FILE NO. 333-
Securities and Exchange Commission
Washington, D.C. 20549-1004
to
to
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: Fidelity Defined Trusts, Municipal Income Trust
Series 1
B. Name of Depositor: National Financial Services Corporation
C. Complete address of Depositor's principal executive offices:
82 Devonshire Street N7A
Boston, MA 02109-3614
D. Name and complete address of agents for service:
National Financial Services Corporation Chapman And Cutler
Attention: David J. Pearlman Attention: Mark J. Kneedy
82 Devonshire Street N7A 111 West Monroe Street
Boston, MA 02109-3614 Chicago, Illinois 60603
E. Title and amount of securities being registered: An indefinite number
of Units pursuant to Rule 24f-2 promulgated under the Investment Company
Act of 1940, as amended
F. Proposed maximum offering price to the public of the securities being
registered: Indefinite
G. Amount of registration fee: $0.00
H. Approximate date of proposed sale to the public:
As Soon As Practicable After The Effective Date Of
The Registration Statement
// Check box if it is proposed that this filing will become effective on
December 17, 1996
pursuant to Rule 487.
______________________________________________________________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
FIDELITY DEFINED TRUSTS, MUNICIPAL INCOME TRUST
SERIES 1
CROSS REFERENCE SHEET
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust ) Prospectus Front Cover Page
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Essential Information
) The Sponsor
3. Name and address of Trustee ) Essential Information
) Trust Administration
4. Name and address of principal ) Public Offering of Units
underwriter
5. Organization of trust ) Fidelity Defined Trusts, Municipal
Income Trust Series
6. Execution and termination of ) Fidelity Defined Trusts, Municipal
Trust Indenture and Agreement Income Trust Series
) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. General Description of the Trust and
Securities of the Trust
10. General information regarding ) Fidelity Defined Trusts, Municipal
trust's securities and Income Trust Series
rights of security holders ) Tax Status
) Public Offering of Units
) Unitholders
) Trust Administration
11. Type of securities comprising ) Prospectus Front Cover Page
units ) Fidelity Defined Trusts, Municipal
Income Trust Series
) Portfolio
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, charges and expenses ) Prospectus Front Cover Page
) Essential Information
) Portfolio
)
) Trust Expenses
) Public Offering of Units
) Unitholders and Sponsor
(b) Certain information regarding )
periodic payment plan ) *
certificates )
(c) Certain percentages ) Prospectus Front Cover Page
) Essential Information
)
(d) Variations in fees among certain ) Public Offering of Units
classes of holders ) Unitholders
(e) Certain other fees, expenses or ) Trust Expenses
charges payable by holders ) Unitholders
(f) Certain profits to be received ) Public Offering of Units
by depositor, principal ) Public Offering of Units
underwriter, trustee or any ) Portfolio
affiliated persons )
(g) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Unitholders
15. Receipt and handling of payments ) Public Offering of Units
from purchasers )
16. Acquisition and disposition of ) Fidelity Defined Trusts, Municipal
underlying securities Income Trust Series
) Unitholders
) Trust Administration
17. Withdrawal or redemption ) Unitholders
) Trust Administration
18. (a) Receipt and disposition ) Prospectus Front Cover Page
of income ) Unitholders
(b) Reinvestment of distributions ) Distribution Reinvestment
(c) Reserves or special funds ) Trust Expenses
) Unitholders
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Unitholders
) Trust Administration
20. Certain miscellaneous provisions ) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Portfolio
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
Trust Indenture Agreement )
III. Organization, Personnel and Affiliated
Persons of Depositor
25. Organization of Depositor ) Trust Administration
26. Fees received by Depositor ) *
27. Business of Depositor ) Trust Administration
28. Certain information as to ) The Sponsor
officials and affiliated )
persons of Depositor )
29. Companies owning securities ) The Sponsor
of Depositor )
30. Controlling persons of Depositor ) The Sponsor
31. Compensation of Officers of ) *
Depositor )
32. Compensation of Directors ) *
33. Compensation to Employees ) *
34. Compensation to other persons ) *
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities ) Public Offering of Units
by states )
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
)
(b) Underwriting agreements ) Public Offering of Units
)
(c) Selling agreements )
39. (a) Organization of principal ) *
underwriter )
(b) N.A.S.D. membership by ) *
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Trust Administration
underwriter )
(b) Branch offices of principal ) *
underwriter )
(c) Salesmen of principal ) *
underwriter )
42. Ownership of securities of ) *
the trust )
43. Certain brokerage commissions ) *
received by principal underwriter )
44. (a) Method of valuation ) Prospectus Front Cover Page
) Essential Information
) Trust Expenses
) Public Offering of Units
(b) Schedule as to offering ) *
price )
(c) Variation in offering price ) *
to certain persons )
45. Suspension of Redemption Rights ) *
46. (a) Redemption valuation ) Unitholders
) Trust Administration
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Public Offering of Units
in underlying securities ) Trust Administration
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of ) Trust Administration
Trustee )
49. Fees and expenses of Trustee ) Essential Information
) Trust Expenses
50. Trustee's lien ) Trust Expenses
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's ) Trust Expenses
securities )
52. (a) Provisions of trust agreement )
with respect to replacement ) Trust Administration
or elimination portfolio )
securities )
(b) Transactions involving )
elimination of underlying ) *
securities )
(c) Policy regarding substitution )
or elimination of underlying ) Trust Administration
securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust ) Tax Status
VII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55. )
56. Certain information regarding ) *
57. periodic payment certificates )
58. )
59. Financial statements (Instructions ) Report of Independent Certified
1(c) to Form S-6) ) Public Accountants
Statements of Condition
______________________________________________
* Inapplicable, omitted, answer negative or not required
FIDELITY DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES
__________________
INFORMATION SUPPLEMENT
SERIES 1
This Information Supplement provides additional information concerning the
structure, operations and risks of a Fidelity Defined Trusts - Municipal
Income Trust Series not found in the prospectuses for the Trusts. This
Information Supplement is not a prospectus and does not include all of the
information that a prospective investor should consider before investing in
a Trust. This Information Supplement should be read in conjunction with
the prospectus for the Trust in which an investor is considering investing
("PROSPECTUS"). Copies of the Prospectus can be obtained by calling or
writing the Trustee at the telephone number and address indicated in Part B
of the Prospectus. This information Supplement has been created to
supplement information contained in the Prospectus.
This Information Supplement is dated _____________, 1997. Capitalized
terms have been defined in the Prospectus.
TABLE OF CONTENTS
_____________________
General Risk Disclosure 2
Health Facility Obligations 2
Housing Obligations 2
Single Family Mortgage Revenue Bonds 3
Federally Enhanced Obligations 3
Industrial Revenue Obligations 4
Electric Utility Obligations 5
Transportation Facility Revenue Bonds 5
Water and/or Sewerage Obligations 5
University and College Revenue Obligations 6
Bridge Authority and Tollroad Obligations 6
Dedicated-Tax Supported Bonds 6
Municipal Lease Bonds 7
Original Issue Discount Bonds and Stripped Obligations 7
Description of Ratings 8
Standard & Poor's Corporation 8
Ratings of Insured Trust Units 10
Appendix A - Massachusetts Disclosure
Appendix B - Pennsylvania Disclosure
General Risk Disclosure
An investment in Units of any Trust should be made with an understanding of
the risks that such an investment may entail. These include the ability of
the issuer, or, if applicable, an insurer, to make payments of interest and
principal when due, the effects of changes in interest rates generally,
early call provisions and the potential for changes in the tax status of
the Bonds. As set forth in the portfolio summaries in Part A of this
Prospectus, the Trusts may contain or be concentrated in one or more of the
types of bonds discussed below. The following paragraphs discuss certain
circumstances which may adversely affect the ability of issuers of Bonds
held in the portfolio of a Trust to make payment of principal and interest
thereon or which may adversely affect the ratings of such Bonds; with
respect to Insured Trusts, however, because of the insurance obtained by
the Sponsor or by the issuers of the Bonds, such changes should not
adversely affect an Insured Trust's receipt of principal and interest, the
Standard & Poor's AAA or Moody's Aaa ratings of the Bonds in the Trust
portfolio, or the Standard & Poor's AAA rating of the Units of each such
Trust. For economic risks specific to the individual Trusts, see "Risk
Factors" for each Trust.
