is long-term
if the holding period for the asset is more than one year, and is short-term if
the holding period for the asset is one year or less. The date on which a Unit
is acquired (i.e., the "trade date") is excluded for purposes for determining
the holding period of the Unit. The legislation is generally effective
retroactively for amounts properly taken into account on or after January 1,
1998. Capital gains realized from assets held for one year or less are taxed at
the same rates as ordinary income.
Note, however, that the 1998 Tax Act (and the Taxpayer Relief Act of 1997)
provide that the application of the rules described above in the case of
pass-through entities such as the Trusts will be prescribed in future Treasury
Regulations. The Internal Revenue Service has released preliminary guidance
which provides that, in general, pass-through entities such as the Trusts may
designate their capital gains dividends as either a 20% rate gain distribution,
an unrecaptured section 1250 gain distribution, or a 28% rate gain distribution,
depending on the nature of the gain received by the pass-through entity.
Unitholders should consult their own tax advisors as to the tax rate applicable
to capital gain dividends.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
The Taxpayer Relief Act of 1997 (the "1997 Act") includes provisions that
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
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and for purposes of determining the holding period. Unitholders should consult
their own tax advisers with regard to any such constructive sale rules.
Under the Code, certain miscellaneous itemized deductions, such as
investment expenses, tax return preparation fees and employee business expenses,
will be deductible by individuals only to the extent they exceed 2% of adjusted
gross income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by a Trust as long as the Units of
such Trust are held by or for 500 or more persons at all times during the
taxable year or another exception is met. In the event the Units of a Trust are
held by fewer than 500 persons, additional taxable income may be realized by the
individual Unitholders in excess of the distributions received from such Trust.
If a Ginnie Mae has been purchased by a Trust at a market discount (i.e.,
for a purchase price less than its stated redemption price at maturity (or if
issued with original issue discount, its "revised issue price")) unless the
amount of market discount is "de minimis" as specified in the Code, each payment
of principal on the Ginnie Mae will generally constitute ordinary income to a
Trust to the extent of any accrued market discount unless a Trust elects to
include the accrued market discount in taxable income as it accrues. In the case
of Ginnie Mae, the amount of market discount that is deemed to accrue each month
shall generally be the amount of discount that bears the same ratio to the total
amount of remaining market discount that the amount of interest paid during the
accrual period bears to the total amount of interest remaining to be paid on the
Ginnie Mae as of the beginning of the accrual period.
Each Unitholder will be requested to provide the Unitholder's taxpayer
identification number to the Trustee and to certify that the Unitholder has not
been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by a Trust to such
Unitholder (including amounts received upon the redemption of Units) will be
subject to back-up withholding.
Each Unitholder of a Trust shall receive an annual statement describing the
tax status of the distributions paid by such Trust.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a United States citizen or resident or a United States
corporation, partnership, estate or trust) should be aware that, generally,
subject to applicable tax treaties, distributions from a Trust, which constitute
dividends for Federal income tax purposes (other than dividends which a Trust
designates as capital gain dividends) will be subject to United States income
taxes, including withholding taxes. However, distributions received by a foreign
investor from a Trust that are designated by such Trust as capital gain
dividends should not be subject to United States Federal income taxes,
including withholding taxes, if all of the following conditions are met (i) the
capital gain dividend is not effectively connected with the conduct by the
foreign investor of a trade or business within the United States, (ii) the
foreign investor (if an individual) is not present in the United States for 183
days or more during his
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<PAGE> 54
or her taxable year, and (iii) the foreign investor provides all certification
which may be required of his status (foreign investors may contact the Sponsor
to obtain a Form W-8 which must be filed with the Trustee and refiled every
three calendar years thereafter). Foreign investors should consult their tax
advisors with respect to United States tax consequences of ownership of Units.
Units in a Trust and Trust distributions may also be subject to state and local
taxation and Unitholders should consult their tax advisors in this regard.
Distributions reinvested into additional Units of a Trust will be taxed
to a Unitholder in the manner described above (i.e., as ordinary income,
long-term capital gain or as a return of capital).
The foregoing discussion relates only to the federal income tax status of
a Trust and to the tax treatment of distributions by such Trust to United
States Unitholders.
DISTRIBUTION REINVESTMENT
Certain Unitholders of the Trusts may elect to have distributions of
principal (including capital gains, if any) or interest or both automatically
invested without charge in shares of certain mutual funds which are registered
in such Unitholder's state of residence and are advised by Fidelity Management
& Research Company, an affiliate of the Sponsor (the "Fidelity Funds"). Ask
your financial consultant regarding the availability of distribution
reinvestment.
If individuals indicate they wish to participate in the Reinvestment
Program but do not designate a reinvestment fund, the Trustee will contact such
individuals to determine which reinvestment fund they wish to elect. Since the
portfolio securities and investment objectives of the Fidelity Funds generally
will differ significantly from that of the Trusts, Unitholders should carefully
consider the consequences before selecting such Fidelity Funds for
reinvestment. Detailed information with respect to the investment objectives
and the management of the Fidelity Funds is contained in their respective
prospectuses, which can be obtained from the Sponsor upon request. An investor
should read the prospectus of the reinvestment fund selected prior to making
the election to reinvest. Unitholders who desire to have such distributions
automatically reinvested should inform their investment professional at the
time of purchase or should file with the Trustee a written notice of election.
Unitholders who are receiving distributions in cash may elect to
participate in distribution reinvestment by filing with the Trustee an election
to have such distributions reinvested without charge. Such election, and any
changes thereof, must be received by the Trustee at least ten days prior to the
Record Date applicable to any distribution in order to be in effect for such
Record Date. Any such election shall remain in effect until a subsequent notice
is received by the Trustee. See "Unitholders--Distributions to Unitholders."