HEALTH FACILITY OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from services provided by
hospitals or other health care facilities, including nursing homes.
Ratings of bonds issued for health care facilities are sometimes based on
feasibility studies that contain projections of occupancy levels, revenues
and expenses. A facility's gross receipts and net income available for
debt service may be affected by future events and conditions including,
among other things, demand for services, the ability of the facility to
provide the services required, an increasing shortage of qualified nurses
or a dramatic rise in nursing salaries, physicians' confidence in the
facility, management capabilities, economic developments in the service
area, competition from other similar providers, efforts by insurers and
governmental agencies to limit rates, legislation establishing state
rate-setting agencies, expenses, government regulation, the cost and
possible unavailability of malpractice insurance, and the termination or
restriction of governmental financial assistance, including that associated
with Medicare, Medicaid and other similar third party payor programs.
Medicare reimbursements are currently calculated on a prospective basis and
are not based on a provider's actual costs. Such method of reimbursement
may adversely affect reimbursements to hospitals and other facilities for
services provided under the Medicare program and thereby may have an
adverse effect on the ability of such institutions to satisfy debt service
requirements. In the event of a default upon a bond secured by hospital
facilities, the limited alternative uses for such facilities may result in
the recovery upon such collateral not providing sufficient funds to fully
repay the bonds.
Certain hospital bonds provide for redemption at par upon the damage,
destruction or condemnation of the hospital facilities or in other special
circumstances.
HOUSING OBLIGATIONS. Some of the Bonds in a Trust may be obligations of
issuers whose revenues are primarily derived from mortgage loans to housing
projects for low to moderate income families. Such issues are generally
characterized by mandatory redemption at par or, in the case of original
issue discount bonds, accreted value in the event of economic defaults and
in the event of a failure of the operator of a project to comply with
certain covenants as to the operation of the project. The failure of such
operator to comply with certain covenants related to the tax-exempt status
of interest on the Bonds, such as provisions requiring that a specified
percentage of units be rented or available for rental to low or moderate
income families, potentially could cause interest on such Bonds to be
subject to Federal income taxation from the date of issuance of the Bonds.
The ability of such issuers to make debt service payments will be affected
by events and conditions affecting financed projects, including, among
other things, the achievement and maintenance of sufficient occupancy
levels and adequate rental income, employment and income conditions
prevailing in local labor markets, increases in taxes, utility costs and
other operating expenses, the managerial ability of project managers,
changes in laws and governmental regulations, the appropriation of
subsidies, and social and economic trends affecting the localities in which
the projects are located. Occupancy of such housing projects may be
adversely affected by high rent levels and income limitations imposed under
Federal and state programs.
SINGLE FAMILY MORTGAGE REVENUE BONDS. Some of the Bonds in a Trust may be
single family mortgage revenue bonds, which are issued for the purpose of
acquiring from originating financial institutions notes secured by
mortgages on residences located within the issuer's boundaries and owned by
persons of low or moderate income. Mortgage loans are generally partially
or completely prepaid prior to their final maturities as a result of events
such as sale of the mortgaged premises, default, condemnation or casualty
loss. Because these bonds are subject to extraordinary mandatory
redemption in whole or in part from such prepayments of mortgage loans, a
substantial portion of such bonds will probably be redeemed prior to their
scheduled maturities or even prior to their ordinary call dates.
Extraordinary mandatory redemption without premium could also result from
the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. The redemption
price of such issues may be more or less than the offering price of such
bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of principal
of or interest on such mortgage revenue bonds. Single family mortgage
revenue bonds issued after December 31, 1980 were issued under Section 103A
of the Internal Revenue Code of 1954, as amended, or Section 143 of the
Internal Revenue Code of 1986, which Sections contain certain requirements
relating to the use of the proceeds of such bonds in order for the interest
on such bonds to retain its tax-exempt status. In each case, the issuer of
the bonds has covenanted to comply with applicable requirements and bond
counsel to such issuer has issued an opinion that the interest on the bonds
is exempt from Federal income tax under existing laws and regulations.
There can be no assurance that such continuing requirements will be
satisfied; the failure to meet such requirements could cause interest on
the Bonds to be subject to Federal income taxation, possibly from the date
of issuance of the Bonds.
FEDERALLY ENHANCED OBLIGATIONS. Some of the mortgages which secure the
various health care or housing projects which underlie the previously
discussed Health Facility, Housing, and Single Family Mortgage Revenue
Obligations (the "OBLIGATIONS") in a Trust may be insured by the Federal
Housing Administration ("FHA"). Under FHA regulations, the maximum
insurable mortgage amount cannot exceed 90% of the FHA's estimated value of
the project. The FHA mortgage insurance does not constitute a guarantee of
timely payment of the principal of and interest on the Obligations.
Payment of mortgage insurance benefits may be (1) less than the principal
amount of Obligations outstanding or (2) delayed if disputes arise as to
the amount of the payment or if certain notices are not given to the FHA
within the prescribed time periods. In addition, some of the previously
discussed Obligations may be secured by mortgage-backed certificates
guaranteed by the Government National Mortgage Association ("GNMA"), a
wholly owned corporate instrumentality of the United States, and/or the
Federal National Mortgage Association ("FANNIE MAE") a federally chartered
and stockholder-owed corporation. GNMA and Fannie Mae guarantee timely
payment of principal and interest on the mortgage-backed certificates, even
where the underlying mortgage payments are not made. While such
mortgage-backed certificates are often pledged to secure payment of
principal and interest on the Obligations, timely payment of interest and
principal on the Obligations is not insured or guaranteed by the United
States, GNMA, Fannie Mae or any other governmental agency or
instrumentality. The GNMA mortgage-backed certificates constitute a
general obligation of the United States backed by its full faith and
credit. The obligations of Fannie Mae, including its obligations under the
Fannie Mae mortgage-backed securities, are obligations solely of Fannie Mae
and are not backed by, or entitled to, the full faith and credit of the
United States.
INDUSTRIAL REVENUE OBLIGATIONS. Certain of the Bonds in a Trust may be
industrial revenue bonds ("IRBS"), including pollution control revenue
bonds, which are tax-exempt securities issued by states, municipalities,
public authorities or similar entities to finance the cost of acquiring,
constructing or improving various industrial projects. These projects are
usually operated by corporate entities. Issuers are obligated only to pay
amounts due on the IRBs to the extent that funds are available from the
unexpended proceeds of the IRBs or receipts or revenues of the issuer under
an arrangement between the issuer and the corporate operator of a project.
The arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments
to the issuer are designed to be sufficient to meet the payments of amounts
due on the IRBs. Regardless of the structure, payment of IRBs is solely
dependent upon the creditworthiness of the corporate operator of the
project and, if applicable, corporate guarantor. Corporate operators or
guarantors may be affected by many factors which may have an adverse impact
on the credit quality of the particular company or industry. These include
cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or environmentally-caused
illnesses, extensive competition and financial deterioration resulting from
a corporate restructuring pursuant to a leveraged buy-out, takeover or
otherwise. Such a restructuring may result in the operator of a project
becoming highly leveraged which may have an impact on such operator's
creditworthiness which in turn would have an adverse impact on the rating
and/or market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact on the market for and consequently
the value of such Bonds, even though no actual takeover or other action is
ever contemplated or effected. The IRBs in a Trust may be subject to
special or extraordinary redemption provisions which may provide for
redemption at par or, in the case of original issue discount bonds,
accreted value. The Sponsor cannot predict the causes or likelihood of the
redemption of IRBs in a Trust prior to the stated maturity of such Bonds.
ELECTRIC UTILITY OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are primarily derived from the sale
of electric energy. The problems faced by such issuers include the
difficulty in obtaining approval for timely and adequate rate increases
from the applicable public utility commissions, the difficulty of financing
large construction programs, increased competition, reductions in estimates
of future demand for electricity in certain areas of the country, the
limitations on operations and increased costs and delays attributable to
environmental considerations, the difficulty of the capital market 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 Bonds in
a Trust to make payments of principal and/or interest on such Bonds.
TRANSPORTATION FACILITY REVENUE BONDS. Some of the Bonds in a Trust may be
obligations of issuers which are payable from and secured by revenues
derived from the ownership and operation of airports, public transit
systems and ports. The major portion of an airport's gross operating
income is generally derived from fees received from airlines pursuant to
use agreements which consist of annual payments for airport use, occupancy
of certain terminal space, service fees and leases. Airport operating
income may therefore be affected by the ability of the airlines to meet
their obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation,
traffic constraints and other factors, and several airlines are
experiencing severe financial difficulties. In particular, facilities will
use agreements involving airlines experiencing financial difficulty may
experience a reduction in revenue due to the possible inability of these
airlines to meet their use agreement obligations because of such financial
difficulties and possible bankruptcy. The Sponsor cannot predict what
effect these industry conditions may have on airport revenues which are
dependent for payment on the financial condition of the airlines and their
usage of the particular airport facility. Bonds that are secured primarily
by the revenue collected by a public transit system typically are
additionally secured by a pledge of sales tax receipts collected at the
state or local level, or of other governmental financial assistance.
Transit system net revenues will be affected by variations in utilization,
which in turn may be affected by the degree of local governmental
subsidization, demographic and population shifts, and competition from
other forms of transportation; and by increased costs, including costs
resulting from previous deferrals of maintenance. Port authorities derive
their revenues primarily from fees imposed on ships using the facilities.
The rate of utilization of such facilities may fluctuate depending on the
local economy and on competition from competing forms of transportation
such as air, rail and trucks.
WATER AND/OR SEWERAGE OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from the sale of water
and/or sewerage services. Such Bonds are generally payable from user fees.
The problems of such issuers include the ability to obtain timely and
adequate rate increases, population decline resulting in decreased user
fees, the difficulty of financing large construction programs, the
limitations on operations and increased costs and delays attributable to
environmental considerations, the increasing difficulty of obtaining or
discovering new supplies of fresh water, the effect of conservation
programs and the impact of "no-growth" zoning ordinances. All of such
issuers have been experiencing certain of these problems in varying
degrees.
UNIVERSITY AND COLLEGE REVENUE OBLIGATIONS. Some of the Bonds in a Trust
may be obligations of issuers which are, or which govern the operation of,
colleges and universities and whose revenues are derived mainly from
tuition, dormitory revenues, grants and endowments. General problems of
such issuers include the prospect of a declining percentage of the
population consisting of "college" age individuals, possible inability to
raise tuitions and fees sufficiently to cover increased operating costs,
the uncertainty of continued receipt of Federal grants and state funding,
the government legislation or regulations which may adversely affect the
revenues or costs of such issuers. All of such issuers have been
experiencing certain of these problems in varying degrees.
BRIDGE AUTHORITY AND TOLLROAD OBLIGATIONS. Some of the Bonds in a Trust
may be obligations of issuers which derive their payments from bridge, road
or tunnel toll revenues. The revenues of such an issuer could be adversely
affected by competition from toll-free vehicular bridges and roads and
alternative modes of transportation. Such revenues could also be adversely
affected by a reduction in the availability of fuel to motorists or
significant increases in the costs thereof. Specifically, governmental
regulations restricting the use of vehicles in the New York City
metropolitan area may adversely affect revenues of the Triborough Bridge
and Tunnel Authority.
DEDICATED-TAX SUPPORTED BONDS. Some of the Bonds in a Trust may be
obligations of issuers which are payable from and secured by tax revenues
from a designated source, which revenues are pledged to secure the bonds.
The various types of Bonds described below differ in structure and with
respect to the rights of the bondholders to the underlying property. Each
type of dedicated-tax supported Bond has distinct risks, only some of which
are set forth below. One type of dedicated-tax supported Bond is secured
by the incremental tax received on either real property or on sales within
a specifically defined geographical area; such tax generally will not
provide bondholders with a lien on the underlying property or revenues.
Another type of dedicated-tax supported Bond is secured by a special tax
levied on real property within a defined geographical area in such a manner
that the tax is levied on those who benefit from the project; such bonds
typically provide for a statutory lien on the underlying property for
unpaid taxes. A third type of dedicated-tax supported Bond may be secured
by a tax levied upon the manufacture, sale or consumption of commodities or
upon the license to pursue certain occupations or upon corporate privileges
within a taxing jurisdiction. As to any of these types of Bonds, the
ability of the designated revenues to satisfy the interest and principal
payments on such bonds may be affected by changes in the local economy, the
financial success of the enterprise responsible for the payment of the
taxes, the value of any property on which taxes may be assessed and the
ability to collect such taxes in a timely fashion. Each of these factors
will have a different affect on each distinct type of dedicated-tax
supported bonds.
MUNICIPAL LEASE BONDS. Some of the Bonds in a Trust may be obligations
that are secured by lease payments of a governmental entity. Such payments
are normally subject to annual budget appropriations of the leasing
governmental entity. A governmental entity that enters into such a lease
agreement cannot obligate future governments to appropriate for and make
lease payments but covenants to take such action as is necessary to include
any lease payments due in its budgets and to make the appropriations
therefor. A governmental entity's failure to appropriate for and to make
payments under its lease obligation could result in insufficient funds
available for payment of the obligations secured thereby.
ORIGINAL ISSUE DISCOUNT BONDS AND STRIPPED OBLIGATIONS. Certain of the
Bonds in a Trust may be original issue discount bonds. These Bonds were
issued with nominal interest rates less than the rates then offered by
comparable securities and as a consequence were originally sold at a
discount from their face, or par, values. This original issue discount,
the difference between the initial purchase price and face value, is deemed
under current law to accrue on a daily basis and the accrued portion is
treated as tax-exempted interest income for federal income tax purposes.
On sale or redemption, gain, if any, realized in excess of the earned
portion of original issue discount will be taxable as capital gain. See
"What is the Tax Status of Unitholders". The current value of an original
issue discount bond reflects the present value of its face amount at
maturity. In a stable interest rate environment, the market value of an
original issue discount bond would tend to increase more slowly in early
years and in greater increments as the bond approached maturity.
Certain of the original issue discount bonds in a Trust may be zero coupon
bonds. Zero coupon bonds do not provide for the payment of any current
interest; the buyer receives only the right to receive a final payment of
the face amount of the bond at its maturity. The effect of owning a zero
coupon bond is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount earned during the life of
the 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, but at the same time
also 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 that pay interest currently.
Original issue discount bonds, including zero coupon bonds, may be subject
to redemption at prices based on the issue price plus the amount of
original issue discount accreted to redemption (the "ACCRETED VALUE") plus,
if applicable, some premium. Pursuant to such call provisions an original
issue discount bond may be called prior to its maturity date at a price
less than its face value. See the "Schedules of Investments" for more
information about the call provisions of portfolio Bonds.
Certain of the Bonds in a Trust may be Stripped Obligations, which
represent evidences of ownership with respect to either the principal
amount of or a payment of interest on a tax-exempt obligation. An
obligation is "stripped" by depositing it with a custodian, which then
effects a separation in ownership between the bond and any interest payment
which has not yet become payable, and issues evidences of ownership with
respect to such constituent parts. A Stripped Obligation therefore has
economic characteristics similar to zero coupon bonds, as described above.