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INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the date of Part I of this Prospectus, the Estimated Long-Term Return
and the Estimated Current Return, if applicable, for each Trust were as set
forth in "Essential Information" in Part I of this Prospectus. Estimated Current
Return is calculated by dividing the estimated net annual interest income per
Unit by the Public Offering Price. The estimated net annual interest income per
Unit will vary with changes in fees and expenses of the Trustee, the Sponsor and
the Evaluator and with principal payments and prepayments and with reinvestment
(in the case of a Rolling Trust), principal prepayment, redemption, maturity,
exchange or sale of the Securities while the Public Offering Price will vary
with changes in the offering price of the underlying Securities and accrued
interest; therefore, there is no assurance that the present Estimated Current
Return will be realized in the future. Estimated Long-Term Return is calculated
using a formula which (i) takes into consideration, and determines and factors
in the relative weightings of, the market values, yields (which takes into
account the amortization of premiums and the accretion of discounts) and
estimated retirements or average lives of all of the Securities in a Trust,
which includes the reinvestment of Securities in a Rolling Trust, and (ii) takes
into account a compounding factor and the expenses and sales charge associated
with each Trust Unit. Since the market values and estimated retirements of the
Securities and the expenses of a Trust will change, there is no assurance that
the present Estimated Long-Term Return will be realized in the future. Estimated
Current Return and Estimated Long-Term Return are expected to differ because the
calculation of Estimated Long-Term Return reflects the estimated date and amount
of principal returned while Estimated Current Return calculations include only
net annual interest income and Public Offering Price.
Payments received in respect of mortgages underlying Ginnie Mae, if any, in
a Rolling Trust will consist of a portion representing interest and a portion
representing principal. Although the aggregate monthly payment made by the
obligor on each mortgage remains constant (aside from optional prepayments of
principal), in the early years most of each such payment will represent
interest, while in later years, the proportion representing interest will
decline and the proportion representing principal will increase. However, by
reason of optional prepayments, principal payments in the earlier years on
mortgages underlying Ginnie Maes may be substantially in excess of those
required by the amortization schedules of such mortgages. Therefore, principal
payments in later years may be substantially less since the aggregate unpaid
principal balances of such underlying mortgages may have been greatly reduced.
To the extent that the underlying mortgages bearing higher interest rates in a
Rolling Trust are prepaid faster than the other underlying mortgages, the net
annual interest rate per Unit and the Estimated Current Return of the Units of a
Rolling Trust can be expected to decline. Monthly payments to the Unitholders of
a Rolling Trust will reflect all of these factors.
PUBLIC OFFERING OF UNITS
Public Offering Price. Units of a Trust are offered at the Public Offering
Price thereof. The Public Offering Price for secondary market transactions is
based on the aggregate bid side evaluations of the Securities in a Trust, plus
or minus cash, if any, in the
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Principal Account held or owned by such Trust, plus accrued interest plus a
sales charge based upon the dollar weighted average maturity of such Trust
determined in accordance with the tables set forth below (which includes a
deferred sales charge for each Corporate Trust, Insured Corporate Trust and
Rolling Trust which contains GNMA securities). For purposes of this computation,
Securities will be deemed to mature on their expressed maturity dates unless:
(a) the Securities have been called for redemption or funds or securities have
been placed in escrow to redeem them on an earlier call date, in which case such
call date will be deemed to be the date upon which they mature; or (b) such
Securities are subject to a "mandatory tender," in which case such mandatory
tender will be deemed to be the date upon which they mature. The effect of this
method of sales charge computation will be that different sales charge rates
will be applied to a Trust based upon the dollar weighted average maturity of
such Trust's portfolio, in accordance with the following schedules.
The sales charge per Unit for each Laddered Trust and each Rolling Trust
which contains U.S. Treasury Obligations will be set forth in the following
table:
AMOUNT INVESTED
<TABLE>
<CAPTION>
LESS THAN $500,000 $500,000 TO $999,999 $1,000,000 AND UP
---------------------- --------------------- --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
WEIGHTED OF OF NET OF OF NET OF OF NET
AVERAGE OFFERING AMOUNT OFFERING AMOUNT OFFERING AMOUNT
MATURITY PRICE INVESTED PRICE INVESTED PRICE INVESTED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Less than 2 years....... 1.250% 1.266% 1.000% 1.010% 0.750% 0.756%
2 to 3 years............ 1.500% 1.523% 1.250% 1.266% 1.000% 1.010%
3 to 5 years............ 1.750% 1.781% 1.500% 1.523% 1.250% 1.266%
</TABLE>
The sales charge per Unit for each Corporate Trust, Insured Corporate Trust
and Rolling Trust which contains GNMA Securities will be set forth in the
following table:
<TABLE>
<CAPTION>
DOLLAR WEIGHTED AVERAGE DOLLAR WEIGHTED AVERAGE
MATURITY LESS THAN 5 YEARS MATURITY GREATER THAN 5 YEARS
-------------------------- -----------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
AMOUNT INVESTED PRICE* INVESTED* PRICE* INVESTED*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000....... 2.500% 2.564% 3.500% 3.627%
$100,000 to $249,999..... 2.250% 2.302% 3.250% 3.359%
$250,000 to $499,999..... 2.000% 2.041% 3.000% 3.093%
$500,000 to $999,999..... 1.750% 1.781% 2.750% 2.828%
$1,000,000 and up........ 1.500% 1.523% 2.500% 2.564%
</TABLE>
- -----------
* In addition, a deferred sales charge of $.167 will be assessed per 100 Units
per month on a Trust's respective Record Date, through December of 1999.
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<PAGE> 57
The reduced sales charges resulting from quantity discounts as shown on
the tables above will apply to all purchases of Units on any one day by the
same purchaser from the same broker or dealer and for this purpose purchases of
Units of a Trust will be aggregated with concurrent purchases of Units of any
other unit investment trust that may be offered by the Sponsor. Additionally,
Units purchased in the name of a spouse or child (under 21) of such purchaser
will be deemed to be additional purchases by such purchaser. The reduced sales
charges will also be applicable to a trust or other fiduciary purchasing for a
single trust estate or single fiduciary account. The Sponsor intends to permit
officers, directors and employees of the Sponsor and at the discretion of the
Sponsor registered representatives of selling firms to purchase Units of a
Trust without a sales charge, although a transaction processing fee may be
imposed on such trades. In addition, investors who purchase Units through
registered brokers or dealers who charge periodic fees for financial planning,
investment advisory or asset management services, or provide such services in
connection with the establishment of an investment account for which a
comprehensive "wrap fee" charge is imposed may purchase Units in the secondary
market at the Public Offering Price less the concession the Sponsor typically
would allow such broker-dealer. See "Public Offering of Units--Public
Distribution of Units" below. In addition, investors who purchase Units of a
Trust for deposit in a Fidelity-sponsored 401k or other retirement plan may
purchase such Units at the Public Offering Price less the concession the
sponsor allows dealers and other selling agents.
Had Units of a Trust been available for sale at the opening of business on
the date set forth in Part I of this Prospectus, the Public Offering Price
would have been as shown under "Essential Information" in Part I of this
Prospectus. The Public Offering Price per Unit of a Trust on the date of Part I
of this Prospectus or on any subsequent date will vary from the amount stated
under "Essential Information" in Part I of this Prospectus in accordance with
fluctuations in the prices of the underlying Securities and the amount of
accrued interest on the Units. The aggregate bid side evaluations of the
Securities shall be determined (i) on the basis of current bid prices of the
Securities, (ii) if bid prices are not available for any particular Security,
on the basis of current bid prices for comparable securities, (iii) by
determining the value of Securities on the bid side of the market by appraisal,
or (iv) by any combination of the above.
The foregoing evaluations and computations shall be made as of the
evaluation time stated under "Essential Information" in Part I of this
Prospectus on each business day commencing with the date of Part I of this
Prospectus, effective for all sales made during the preceding 24-hour period.
The interest on the Securities deposited in a Trust, less the related
estimated fees and expenses, is estimated to accrue in the annual amounts per
Unit set forth under "Essential Information" in Part I of this Prospectus. The
amount of net interest income which accrues per Unit may change as Securities
mature or are redeemed, exchanged or sold, or as the expenses of a Trust change
or the number of outstanding Units of a Trust changes.
Although payment is normally made three business days following the order
for purchase, payments may be made prior thereto. A person will become the
owner of Units
-26-
<PAGE> 58
on the date of settlement provided payment has been received. Cash, if any,
made available to the Sponsor prior to the date of settlement for the purchase
of Units may be used in the Sponsor's business and maybe deemed to be a
benefit to the Sponsor, subject to the limitations of the Securities Exchange
Act of 1934. If a Unitholder desires to have certificates representing Units
purchased, such certificates (if available) will be delivered as soon as
possible following his written request therefor. For information with respect
to redemption of Units purchased, but as to which certificates requested have
not been received, see "Redemption" below.
Accrued Interest. Accrued interest is the accumulation of unpaid interest
on a security from the last day on which interest thereon was paid. Interest on
Securities generally is paid semi-annually (monthly in the case of Ginnie Maes),
although a Trust accrues such interest daily. Because of this, a Trust always
has an amount of interest earned but not yet collected by the Trustee. For this
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of a Trust the amount, if any, of
accrued interest paid on their Units.
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trusts and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the
value of the Units. If a Unitholder sells or redeems all or a portion of his or
her Units, he or she will be entitled to receive his proportionate share of the
accrued interest from the purchaser of his Units. Since the Trustee has the use
of the funds held in the Interest Account for distributions to Unitholders and
since such Account is non-interest-bearing to Unitholders, the Trustee benefits
thereby.
Public Distribution of Units. Units repurchased in the secondary market may
be offered by this Prospectus at the secondary market public offering price
determined in the manner described above. Units will be sold through dealers who
are members of the National Association of Securities Dealers, Inc. and through
others. Sales may be made to or through dealers and others at prices which
represent discounts or agency commissions from the Public Offering Price as set
forth below. Certain commercial banks are making Units of the Trusts 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 in the amount shown in
the tables below. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust 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 reserves the right to
change the discounts and agency commissions set forth below from time to time.
In addition to such discounts and agency commissions, the Sponsor may, from time
to time, pay or allow an additional discount or agency commission, in the form
of cash or other compensation, to dealers and others employing registered
representatives who sell, during a specified time period, a minimum dollar
amount of Units of a Trust and other unit
-27-
<PAGE> 59
investment trusts created by the Sponsor. The difference between the discount or
agency commission and the sales charge will be retained by the Sponsor.
The secondary market concessions and agency commissions for each Laddered
Trust and each Rolling Trust which contains U.S. Treasury Obligations as a
percentage of the Public Offering Price are as follows:
<TABLE>
<CAPTION>
LESS THAN $500,000 TO $1,000,000
AVERAGE MATURITY $500,000 $999,999 AND UP
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 2 years......... .750% .500% .400%
2 to 3 years.............. 1.00% .750% .600%
3 to 5 years............. 1.10% 1.00% .750%
</TABLE>
The secondary market concessions and agency commissions for each Corporate
Trust, Insured Corporate Trust and Rolling Trust which contains GNMA Securities
as a percentage of the Public Offering Price are as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT DOLLAR WEIGHTED AVERAGE DOLLAR WEIGHTED AVERAGE
OF TRANSACTION MATURITY LESS THAN 5 YEARS MATURITY GREATER THAN 5 YEARS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Less than $100,000............. 1.750% 3.000%
$100,000 to $249,999........... 1.500% 2.750%
$250,000 to $499,999........... 1.350% 2.600%
$500,000 to $999,999........... 1.150% 2.400%
$1,000,000 and up.............. 0.950% 2.200%
</TABLE>
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units.
From time to time, the Sponsor may implement programs under which dealers
of a Trust may receive nominal awards from the Sponsor for each of their
registered representatives who have sold a minimum number of Fidelity-sponsored
unit investment trust units during a specified time period. In addition, at
various times the Sponsor may implement other programs under which the sales
force of a dealer may be eligible to win other nominal awards for certain sales
efforts, or under which the Sponsor will reallow to any such dealer that
sponsors sales contest or recognition programs conforming to the criteria
established by the Sponsor, or participates in sales programs 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 dealers or others for
certain services or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor out of its own
assets, and not out of the assets of a Trust. These programs will not change the
price Unitholders pay for their Unit or the amount that a Trust will receive
from the Units sold.
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<PAGE> 60
Profits of Sponsor. In maintaining a market for the Units, the Sponsor
will realize profits or sustain losses in the amount of any difference between
the price at which Units are purchased and the price at which Units are resold
(which price included a sales charge as indicated in Part I for each Trust) or
redeemed. The secondary market public offering price of Units may be greater or
less than the cost of such Units to the Sponsor.