Each Stripped Obligation has been purchased at a discount from the amount
payable at maturity. With respect to each Unitholder, the Internal Revenue
Code treats as "original issue discount" that portion of the discount which
produces a yield of maturity (as of the date of purchase of the
Unitholder's Units) equal to the lower of the coupon rate of interest on
the underlying obligation or the yield to maturity on the basis of the
purchase price of the Unitholder's Units which is allocable to each
Stripped Obligation. Original issue discount which accrues with respect to
a Stripped Obligation will be exempt from Federal income taxation to the
same extent as interest on the underlying obligations. (See "Tax Status"
in Part B of this Prospectus.)
Unitholders should consult their own tax advisers with respect to the state
and local tax consequences of owning original issue discount bonds or
Stripped Obligations. Under applicable provisions governing determination
of state and local taxes, interest on original issue discount bonds or
Stripped Obligations may be deemed to be received in the year of accrual
even though there is no corresponding cash payment.
Description of Ratings<F1>
STANDARD & POOR'S CORPORATION. A description of the applicable Standard &
Poor's Corporation rating symbols and their meanings follows:
A Standard & Poor's rating is a current assessment of the creditworthiness
of an obligor with respect to a specific debt obligation. This assessment
may take into consideration obligors such as guarantors, insurers or
lessees.
The rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
<F1> As published by the rating companies
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal, and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
the higher rated categories.
PLUS (+) OR MINUS (-): The ratings from "AA" to "BB" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. Accordingly, the investor should
exercise his own judgment with respect to such likelihood and risk.
NOTE RATINGS: A Standard & Poor's note rating reflects the liquidity
concerns and market access risks unique to notes. Notes due in 3 years or
less will likely receive a note rating. Notes maturing beyond 3 years will
most likely receive a long-term debt rating.
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
RATINGS OF INSURED TRUST UNITS
A Standard & Poor's rating on the units of an insured investment trust
(hereinafter referred to collectively as "UNITS" and "TRUSTS") is a current
assessment of creditworthiness with respect to the investment 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 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.
Units rated "AAA" are composed exclusively of assets that are rated "AAA"
by Standard & Poor's and/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. However, unit ratings may be
subject to revision or withdrawal at any time by Standard & Poor's and each
rating should be evaluated independently of any other rating.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
Aaa-Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues. Their safety is so absolute that, with the occasional exception of
oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities. Their market value is virtually
immune to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree
by economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move
in parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. The
market value of Baa-rated bonds is more sensitive to changes in economic
circumstances, and aside from occasional speculative factors applying to
some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in
instances of oversupply.
Con. (-)-Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of
condition.
NOTE RATINGS:
MIG 1-This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2-This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Fidelity Defined Trusts - Municipal Income Trust Series
Massachusetts Insured Trust
Series 1
Prospectus
Part A
National Financial Services Corporation
82 Devonshire Street
Boston, Massachusetts 02109
TRUSTEE:
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
1-800-887-6926
THIS PART A MUST BE
ACCOMPANIED BY PART B.
____________, 1997
Please Retain this Prospectus
for Future Reference
MASSACHUSETTS INSURED TRUST, SERIES 1
(Fidelity Defined Trusts - Municipal Income Trust Series 1)
Prospectus - Part A
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
THE PART B OF THE PROSPECTUS DATED ____________, 1997. BOTH PARTS A AND B
OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Massachusetts Insured Trust, Series 1 (the "MASSACHUSETTS INSURED TRUST" or
"TRUST"), consists of a portfolio of interest-bearing obligations issued by
or on behalf of the State of Massachusetts or certain United States
Territories or authorities or political subdivisions thereof which, in the
opinion of recognized bond counsel to the issuing authorities, provide
income which is exempt from Federal income tax, and Massachusetts income
tax, as detailed below.
The objectives of the Trust are conservation of capital and income exempt
from Federal and applicable state and local income taxes. The objectives
are, of course, dependent upon the continuing ability of the issuers,
obligors and/or insurers to meet their respective obligations.
The Massachusetts Insured Trust consists of ____________ obligations of
issuers located in the State of Massachusetts. The Bond issues in the
Massachusetts Insured Trust are either general obligations of governmental
entities or are revenue bonds payable from the income of a specific project
or authority. The Bonds in the Massachusetts Insured Trust are divided by
purpose of issue and represent the percentage of aggregate principal amount
of the Bonds as indicated by the following table:
Number of Purpose of Portfolio
Issues Issue Percentage
General Obligation %
Airport %
Electric %
Health Care %
Other Housing %
Resource Recovery %
Sewer %
Single Family Housing %
Multi-Family Housing %
Transportation %
University and School %
Utility %
Water %
Water & Sewer %
Miscellaneous %
Each of ____ Bond issues represents ____% or more of the aggregate
principal amount of the Bonds in the Massachusetts Insured Trust or a total
of approximately ____%. The largest such issue represents approximately
____%. None of the Bonds in the Trust are subject to call within ____
years of the Initial Date of Deposit, although certain bonds may be subject
to an extraordinary call.
Approximately ____% of the aggregate principal amount (approximately ____%
of the aggregate offering price) of the Bonds in the Massachusetts Insured
Trust were purchased at a premium over par value. Certain of these Bonds
are subject to redemption pursuant to call provisions in approximately ____
years after the Initial Date of Deposit. See "Massachusetts Insured Trust,
Series 1-Portfolio" contained herein and "Description of Bond Ratings" in
the Information Supplement.
All of the Bonds included in the Massachusetts Insured Trust are insured by
MBIA Insurance Corporation or other insurers. The insurance guarantees the
timely payment of principal and interest of the Bonds, but does not
guarantee the value of the Bonds or the Units. As a result of the
insurance, the Bonds in the Massachusetts Insured Trust have received a
rating of "Aaa" by Moody's Investors Service, Inc. ("MOODY'S") and the
Bonds and the Units in the Trust have received a rating of "AAA" by
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("STANDARD & POOR'S").
UNITS OF THE TRUST 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.
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.
THE DATE OF THIS PROSPECTUS IS ____________, 1997
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
OF THE BONDS-___________, 1997
SPONSOR: National Financial Services Corporation
TRUSTEE: The Chase Manhattan Bank
EVALUATOR: Muller Data Corporation
<TABLE>
<CAPTION>
<S> <C>
General Information
Principal Amount of Bonds in the Trust $
Number of Units
Fractional Undivided Interest in the Trust per Unit
Principal Amount (Par Value) of Bonds per Unit (1) $
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $
Aggregate Offering Price Evaluation per Unit $
Sales Charge _______% (______% of the Aggregate Offering Price Evaluation per $
Unit) (2)
Public Offering Price per Unit (3) $
Sponsor's Initial Repurchase Price per Unit (3) $
Redemption Price per Unit (4) $
Excess of Public Offering Price per Unit Over Redemption Price per Unit $
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date _____
Discretionary Liquidation Amount The Trust may be terminated if the value of the Trust is
less than 20% of the aggregate principal amount of the
Bonds deposited in such Trust during the primary
offering period.
Mandatory Termination Date December 31, 2045
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made
as of the close of trading (generally 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day on which it is open.
____________________
(1) Many unit investment trusts comprised of municipal securities issue a
number of Units such that each Unit represents approximately $1,000
principal amount of underlying securities. For the Massachusetts Insured
Trust, the Sponsor has elected to provide that number of Units which will
establish as close as possible as of the opening of business on the Initial
Date of Deposit a Public Offering Price per Unit of $1,000. Because
certain of the Bonds in the Trust may from time to time under certain
circumstances be sold or redeemed or will be called or will mature in
accordance with their terms, there is no guarantee that the value of each
Unit at the Trust's termination will be equal to the Principal Amount (Par
Value) of Bonds per Unit stated above.