MARKET FOR UNITS
The Sponsor intends to, and certain of the dealers may, maintain a market
for Units of the Trusts offered hereby and to continuously offer to purchase
said Units at prices, determined by the Evaluator, based on the aggregate bid
prices of the underlying Securities in such Trusts, together with accrued
interest to the expected dates of settlement. Unitholders who wish to dispose
of their Units should inquire of their bank or broker as to current market
prices in order to determine whether there is in existence any price in excess
of the Redemption Price and, if so, the amount thereof. Any profit or loss
resulting from the resale of such Units will belong to the Sponsor. The Sponsor
may suspend or discontinue purchases of Units of any Trust if the supply of
Units exceeds demand, or for other business reasons.
REDEMPTION
A Unitholder who does not dispose of Units in the secondary market
described above may cause Units to be redeemed by the Trustee by making a
written request to the Trustee, and, in the case of Units evidenced by a
certificate, by tendering such certificate to the Trustee, properly endorsed or
accompanied by a written instrument or instruments of transfer in a form
satisfactory to the Trustee. Unitholders must sign the request, and such
certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
redeemed. If the amount of the redemption is $25,000 or less and the proceeds
are payable to the Unitholder(s) of record at the address of record, no
signature guarantee is necessary for redemptions by individual account owners
(including joint owners). Additional documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees, guardians or associations. The signatures must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program
("STAMP") or such other guarantee program in addition to, or in substitution
for, STAMP, as may be accepted by the Trustee. A certificate should only be
sent by registered or certified mail for the protection of the Unitholder.
Since tender of the certificate is required for redemption when one has been
issued, Units represented by a certificate cannot be redeemed until the
certificate representing such Units has been received by the purchasers.
Redemption shall be made by the Trustee on the third business day
following the day on which a tender for redemption is received (the
"Redemption Date") by payment of cash equivalent to the Redemption Price for
such Trust, determined as set forth below under "Computation of Redemption
Price," as of the evaluation time stated under "Essential Information" in Part
I of this Prospectus, next following such tender, multiplied by the
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<PAGE> 61
number of Units being redeemed. Any Units redeemed shall be cancelled and any
undivided fractional interest in the Trust extinguished. The price received
upon redemption might be more or less than the amount paid by the Unitholder
depending on the value of the Securities in the Trust at the time of
redemption.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a certain percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the Unitholder only when filing a tax return. Under normal circumstances, the
Trustee obtains the Unitholder's tax identification number from the selling
broker. However, any time a Unitholder elects to tender Units for redemption,
such Unitholder should make sure that the Trustee has been provided a certified
tax identification number in order to avoid this possible "back-up withholding."
In the event the Trustee has not been previously provided such number, one must
be provided at the time redemption is requested.
Any amounts paid on redemption representing interest shall be withdrawn
from the Interest Account for such Trust, to the extent that funds are available
for such purpose, then from the Principal Account. All other amounts paid on
redemption shall be withdrawn from the Principal Account for such Trust. The
Trustee is empowered to sell Securities for a Trust in order to make funds
available for the redemption of Units of such trust.
Securities will be sold by the Trustee so as to maintain, as closely as
practicable, the original percentage relationship between the principal amounts
of the Securities in such Trusts. The Securities to be sold for purposes of
redeeming Units will be selected from a list supplied by the Sponsor. The
Securities will be chosen for this list by the Sponsor on the basis of such
market and credit factors as it may determine are in the best interests of such
Trusts. Provision is made under the related Trust Agreement for the Sponsor to
specify minimum face amounts in which blocks of Securities are to be sold in
order to obtain the best price available. Sales may be required at a time when
the Securities would not otherwise be sold and might result in lower prices than
might otherwise be realized. Moreover, due to the minimum principal amount in
which certain Securities may be required to be sold, the proceeds of such sales
may exceed the amount necessary for payment of Units redeemed. To the extent not
used to meet other redemption requests in such Trusts, such excess proceeds will
be distributed pro rata to all remaining Unitholders of record of such Trusts,
unless reinvested in substitute Securities. To the extent Securities are sold,
the size and diversity of a Trust will be reduced. See "Investment Supervision."
If the Sponsor elects not to purchase Units tendered for redemption, the
Trustee is irrevocably authorized in its discretion, in lieu of redeeming such
Units, to sell such Units in the over-the-counter market for the account of
tendering Unitholders at prices which will return to the Unitholders amounts in
cash, net after brokerage commissions, transfer taxes and other charges, equal
to or in excess of the Redemption Price for such Units. In the event of any such
sale, the Trustee shall pay the net proceeds thereof to the Unitholders on the
day they would otherwise be entitled to receive payment of the Redemption Price.
-30-
<PAGE> 62
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or during which (as determined by the Securities
and Exchange Commission) trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which
disposal by the Trustee of Securities is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the underlying
Securities in accordance with the Trust Agreements; or (3) for such other period
as the Securities and Exchange Commission may by order permit. The Trustee is
not liable to any person in any way for any loss or damage which may result from
any such suspension or postponement.
Computation of Redemption Price. The Redemption Price for Units of each
Trust is computed by the Evaluator as of the evaluation time stated under
"Essential Information" in Part I of this Prospectus next occurring after the
tendering of a Unit for redemption and on any other business day desired by it,
by:
A. adding: (1) the cash on hand in the Trust other than cash deposited
in the Trust to purchase Securities not applied to the purchase of such
Securities; (2) the aggregate value of each issue of the Securities held in
the Trust as determined by the Evaluator on the basis of bid prices
therefor; (3) interest accrued and unpaid on the Securities in the Trust as
of the date of computation; and (4) unamortized organization expenses;
B. deducting therefrom (1) amounts representing any applicable taxes
or governmental charges payable out of the Trust and for which no
deductions have been previously made for the purpose of additions to the
Reserve Account described under "Trust Expenses"; (2) an amount
representing estimated accrued expenses of the Trust, including but not
limited to fees and expenses of the Trustee (including legal and auditing
fees and any insurance costs), the Evaluator, the Sponsor and bond counsel,
if any; (3) cash held for distribution to Unitholders of record, or
required for redemption of Units tendered, as of the business day prior to
the evaluation being made; and (4) other liabilities incurred by the Trust;
and
C. finally dividing the results of such computation by the number of
Units of the Trust outstanding as of the date thereof.
UNITHOLDERS
Ownership of Units. Ownership of Units of a Trust will not be evidenced by
certificates unless a Unitholder, the Unitholder's registered broker/dealer or
the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation
statement sent to the broker.
Units are transferable by making a written request to the Trustee and, in
the case of Units evidenced by a certificate, by presenting and surrendering
such certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of
-31-
<PAGE> 63
transfer. Such requests should be sent by registered or certified mail for the
protection of the Unitholder. Unitholders must sign such written request, and
such certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
transferred. Such signatures must be guaranteed as provided in "Redemption."
Units may be purchased and certificates, if requested, will be issued in
denominations of one Unit subject to each Trust's minimum investment requirement
and any minimum requirement established by the Sponsor from time to time. Any
certificate issued will be numbered serially for identification, issued in fully
registered form and will be transferable only on the books of the Trustee. The
Trustee may require a Unitholder to pay a reasonable fee, to be determined in
the sole discretion of the Trustee, for each certificate reissued or transferred
and to pay any governmental charge that may be imposed in connection with each
such transfer or interchange. The Trustee at the present time does not intend to
charge for the normal transfer or interchange of certificates. Destroyed,
stolen, mutilated or lost certificates will be replaced upon delivery to the
Trustee of satisfactory indemnity (generally amounting to 3% of the market value
of the Units), affidavit of loss, evidence of ownership and payment of expenses
incurred.
Distributions to Unitholders. Interest received by each Trust, including
any portion of the proceeds from a disposition of Securities which represents
accrued interest, is credited by the Trustee to the Interest Account for such
Trust. All other receipts are credited by the Trustee to a separate Principal
Account for the Trust. On the dates set forth under "Essential Information" in
Part I of this Prospectus for each Trust, after deduction of the fees and
expenses of the Trustee, the Sponsor and Evaluator and reimbursements (without
interest) to the Trustee for any amounts advanced to a Trust, the Trustee will
normally distribute on each Interest Distribution Date (the twentieth of the
month) or shortly thereafter to Unitholders of record of such Trust on the
preceding Record Date (which is the tenth day of each month).
Unitholders of the Trusts will receive an amount substantially equal to
one-twelfth of such holders' pro rata share of the estimated net annual interest
income to the Interest Account of such Trust. Since interest on Securities in
the Trusts is payable at varying intervals, usually in semi-annual installments
(monthly in the case of GNMA Securities) and distributions of income are made to
Unitholders at different intervals from receipt of interest, the interest
accruing to a Trust may not be equal to the amount of money received and
available for distribution from the Interest Account. Therefore, on each
Distribution Date the amount of interest actually deposited in the Interest
Account of a Trust and available for distribution maybe more or less than the
interest distribution made. In order to eliminate fluctuations in interest
distributions resulting from such variances, the Trustee is authorized by the
Trust Agreements to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee will be reimbursed,
without interest, for any such advances from funds available in the Interest
Account for such Trust. However, interest earned at any point in time will be
greater than the amount actually received by the Trustee and distributed to the
Unitholders. Therefore, there will always remain an item of accrued interest
that is added to the daily value of the Units. If
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<PAGE> 64
Unitholders of a Trust sell or redeem all or a portion of their Units, they
will be paid their proportionate share of the accrued interest of such Trust
to, but not including, the third business day after the date of a sale or to
the date of tender in the case of a redemption.
Unitholders of a Trust which contains Stripped Treasury Securities should
note that Stripped Treasury Securities are sold at a deep discount because the
buyer of those securities obtains only the right to receive a future fixed
payment on the security and not any rights to periodic interest payments
thereon. Purchasers of these Securities acquire, in effect, discount
obligations that are economically identical to the "zero-coupon bonds" that
have been issued by corporations. Zero coupon bonds are debt obligations which
do not make any periodic payments of interest prior to maturity and accordingly
are issued at a deep discount. Under generally accepted accounting principles,
a holder of a security purchased at a discount normally must report as an item
of income for financial accounting purposes the portion of the discount
attributable to the applicable reporting period. The calculation of this
attributable income would be made on the "interest" method which generally will
result in a lesser amount of includible income in earlier periods and a
corresponding larger amount in later periods. For federal income tax purposes,
the inclusion will be on a basis that reflects the effective compounding of
accrued but unpaid interest effectively represented by the discount. Although
this treatment is similar to the "interest" method described above, the
"interest" method may differ to the extent that generally accepted accounting
principles permit or require the inclusion of interest on the basis of a
compounding period other than the semi-annual period. See "Tax Status."
Persons who purchase Units between a Record Date and a Distribution Date
will receive their first distribution on the second Distribution Date following
their purchase of Units.
With the exception of principal amounts to be reinvested in the Rolling
Trust during the Reinvestment Period, the Trustee will distribute on each
Distribution Date or shortly thereafter, to each Unitholder of record of a
Trust on the preceding Record Date, an amount substantially equal to such
Unitholder's pro rata share of the cash balance, if any, in the Principal
Account of such Trust computed as of the close of business on the preceding
Record Date. However, no distribution will be required if the balance in the
Principal Account is less than $1.00 per 100 Units. The Trustee will make a
distribution to Unitholders of all principal relating to maturing Securities in
a Trust, as set forth above, unless such principal is to be reinvested in
connection with a Rolling Trust.