(2) The sales charge is reduced for purchases of $100,000 or greater. See
"Public Offering of Units" in Part B of this Prospectus.
(3) Anyone ordering Units for settlement after the First Settlement Date
will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be added to
the Public Offering Price. After the initial offering period, the
Sponsor's Repurchase Price per Unit will be determined as described under
the caption "Secondary Market" in Part B of this Prospectus.
(4) See "Redemption" in Part B of this Prospectus.
SPECIAL TRUST INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Monthly Semi-Annual
Calculation of Estimated Net Annual Unit Income (1)
Estimated Annual Interest Income per Unit (1) $ $
Estimated Annual Trust Expense per Unit:
Trustee's Fees (1) $ $
Evaluator's Fees ($.___ per $1,000 principal amount of
Bonds at the Initial Date of Deposit)
Supervisory and Administrative Fees (2) $ $
Organizational Expenses (3) $ $
Other Expenses $ $
Less: Estimated Annual Expense per Unit $ $
Estimated Net Annual Interest Income per Unit $ $
Calculation of Interest Distribution per Unit
Divided by 12 and 2, respectively $ $
Estimated Daily Rate of Net Interest Accrual per Unit $ $
Initial Distribution- ,1997 (4) $ $
Partial Distribution- ,1997 (4) $ $
Regular Distribution (4) $ $
(Commencing)
Estimated Current Return Based on Public Offering Price (5) % %
Estimated Long-Term Return Based on Public Offering Price (5) % %
CUSIP
</TABLE>
____________________
(1) During the first year only, the Trustee has agreed to reduce its fee
and pay expenses of the Trust in an amount (approximately $_____________)
equal to the interest that would have accrued prior to the expected
delivery dates of Bonds included in the Portfolio that were purchased on a
"when, as and if issued" or delayed delivery basis. During the first year,
Estimated Annual Interest income per Unit would be $_____________.
Estimated Net Annual Interest income per Unit, Estimated Current Return
Based on Public Offering Price and Estimated Long-Term Return Based on
Public Offering Price would be as indicated above. See "Estimated Long
Term Return and Estimated Current Return" and "Trust Expenses" in Part B of
the Prospectus.
(2) Supervisory Fees are payable to an affiliate of the Sponsor.
Bookkeeping and Administrative Fees are payable to the Sponsor.
(3) The Trust (and therefore the Unitholders) 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 portfolio, 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. See "Trust Expenses" and
"Statement of Net Assets."
(4) Additional information concerning distributions of interest and
principal can be found in "Distributions to Unitholders" in Part B of this
Prospectus.
(5) See "Estimated Long Term Return and Estimated Current Return" in Part B
of this Prospectus for a description of how these returns are calculated.
The above figures are 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 Bonds. The estimated
cash flows for this Trust may be obtained from the Trustee at no charge by
calling the Trustee at the number listed in Part B of this Prospectus.
MASSACHUSETTS RISK FACTORS
The financial condition of the Commonwealth of Massachusetts is affected by
various national, economic, social and environmental policies and
conditions. Additionally, limitations imposed by statute and voter
initiative upon the Commonwealth and its local governments concerning
taxes, bond indebtedness and other matters may constrain the
revenue-generating capacity of the Commonwealth and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds,
are affected by numerous factors. The employment in the Commonwealth has
been and continues to be significantly and adversely affected by reductions
in federal government spending on defense-related industries. The
Commonwealth has many material future liabilities, including an underfunded
retirement system and Medicaid expenditures.
The Commonwealth is a party to numerous lawsuits in which an adverse final
decision could materially affect the Commonwealth's governmental operations
and consequently its ability to pay debt service on its obligations.
In recent years, the Commonwealth of Massachusetts and certain of its
public bodies and municipalities, particularly the City of Boston have
faced serious financial difficulties which have affected the credit
standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt
obligations. Standard and Poor's currently rates the Commonwealth's
uninsured general obligation bonds at A+, while Moody's rates these
obligations at A1.
Further information concerning Massachusetts risk factors may be obtained
upon written or telephonic request to the Trustee as described in "Other
Information" appearing in Part B of this Prospectus.
TAX STATUS
In the opinion of _______________, special Massachusetts counsel to the
Trust, based on rulings by the Commissioner of Revenue and under existing
law:
For Massachusetts income tax purposes, each Trust will be treated as a
corporate trust under Section 8 of Chapter 62 of the Massachusetts General
Laws ("M.G.L.") and not as grantor trust under Section 10(e) of M.G.L.
Chapter 62.
The Trust will not be held to be engaging in business in Massachusetts
within the meaning of said Section 8 and will, therefore, not be subject to
Massachusetts income tax.
Unitholders who are subject to Massachusetts income taxation under M.G.L.
Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross
income to the extent that such earnings or distributions represent
tax-exempt interest excludable from gross income for Federal income tax
purposes received by the Trust on obligations issued by Massachusetts, its
counties, municipalities, authorities, political subdivisions or
instrumentalities or by Puerto Rico, the Virgin Islands, Guam, the Northern
Mariana Islands or other possessions of the United States within the
meaning of Section 103(c) of the Internal Revenue Code of 1986, as amended
("MASSACHUSETTS OBLIGATIONS").
Unitholders who are subject to Massachusetts income taxation under M.G.L.
Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross
income to the extent that such earnings or distributions are derived from
the proceeds of insurance obtained by the Sponsor of the Trust or by the
issuer or underwriter of an obligation held by the Trust that represent
maturing interest on defaulted obligations held by the Trustee, if and to
the same extent that such earnings or distributions would have been
excludable from the gross income of such Unitholders if derived from
interest paid by the issuer of the defaulted obligation.
Unitholders which are corporations subject to taxation under M.G.L. Chapter
63 will be required to include their respective shares of the earnings of
or distributions from the Trust in their Massachusetts gross income to the
extent that such earnings or distributions represent interest from bonds,
notes or indebtedness of any state, including Massachusetts, except for
interest which is specifically exempted from such tax by the acts
authorizing issuance of said Massachusetts Obligations.
The Trust's capital gains and/or capital losses which are includable in the
Federal gross income of Unitholders who are subject to Massachusetts income
taxation under M.G.L. Chapter 62, or Unitholders which are corporations
subject to Massachusetts taxation under M.G.L. Chapter 63 will be included
as capital gains and/or losses in the Unitholders' Massachusetts gross
income, except for capital gain which is specifically exempted from
taxation under such Chapters by the acts authorizing issuance of said
Massachusetts Obligations.
Unitholders which are corporations subject to tax under M.G.L. Chapter 63
and which are tangible property corporations will not be required to
include the Units when determining the value of their tangible property.
Unitholders which are intangible property corporations will be required to
include the Units when determining their net worth.
Gains or losses realized on sales or redemptions of Units by Unitholders
who are subject to Massachusetts income taxation under M.G.L. Chapter 62,
or Unitholders which are corporations subject to Massachusetts income
taxation under M.G.L. Chapter 63, will be includable in their Massachusetts
gross income. In determining such gain or loss Unitholders will, to the
same extent required for Federal tax purposes, have to adjust their tax
bases for their Units for accrued interest received, if any, on
Massachusetts Obligations delivered to the Trustee after the Unitholders
pay for their Units, for amortization of premiums, if any, on Massachusetts
Obligations held by the Trust, and for accrued original issue discount with
respect to each Massachusetts Obligation which, at the time the
Massachusetts Obligation was issued, had original issue discount.
The Units of the Trust are not subject to any property tax levied by
Massachusetts or any political subdivision thereof, nor to any income tax
levied by any such political subdivision. They are includable in the gross
estate of a deceased holder who is a resident of Massachusetts for purposes
of the Massachusetts Estate Tax.