Statements to Unitholders. With each distribution, the Trustee will
furnish or cause to be furnished to each Unitholder a statement of the amount
of interest and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
The accounts of each Trust are required to be audited annually, at the
Trust's expense, by independent auditors designated by the Sponsor, unless the
Sponsor determines that such an audit would not be in the best interest of the
Unitholders of such Trust. The accountants' report will be furnished by the
Trustee to any Unitholder of such Trust upon written
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<PAGE> 65
request. Within a reasonable period of time after the end of each calendar year,
the Trustee shall furnish to each person who at any time during the calendar
year was a Unitholder of a Trust a statement, covering the calendar year,
setting forth for the applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the Securities;
2. The amount paid for purchases of New Securities;
3. The amount paid from the Interest Account representing accrued
interest of any Units redeemed;
4. The deductions from the Interest Account for applicable taxes, if
any, fees and expenses (including auditing fees) of the Trustee, the
Sponsor, the Evaluator, and, if any, of bond counsel;
5. Any amounts credited by the Trustee to the Reserve Account; and
6. The net amount remaining after such payments and deductions,
expressed both as a total dollar amount and a dollar amount per Unit
outstanding on the last business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the sale, maturity, liquidation or redemption of any
of the Securities and the net proceeds received therefrom excluding any
portion credited to the Interest Account;
2. The amount paid from the Principal Account representing the
principal of any Units redeemed;
3. The amount paid for purchases of New Securities, Replacement
Securities or Reinvestment Securities;
4. The deductions from the Principal Account for payment of
applicable taxes, if any, fees and expenses (including auditing fees) of
the Trustee, the Sponsor, the Evaluator, and, if any, of bond counsel;
5. Any amounts credited by the Trustee to the Reserve Account; and
6. The net amount remaining after distributions of principal and
deductions, expressed both as a dollar amount and as a dollar amount per
Unit outstanding on the last business day of the calendar year; and
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<PAGE> 66
C. The following information:
1. A list of the Securities as of the last business day of
such calendar year;
2. The number of Units outstanding on the last business day of
such calendar year;
3. The Redemption Price based on the last evaluation made
during such calendar year; and
4. The amount actually distributed during such calendar year
from the Interest and Principal Accounts separately stated,
expressed both as total dollar amounts and as dollar amounts per
Unit outstanding on the Record Dates for each such distribution.
Rights of Unitholders. A Unitholder may at any time prior to the
termination of a Trust tender Units to the Trustee for redemption. The death or
incapacity of any Unitholder will not operate to terminate a Trust or entitle
legal representatives or heirs to claim an accounting or to bring any action or
proceeding in any court for partition or winding up of a Trust. No Unitholder
shall have the right to control the operation and management of any Trust in
any manner, except to vote with respect to the amendment of the Trust Agreement
or termination of any Trust.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trusts by the purchase,
sale or substitution of Securities, except in the circumstances noted herein.
Thus, with the exception of the redemption or maturity of Securities in
accordance with their terms (and reinvestments made in connection with a
Rolling Trust), the assets of the Trusts will remain unchanged under normal
circumstances.
The Sponsor may direct the Trustee to dispose of Securities the value
of which has been affected by certain adverse events, including institution of
certain legal proceedings or the occurrence of other market factors, including
advance refunding, so that in the opinion of the Sponsor, the retention of such
Securities in a Trust would be detrimental to the interest of the Unitholders.
In addition, the Sponsor will instruct the Trustee to dispose of certain
Securities and to take such further action as maybe needed from time to time to
ensure that a Rolling Trust continues to satisfy the qualifications of a
regulated investment company, including the requirements with respect to
diversification under Section 851 of the Internal Revenue Code. The proceeds
from any such sales, exclusive of any portion which represents accrued
interest, will be credited to the Principal Account of such Trust for
distribution to the Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made
by an issuer of Securities to issue new obligations in exchange or substitution
for any of such Securities
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<PAGE> 67
pursuant to a refunding financing plan, except that the Sponsor may instruct
the Trustee to accept or reject such an offer or to take any other action with
respect thereto as the Sponsor may deem proper if (i) the issuer is in default
with respect to such Securities or (ii) in the written opinion of the Sponsor,
the issuer will probably default with respect to such Securities in the
reasonably foreseeable future. Any obligation so received in exchange or
substitution will be held by the Trustee subject to the terms and conditions of
the Trust Agreement to the same extent as Securities originally deposited
thereunder. Within five days after deposit of obligations in exchange or
substitution for underlying Securities, the Trustee is required to give notice
thereof to each Unitholder, identifying the Securities eliminated and the
Securities substituted therefor. The Trustee may sell Securities, designated by
the Sponsor, from a Trust for the purpose of redeeming Units of such Trust
tendered for redemption and the payment of expenses.
TRUST ADMINISTRATION
The Trustee. The Trustee is The Chase Manhattan Bank whose principal
executive office is located at 270 Park Avenue, New York, New York 10017, and
its unit investment trust office is located at 4 New York Plaza, New York, New
York 10004-2413. Unitholders who have questions regarding the Trusts may call
the Customer Service Help Line at 1-800-887-6926. The Trustee is subject to
supervision by the Superintendent of Banks of the State of New York, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System.
The Trustee, whose duties are ministerial in nature, has not participated
in selecting the portfolio of any Trust. For information relating to the
responsibilities of the Trust under the Trust Agreement, reference is made to
the material set forth under "Unitholders."
In accordance with the Trust Agreement, the Trustee shall keep records of
all transactions at its office. Such records shall include the name and address
of, and the number of Units held by, every Unitholder of each Trust. Such books
and records shall be open to inspection by any Unitholder of such Trust at all
reasonable times during usual business hours. The Trustee shall make such
annual or other reports as may from time to time be required under any
applicable state or federal statute, rule or regulation. The Trustee shall keep
a certified copy or duplicate original of the Trust Agreement on file in its
office available for inspection at all reasonable times during usual business
hours by any Unitholder, together with a current list of the Securities held in
each Trust. Pursuant to the Trust Agreement, the Trustee may employ one or more
agents for the purpose of custody and safeguarding of Securities comprising the
Trusts. Under the Trust Agreement, the Trustee or any successor trustee may
resign and be discharged of its duties created by the Trust Agreement by
executing an instrument in writing and filing the same with the Sponsor.
The Trustee or successor trustee must mail a copy of the notice of
resignation to all Unitholders then of record, not less than 60 days before the
date specified in such notice when such resignation is to take effect. The
Sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation,
-36-
<PAGE> 68
no successor trustee has been appointed and has accepted the appointment within
30 days after notification, the retiring Trustee may apply to a court of
competent jurisdiction for the appointment of a successor. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities or shall fail to meet standards for its performance
established by the Sponsor, the Sponsor may remove the Trustee and appoint a
successor trustee as provided in the Trust Agreements. Notice of such removal
and appointment shall be mailed to each Unitholder by the Sponsor. 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. The Trustee shall be a corporation organized under
the laws of the United States, or any state thereof, which is authorized under
such laws to exercise trust powers. The Trustee shall have at all times an
aggregate capital, surplus and undivided profits of not less than $5,000,000.
The Evaluator. The Evaluator for each Trust is set forth in Part I of this
Prospectus. The Evaluator may resign or be removed by the Trustee in which
event the Trustee is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon acceptance
of appointment by the successor evaluator. If upon resignation of the Evaluator
no successor has accepted appointment within 30 days after notice of
resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor. Notice of such resignation or removal and
appointment shall be mailed by the Trustee to each Unitholder.