FOR INFORMATION WITH RESPECT TO THE FEDERAL INCOME TAX STATUS AND OTHER TAX
MATTERS, SEE "TAX STATUS" IN PART B OF THIS PROSPECTUS.
FEDERAL AND MASSACHUSETTS TAX-FREE INCOME
The following table shows the approximate marginal taxable yields for
individuals that are equivalent to tax-exempt yields under published
Federal tax rates scheduled to be in effect in 1997. The table
incorporates increased tax rates for higher-income taxpayers that were
included in the Revenue Reconciliation Act of 1993. The table illustrates
what you would have to earn on taxable investments to equal the tax-exempt
yield for your income tax bracket. The taxable equivalent yields may be
somewhat higher than the equivalent yields indicated in the following table
for those individuals who have adjusted gross incomes in excess of
$117,950. The table does not reflect the effect of the limitations (if
any) on the amount of allowable itemized deductions and the deduction for
personal or dependent exemptions or any other credits. These limitations
were designed to phase out certain benefits of these deductions for higher
income taxpayers. These limitations, in effect, raise the maximum marginal
Federal tax rate to approximately 44% for taxpayers filing a joint return
and entitled to four personal exemptions and to approximately 41% for
taxpayers filing a single return entitled to only one personal exemption.
These limitations are subject to certain maximums, which depend on the
number of exemptions claimed and the total amount of the taxpayer's
itemized deductions. For example, the limitation on itemized deductions
will not cause a taxpayer to lose more than 80% of his allowable itemized
deductions, with certain exceptions.
TAXABLE EQUIVALENT YIELD
Taxable Income ($1,000's) Tax-Exempt Yield
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax 5.00% 5.50% 6.00%
Return Return Rate Taxable Equivalent Yield
$0-24.0 $0-40.1 25.2 6.68 7.35 8.02
24.0-58.2 40.1-96.9 36.6 7.89 8.68 9.46
58.2-121.3 96.9-147.7 39.3 8.24 9.06 9.88
121.3-263.8 147.7-263.8 43.7 8.88 9.77 10.66
Over 263.8 Over 263.8 46.8 9.40 10.34 11.28
</TABLE>
MASSACHUSETTS INSURED TRUST, SERIES 1
PORTFOLIO
UNITS RATED "AAA"(hollow bullet) AT THE OPENING OF BUSINESS
ON THE INITIAL DATE OF DEPOSIT OF THE BONDS - ___________, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Issue Represented by Sponsor's Redemption Cost to
Principal Contracts to Purchase Bonds (1) Rating(2) Provisions(3) the Trust
$ $
_______ _______
$ $
</TABLE>
____________________
(hollow bullet) Units are rated "AAA" as a result of insurance. Such
rating, as issued by Standard & Poor's, will be in effect for a period of
thirteen months from the Initial Date of Deposit and will, unless renewed,
terminate at the end of the period. See "Insurance on the Bonds" in Part B
of this Prospectus.
(solid bullet) Sponsor's contracts for the purchase of all or a portion of
these Bonds (approximately ____% of the aggregate principal amount of the
Bonds in the Trust) are either on a "when, as and if issued" basis or are
delayed delivery Bonds and are expected to be settled on or before
____________.
(questionmark) These Bonds were issued at an original issue discount on
___________ at a price of ____% of their original principal amount.
_ These Bonds are of the same issue as another Bond in the Trust.
For industry concentrations of the Bonds in the Trust, see page 1.
See "Notes to Portfolio" on page 9.
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from ____________ to ____________. All contracts to purchase Bonds
are expected to be settled on or prior to ____________ unless otherwise
indicated.
Other information regarding the Bonds in the Trust on the Initial Date of
Deposit is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Aggregate Annual Annual
offering Cost of Profit or Insurance Interest
Price of Bonds to (Loss) to Bid Price Cost to Income
Trust Bonds Sponsor Sponsor of Bonds Trust to Trust
Massachusetts Insured Trust,
Series 1 $ $ $ $ $ $
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor reflects
underwriting profits or losses received or incurred by the Sponsor through
its participation in underwriting syndicates but such amounts reflect the
cost of insurance obtained by the Sponsor prior to the Initial Date of
Deposit for individual Bonds. The Offering and Bid Prices of Bonds were
determined by Muller Data Corporation.
(2) All ratings are by Standard & Poor's unless otherwise indicated. Such
ratings were obtained from a municipal bond information reporting service.
The "AAA" rating on each Bond is a result of insurance. Insurance, however,
does not cover certain market risks associated with fixed income securities
such as accelerated payments of principal, mandatory redemptions prior to
maturity or interest rate risks. See "Insurance on the Bonds" in Part B of
this Prospectus and "Description of Bond Ratings" in the Information
Supplement.
(3) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year or, if
currently redeemable, the redemption price in effect on the Initial Date of
Deposit. Issues of Bonds are redeemable at declining prices (but not below
par value) in subsequent years except for original issue discount Bonds
which are redeemable at prices based on the issue price plus the amount of
original issue discount accreted to the redemption date plus, if
applicable, some premium, the amount of which will decline in subsequent
years. "S.F." indicates a sinking fund is established with respect to an
issue of Bonds. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the
terms and provisions of such Bonds. See "Risk Factors" in Part B of this
Prospectus for a discussion of Bond redemptions and a description of
certain of such unusual or extraordinary circumstances under which Bonds
may be redeemed. Distributions will generally be reduced by the amount of
the income which would otherwise have been paid with respect to redeemed
Bonds and there will be distributed to Unit holders the principal amount
and any premium received on such redemption (except to the extent the
proceeds of the redeemed Bonds are used to pay for Unit redemptions). The
estimated current return and the estimated long-term return in this event
may be affected by such redemptions. For the Federal and state tax effect
on Unit holders of such redemptions and resultant distributions, see "Tax
Status" in Part B of this Prospectus.
(4) Ratings by Moody's Investors Service, Inc. Such ratings were obtained
from a municipal bond information reporting service.
MASSACHUSETTS INSURED TRUST, SERIES 1
STATEMENT OF NET ASSETS
(Fidelity Defined Trusts - Municipal Income Trust Series 1)
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
____________, 1997
Net Assets
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $
Accrued interest on underlying bonds (2)(3)(4)
Organizational Costs (5)
Less distributions payable (4) ___
Accrued Organizational Costs (5)
Net assets $
Outstanding units
Analysis of Net Assets
Cost to investors (6) $
Less gross underwriting commissions (6) ___
Net assets $
____________________
(1) The aggregate offering price of the bonds for the Trust at the opening
of business on the Initial Date of Deposit and the cost to the Trust are
the same. The offering price is determined by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
bonds, an irrevocable letter of credit has been allocated among each Trust
included in the Fidelity Defined Trusts - Tax-Free Series 1 as collateral.
The amount of available letter of credit and the amount expected to be
utilized as collateral for the Trust is shown below. The amount expected
to be utilized is (a) the cost to the Trust of the principal amount of the
bonds to be purchased, (b) accrued interest on those bonds to the Initial
Date of Deposit, and (c) accrued interest on those bonds from the Initial
Date of Deposit to the expected dates of delivery of the bonds, which is
exclusive of the amount by which the Trustee has agreed to reduce its fees
during the first year ($).
Accrued
Aggregate Accrued Interest to
Letter of Credit Offering Interest to Expected
To be Price of Date of Dates of
Trust Available Utilized Bonds Deposit Delivery
Massachusetts Insured
Trust, Series 1 $ $ $ $ $
____________________
(3) Insurance coverage providing for the scheduled payment of principal and
interest on all Bonds deposited in the Trust and delivered to the Trustee
has been obtained directly by the Bond issuer, the underwriters, the
Sponsor or others prior to the Initial Date of Deposit.
(4) The Trustee will advance to the Trust the amount of net interest
accrued to __________, the First Settlement Date, for distribution to the
Sponsor as the Unit holder of record.
(5) The Trust (and therefore Unitholders) will bear all or a portion of its
organizational costs which will be deferred and amortized over five years.
Organizational costs have been estimated based on a projected size of
$___________ for the Trust. To the extent the Trust is larger or smaller,
the estimate will vary.
(6) The aggregate cost to investors and the aggregate gross underwriting
commissions of ___% are computed assuming no reduction of sales charge for
quantity purchases.
REPORT OF INDEPENDENT AUDITORS
THE SPONSOR, NATIONAL FINANCIAL SERVICES CORPORATION, AND UNITHOLDERS
Fidelity Defined Trusts - Municipal Income Trust Series 1
Massachusetts Insured Trust, Series 1
We have audited the accompanying statement of net assets, including the
portfolio, of National Insured Trust, Series 1 (the "TRUST"), included in
Fidelity Defined Trusts - Municipal Income Trust Series 1, as of the
opening business on ____________, 1997. This statement of net assets is
the responsibility of the Trust's Sponsor. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of it assets is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statement of
net assets. Our procedures included confirmation of the letter of credit
held by the Trustee and deposited in the Trust on ____________, 1997. An
audit also includes assessing the accounting principles used and
significant estimates made by the Sponsor, as well as evaluating the
overall presentation of the statement of net assets. We believe that our
audit of the statement of net assets provides a reasonable basis for our
opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the financial position of Massachusetts
Insured Trust, Series 1, included in Fidelity Defined Trusts - Municipal
Income Trust Series 1, at the opening of business on __________, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
New York, New York
____________, 1997
Fidelity Defined Trusts - Municipal Income Trust Series
Pennsylvania Insured Trust
Series 1
Prospectus
Part A
National Financial Services Corporation
82 Devonshire Street
Boston, Massachusetts 02109
TRUSTEE:
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
1-800-887-6926
THIS PART A MUST BE
ACCOMPANIED BY PART B.
____________, 1997
Please Retain this Prospectus
for Future Reference
PENNSYLVANIA INSURED TRUST, SERIES 1
(Fidelity Defined Trusts - Municipal Income Trust Series 1)
Prospectus - Part A
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
THE PART B OF THE PROSPECTUS DATED ____________, 1997. BOTH PARTS A AND B
OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Pennsylvania Insured Trust, Series 1 (the "PENNSYLVANIA INSURED TRUST" or
"TRUST"), consists of a portfolio of interest-bearing obligations issued by
or on behalf of the State of Pennsylvania or certain United States
Territories or authorities or political subdivisions thereof which, in the
opinion of recognized bond counsel to the issuing authorities, provide
income which is exempt from Federal income tax, and Pennsylvania state and
local income tax, as detailed below.
The objectives of the Trust are conservation of capital and income exempt
from Federal and applicable state and local income taxes. The objectives
are, of course, dependent upon the continuing ability of the issuers,
obligors and/or insurers to meet their respective obligations.
The Pennsylvania Insured Trust consists of ____________ obligations of
issuers located in the State of Pennsylvania. The Bond issues in the
Pennsylvania Insured Trust are either general obligations of governmental
entities or are revenue bonds payable from the income of a specific project
or authority. The Bonds in the Pennsylvania Insured Trust are divided by
purpose of issue and represent the percentage of aggregate principal amount
of the Bonds as indicated by the following table:
Number of Purpose of Portfolio
Issues Issue Percentage
General Obligation %
Airport %
Electric %
Health Care %
Other Housing %
Resource Recovery %
Sewer %
Single Family Housing %
Multi-Family Housing %
Transportation %
University and School %
Utility %
Water %
Water & Sewer %
Miscellaneous %
Each of ____ Bond issues represents ____% or more of the aggregate
principal amount of the Bonds in the Pennsylvania Insured Trust or a total
of approximately ____%. The largest such issue represents approximately
____%. None of the Bonds in the Trust are subject to call within ____
years of the Initial Date of Deposit, although certain bonds may be subject
to an extraordinary call.
Approximately ____% of the aggregate principal amount (approximately ____%
of the aggregate offering price) of the Bonds in the Pennsylvania Insured
Trust were purchased at a premium over par value. Certain of these Bonds
are subject to redemption pursuant to call provisions in approximately ____
years after the Initial Date of Deposit. See "Pennsylvania Insured Trust,
Series 1-Portfolio" contained herein and "Description of Bond Ratings" in
the Information Supplement.
All of the Bonds included in the Pennsylvania Insured Trust are insured by
MBIA Insurance Corporation or other insurers. The insurance guarantees the
timely payment of principal and interest of the Bonds, but does not
guarantee the value of the Bonds or the Units. As a result of the
insurance, the Bonds in the Pennsylvania Insured Trust have received a
rating of "Aaa" by Moody's Investors Service, Inc. ("MOODY'S") and the
Bonds and the Units in the Trust have received a rating of "AAA" by
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("STANDARD & POOR'S").
UNITS OF THE TRUST 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.
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.
THE DATE OF THIS PROSPECTUS IS ____________, 1997
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
OF THE BONDS-___________, 1997
SPONSOR: National Financial Services Corporation
TRUSTEE: The Chase Manhattan Bank
EVALUATOR: Muller Data Corporation
<TABLE>
<CAPTION>
<S> <C>
General Information
Principal Amount of Bonds in the Trust $
Number of Units
Fractional Undivided Interest in the Trust per Unit
Principal Amount (Par Value) of Bonds per Unit (1) $
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $
Aggregate Offering Price Evaluation per Unit $
Sales Charge ______% (______% of the Aggregate Offering Price Evaluation per $
Unit) (2)
Public Offering Price per Unit (3) $
Sponsor's Initial Repurchase Price per Unit (3) $
Redemption Price per Unit (4) $
Excess of Public Offering Price per Unit Over Redemption Price per Unit $
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date _____
Discretionary Liquidation Amount The Trust may be terminated if the value of the Trust is
less than 20% of the aggregate principal amount of the
Bonds deposited in such Trust during the primary
offering period.
Mandatory Termination Date December 31, 2045
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made
as of the close of trading (generally 4:00 p.m. Eastern time) on the
Pennsylvania Stock Exchange on each day on which it is open.
____________________
(1) Many unit investment trusts comprised of municipal securities issue a
number of Units such that each Unit represents approximately $1,000
principal amount of underlying securities. For the Pennsylvania Insured
Trust, the Sponsor has elected to provide that number of Units which will
establish as close as possible as of the opening of business on the Initial
Date of Deposit a Public Offering Price per Unit of $1,000. Because
certain of the Bonds in the Trust may from time to time under certain
circumstances be sold or redeemed or will be called or will mature in
accordance with their terms, there is no guarantee that the value of each
Unit at the Trust's termination will be equal to the Principal Amount (Par
Value) of Bonds per Unit stated above.
(2) The sales charge is reduced for purchases of $100,000 or greater. See
"Public Offering of Units" in Part B of this Prospectus.
(3) Anyone ordering Units for settlement after the First Settlement Date
will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be added to
the Public Offering Price. After the initial offering period, the
Sponsor's Repurchase Price per Unit will be determined as described under
the caption "Secondary Market" in Part B of this Prospectus.
(4) See "Redemption" in Part B of this Prospectus.