Amendment and Termination. The Trust Agreement may be amended by the
Trustee and the Sponsor without the consent of any of the Unitholders: (i) to
cure any ambiguity or to correct or supplement any provision which may be
defective or inconsistent; (ii) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor
governmental agency; or (iii) to make such provisions as shall not adversely
affect the interests of the Unitholders. The Trust Agreement with respect to
the Trusts may also be amended in any respect by the Sponsor and the Trustee,
or any of the provisions thereof may be waived, with the consent of the holders
of Units representing 66-2/3% of the Units then outstanding of such Trust,
provided that no such amendment or waiver will reduce the interest of any
Unitholder thereof without the consent of such Unitholder or reduce the
percentage of Units required to consent to any such amendment or waiver without
the consent of all Unitholders of such Trust. In no event shall the Trust
Agreement be amended to increase the number of Units of a Trust issuable
thereunder or to permit, except in accordance with the provisions of such Trust
Agreement, the acquisition of any Securities in addition to or in substitution
for those initially deposited in a Trust. The Trustee shall promptly notify
Unitholders of the substance of any such amendment.
The Trust Agreement provides that the Trusts shall terminate upon the
maturity, redemption or other disposition of the last of the Securities held in
a Trust. If the value of a Trust shall be less than the applicable minimum
value stated under "Essential Information" in Part I of this Prospectus, the
Trustee may, in its discretion, and shall, when so directed by the Sponsor,
terminate the Trust. A Trust may be terminated at any time by the Unitholders
representing 66-2/3% of the Units thereof then outstanding. In the event of
termination of a Trust, written notice thereof will be sent by the Trustee to
all Unitholders
-37-
<PAGE> 69
of such Trust. Within a reasonable period after termination, the Trustee will
sell any Securities remaining in such Trust and, after paying all expenses and
charges incurred by the Trust, will distribute to Unitholders thereof (upon
surrender for cancellation of certificates for Units, if issued) their pro rata
share of the balances remaining in the Interest and Principal Accounts of such
Trust.
Limitations on Liability. The Sponsor: The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the Trust
Agreement, but will be under no liability to the Unitholders for taking any
action or refraining from any action in good faith pursuant to the Trust
Agreement or for errors in judgment, except in cases of its own gross
negligence, bad faith or willful misconduct. The Sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any Securities.
The Trustee: The Trust Agreement provides that the Trustee shall be under
no liability for any action taken in good faith in reliance upon prima facie
properly executed documents or for the disposition of monies, Securities or
certificates except by reason of its own gross negligence, bad faith or willful
misconduct, nor shall the Trustee be liable or responsible in any way for
depreciation or loss incurred by reason of the sale by the Trustee of any
Securities. In the event that the Sponsor shall fail to act, the Trustee may act
and shall not be liable for any such action taken by it in good faith. The
Trustee shall not be personally liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the interest
thereon. In addition, the Trust Agreement contains other customary provisions
limiting the liability of the Trustee.
The Evaluator: The Trustee and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. The Trust Agreement provides that the determinations made by the
Evaluator shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee or Unitholders for errors in judgment, but shall be
liable only for its gross negligence, lack of good faith or willful misconduct.
TRUST EXPENSES
The Sponsor will charge the Trusts a surveillance fee for services
performed for the Trusts in an amount not to exceed that amount set forth in
"Essential Information" in Part I of this Prospectus, but in no event will such
compensation, when combined with all compensation received from other unit
investment trusts for which the Sponsor both acts as sponsor and provides
portfolio surveillance, exceed the aggregate cost to the Sponsor for providing
such services. Such fee shall be based on the total number of Units of the
related Trust outstanding as of the December Record Date preceding any annual
period. The Sponsor will receive a portion of the sales commissions paid in
connection with the purchase of Units.
The Trustee receives for its services fees set forth under "Essential
Information" in Part I of this Prospectus. The Trustee fee which is calculated
monthly is based on the
-38-
<PAGE> 70
largest aggregate principal amount of Securities in a Trust at any time during
the period. In no event shall the Trustee be paid less than $2,000 per Trust in
any one year. Funds that are available for future distributions, redemptions
and payment of expenses are held in accounts which are non-interest bearing to
Unitholders and are available for use by the Trustee pursuant to normal trust
procedures; however, the Trustee is also authorized by the Trust Agreements to
make from time to time certain non-interest bearing advances to the Trusts.
The Trustee's fee is payable on or before each Distribution Date. The
Trustee has agreed to pay the Sponsor that portion of the Trustee's annual fee
as set forth under "Essential Information" in Part I of this Prospectus in
return for the Sponsor providing certain bookkeeping and administrative
services to its own customers.
For evaluation of Securities in each Trust, the Evaluator shall receive a
fee, payable monthly, calculated on the basis of that annual rate set forth
under "Essential Information" in Part I of this Prospectus, based upon the
largest aggregate principal amount of Securities in such Trust at any time
during such monthly period.
The Trustee's and Evaluator's fees are deducted first from the Interest
Account of a Trust to the extent funds are available and then from the
Principal Account. Such fees may be increased without approval of Unitholders
by amounts not exceeding a proportionate increase in the Consumer Price Index
entitled "All Services Less Rent of Shelter," published by the United States
Department of Labor, or any equivalent index substituted therefor. In addition,
the Trustee's fee may be periodically adjusted in response to fluctuations in
short-term interest rates (reflecting the cost to the Trustee of advancing
funds to a Trust to meet scheduled distributions).
Expenses incurred in establishing the Trusts, including the cost of the
initial preparation of documents relating to the Trusts, federal and state
registration fees, the initial fees and expenses of the Trustee, legal expenses
and any other non-material out-of-pocket expenses, will be paid by the Trusts
and amortized over the lesser of five years or the life of the Trusts. The
following additional charges are or may be incurred by the Trusts: (i) fees for
the Trustee's extraordinary services; (ii) expenses of the Trustee (including
legal and auditing expenses (not to exceed $.50 per 100 Units), but not
including any fees and expenses charged by any agent for custody and
safeguarding of Securities) and of bond counsel, if any; (iii) various
governmental charges; (iv) expenses and costs of any action taken by the
trustee to protect a Trust or the rights and interests of the Unitholders; (v)
indemnification of the Trustee for any loss, liability or expense incurred by
it in the administration of a Trust not resulting from gross negligence, bad
faith or willful misconduct on its part; (vi) indemnification of the Sponsor
for any loss, liability or expense incurred in acting in that capacity without
gross negligence, bad faith or willful misconduct; and (vii) expenditures
incurred in contacting Unitholders upon termination of the Trusts. The fees and
expenses set forth herein are payable out of the appropriate Trust and, when
owing to the Trustee, are secured by a lien on such Trust. Fees or charges
relating to a Trust shall be allocated to each Trust in the same ratio as the
principal amount of such Trust bears to the total principal amount of all
Trusts. Fees or charges relating solely to a particular Trust shall be charged
only to such trust.
-39-
<PAGE> 71
Fees and expenses of the Trusts shall be deducted from the Interest Account
thereof, or, to the extent funds are not available in such Account, from the
Principal Accounts. The Trustee may withdraw from the Principal Account or the
Interest Account of any Trust such amounts, if any, as it deems necessary to
establish a reserve for any taxes or other governmental charges or other
extraordinary expenses payable out of a Trust. Amounts so withdrawn shall be
credited to a separate account maintained for a trust known as the Reserve
Account and shall not be considered a part of the Trust when determining the
value of the Units until such time as the Trustee shall return all or any part
of such amounts to the appropriate account.
THE SPONSOR
NFSC is a registered broker and dealer and a member of The New York Stock
Exchange, Inc., and various other national and regional exchanges. As a
securities broker and dealer, NFSC is engaged in various securities trading,
brokerage and clearing activities serving a diverse group of domestic
corporations, institutional and individual investors, and brokers and dealers.
NFSC is a wholly owned subsidiary of Fidelity Global Brokerage Group, Inc.
NFSC was incorporated in Massachusetts, June 3, 1981. Fidelity Global Brokerage
Group, Inc. is a wholly owned subsidiary of FMR Corp. ("FMR"), Edward C. Johnson
III owns approximately 12% and Abigail P. Johnson owns approximately 24.5% of
the issued and outstanding shares of the Voting Common Stock of FMR. Members of
the Edward C. Johnson III family and trusts for their benefit control up to 49%
of the voting shares of FMR.
Fidelity Management & Research Company, a subsidiary of FMR, is the
management arm of Fidelity Investments, which was established in 1946. It
provides a number of mutual funds and other clients with investment research
and portfolio management services. It maintains a large staff of experienced
investment personnel and a full complement of related support facilities. It is
now America's largest mutual fund manager and as of July 31, 1998, it manages
more than $611 billion in assets in over 38 million individual shareholder
accounts.
If at any time the Sponsor shall fail to perform any of its duties under a
Trust Agreement or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Trust Agreement and liquidate the Trusts as
provided therein, or (c) continue to act as Trustee without terminating the
Trust Agreement.
The foregoing information with regard to the Sponsor relates to the Sponsor
only and not to the Trusts. Such information is included in this Prospectus only
for the purpose of informing investors as to the financial responsibility of the
Sponsor and its ability to carry
-40-
<PAGE> 72
out its contractual obligations with respect to the Trusts. More comprehensive
information can be obtained upon request from the Sponsor.
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
federal tax law have been passed upon by Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, as special counsel to the Sponsor. Carter,
Ledyard & Milburn has acted as special counsel to the Trusts with respect to
certain New York State and City tax matters affecting all Trusts but Rolling
Trusts.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related portfolios at the date of
Part I of this Prospectus as included in Part I of this Prospectus have been
audited by Deloitte & Touche LLP, independent certified public accountants, as
set forth in their report in Part I of the Prospectus, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
-41-
<PAGE> 73
CONTENTS OF POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
---------------------------------------------------
This Post-Effective Amendment to the Registration Statement comprises
the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Fidelity Defined Trusts, Series 2, certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Boston and State of Massachusetts on
the 5th day of October, 1998.
Fidelity Defined Trusts, Series 2
(Registrant)
By National Financial Services Corporation
(Depositor)
By /s/ David J. Pearlman
---------------------------------------
Assistant Clerk
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities on October 5, 1998:
James H. Messenger
- -----------------------------
James H. Messenger President and Director
Timothy M. McKenna
- -----------------------------
Timothy M. McKenna Director
Robert P. Mazzarella
- -----------------------------
Robert P. Mazzarella Director
Sherif A. Nada
- -----------------------------
Sherif A. Nada Director
S-2
<PAGE> 75
Shaugn Stanley
- -----------------------------
Shaugn Stanley Senior Vice President, Finance
and Chief Financial Officer
David J. Pearlman
- -----------------------------
(Attorney-in-fact)*
* An executed copy of the related powers of attorney were filed as
Exhibit 7.1 to the initial Registration Statement on Form S-6 for Fidelity
Defined Trusts, Series 1 as filed on August 29, 1995 (File No. 33-62243) and the
same is hereby incorporated herein by this reference.
S-3
<PAGE> 76
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated Septeber 25, 1998 accompanying the
financial statements of Fidelity Defined Trusts, Series 2 as of May 31, 1998 and
for the period then ended, contained in this Post-Effective Amendment No. 2 to
Form S-6.
We consent to the use of the aforementioned report in the
Post-Effective Amendment and to the use of our name as it appears under the
caption "Independent Certified Public Accountants".
Deloitte & Touche LLP
New York, New York
September 30, 1998
S-4
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR FIDELITY DEFINED TRUSTS SERIES 2, ROLLING GOVERNMENT
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SUCH FINANCIAL STATEMENTS
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<NAME> FIDELITY DEFINED TRUST SERIES 2; ROLLING GOVERNMENT SERIES 2,
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<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
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<INVESTMENTS-AT-VALUE> 18,429,164
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<TOTAL-ASSETS> 20,210,707
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<OTHER-ITEMS-LIABILITIES> 1,036,129
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<SHARES-COMMON-STOCK> 1,815,357
<SHARES-COMMON-PRIOR> 1,943,316
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<NET-ASSETS> 18,716,710
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<NET-CHANGE-FROM-OPS> 1,993,594
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<ACCUMULATED-NII-PRIOR> 117,723
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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