SPECIAL TRUST INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Monthly Semi-Annual
Calculation of Estimated Net Annual Unit Income (1)
Estimated Annual Interest Income per Unit (1) $ $
Estimated Annual Trust Expense per Unit:
Trustee's Fees (1) $ $
Evaluator's Fees ($.___ per $1,000 principal amount of
Bonds at the Initial Date of Deposit)
Supervisory and Administrative Fees (2) $ $
Organizational Expenses (3) $ $
Other Expenses $ $
Less: Estimated Annual Expense per Unit $ $
Estimated Net Annual Interest Income per Unit $ $
Calculation of Interest Distribution per Unit
Divided by 12 and 2, respectively $ $
Estimated Daily Rate of Net Interest Accrual per Unit $ $
Initial Distribution- ,1997 (4) $ $
Partial Distribution- ,1997 (4) $ $
Regular Distribution (4) $ $
(Commencing)
Estimated Current Return Based on Public Offering Price (5) % %
Estimated Long-Term Return Based on Public Offering Price (5) % %
CUSIP
</TABLE>
____________________
(1) During the first year only, the Trustee has agreed to reduce its fee
and pay expenses of the Trust in an amount (approximately $_____________)
equal to the interest that would have accrued prior to the expected
delivery dates of Bonds included in the Portfolio that were purchased on a
"when, as and if issued" or delayed delivery basis. During the first year,
Estimated Annual Interest income per Unit would be $_____________.
Estimated Net Annual Interest income per Unit, Estimated Current Return
Based on Public Offering Price and Estimated Long-Term Return Based on
Public Offering Price would be as indicated above. See "Estimated Long
Term Return and Estimated Current Return" and "Trust Expenses" in Part B of
the Prospectus.
(2) Supervisory Fees are payable to an affiliate of the Sponsor.
Bookkeeping and Administrative Fees are payable to the Sponsor.
(3) The Trust (and therefore the Unitholders) 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 portfolio, 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. See "Trust Expenses" and
"Statement of Net Assets."
(4) Additional information concerning distributions of interest and
principal can be found in "Distributions to Unitholders" in Part B of this
Prospectus.
(5) See "Estimated Long Term Return and Estimated Current Return" in Part B
of this Prospectus for a description of how these returns are calculated.
The above figures are 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 Bonds. The estimated
cash flows for this Trust may be obtained from the Trustee at no charge by
calling the Trustee at the number listed in Part B of this Prospectus.
PENNSYLVANIA RISK FACTORS
The financial condition of the State of Pennsylvania is affected by various
national, economic, social and environmental policies and conditions.
Additionally, Constitutional and statutory limitations imposed on the State
and its local governments concerning taxes, bond indebtedness and other
matters may constrain the revenue-generating capacity of the State and its
local governments and, therefore, the ability of the issuers of the Bonds
to satisfy their obligations.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds,
are affected by numerous factors. Pennsylvania historically has been
identified as a heavy industry state, although that reputation has changed
recently as the industrial composition of the Commonwealth diversified when
the coal, steel and railroad industries began to decline. The major
sources of growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
The Commonwealth's agricultural industries are also an important component
of its economic structure.
All outstanding general obligation bonds of the State are rated "AA-" by
Standard and Poor's and "A1" by Moody's.
Further information concerning Pennsylvania risk factors may be obtained
upon written or telephone request to the Trustee as described in "Other
Information" appearing in Part B of this Prospectus.
TAX STATUS
In the opinion of ___________________, special counsel for the Trust for
Pennsylvania tax matters, under existing law:
Units evidencing fractional undivided interests in the Pennsylvania Trust,
which are represented by obligations issued by the Commonwealth of
Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision of
the Commonwealth of Pennsylvania or any public authority created by any
such political subdivision, are not taxable under any of the personal
property taxes presently in effect in Pennsylvania;
Distributions of interest income to Unitholders that would not be taxable
if received directly by a Pennsylvania resident are not subject to personal
income tax under the Pennsylvania Tax Reform Code of 1971; nor will such
interest be taxable under the Philadelphia School District Investment
Income Tax imposed on Philadelphia resident individuals;
A Unitholder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the
redemption or sale of his or her Units. Units will be taxable under the
Pennsylvania inheritance and estate taxes;
A Unitholder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its Units.
Interest income distributed to Unitholders which are corporations is not
subject Pennsylvania Corporate Net Income Tax or Mutual Thrift Institutions
Tax. However, banks, title insurance companies and trust companies may be
required to take the value of the Units into account in determining the
taxable value of their shares subject to the Shares tax;
Gains derived by the Fund from the sale, exchange or other disposition of
Bonds may be subject to Pennsylvania personal or corporate income taxes.
Those gains which are distributed by the Fund to Unitholders who are
individuals may be subject to Pennsylvania Personal Income Tax. For
Unitholders which are corporations, the distributed gains may be subject to
Corporate Net Income Tax or Mutual Thrift Institutions Tax. Gains which
are not distributed by the Fund may nevertheless be taxable to Unitholders
if derived by the Fund from the sale, exchange or other disposition of
Bonds issued on or after February 1, 1994. Gains which are not distributed
by the Fund will remain nontaxable to Unitholders if derived by the Fund
from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994.
Any proceeds paid under insurance policies issued to the Trustee or
obtained by issuers of the Bonds which represent maturing interest on
defaulted obligations held by the Trustee will be excludable from
Pennsylvania gross income if, and to the same extent as, such interest
would have been so excludable if paid by the issuer of the defaulted
obligations;
The Trust is not taxable as a corporation under Pennsylvania tax laws
applicable to corporations.
FOR INFORMATION WITH RESPECT TO THE FEDERAL INCOME TAX STATUS AND OTHER TAX
MATTERS, SEE "TAX STATUS" IN PART B OF THIS PROSPECTUS.
FEDERAL AND PENNSYLVANIA TAX-FREE INCOME
The following table shows the approximate marginal taxable yields for
individuals that are equivalent to tax-exempt yields under published
Federal tax rates scheduled to be in effect in 1997. The table
incorporates increased tax rates for higher-income taxpayers that were
included in the Revenue Reconciliation Act of 1993. The table illustrates
what you would have to earn on taxable investments to equal the tax-exempt
yield for your income tax bracket. The taxable equivalent yields may be
somewhat higher than the equivalent yields indicated in the following table
for those individuals who have adjusted gross incomes in excess of
$117,950. The table does not reflect the effect of the limitations (if
any) on the amount of allowable itemized deductions and the deduction for
personal or dependent exemptions or any other credits. These limitations
were designed to phase out certain benefits of these deductions for higher
income taxpayers. These limitations, in effect, raise the maximum marginal
Federal tax rate to approximately 44% for taxpayers filing a joint return
and entitled to four personal exemptions and to approximately 41% for
taxpayers filing a single return entitled to only one personal exemption.
These limitations are subject to certain maximums, which depend on the
number of exemptions claimed and the total amount of the taxpayer's
itemized deductions. For example, the limitation on itemized deductions
will not cause a taxpayer to lose more than 80% of his allowable itemized
deductions, with certain exceptions.
TAXABLE EQUIVALENT YIELD
Taxable Income ($1,000's) Tax-Exempt Yield
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax 5.00% 5.50% 6.00%
Return Return Rate Taxable Equivalent Yield
$0-24.0 $0-40.1 17.4 6.05 6.66 7.26
24.0-58.2 40.1-96.9 30.0 7.14 7.86 8.57
58.2-121.3 96.9-147.7 32.9 7.45 8.20 8.94
121.3-263.8 147.7-263.8 37.8 8.04 8.84 9.65
Over 263.8 Over 263.8 41.3 8.52 9.37 10.22
</TABLE>
PENNSYLVANIA INSURED TRUST, SERIES 1
PORTFOLIO
UNITS RATED "AAA"(hollow bullet) AT THE OPENING OF BUSINESS
ON THE INITIAL DATE OF DEPOSIT OF THE BONDS - ___________, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Issue Represented by Sponsor's Redemption Cost to
Principal Contracts to Purchase Bonds (1) Rating(2) Provisions(3) the Trust
$ $
_______ _______
$ $
</TABLE>
____________________
(hollow bullet) Units are rated "AAA" as a result of insurance. Such
rating, as issued by Standard & Poor's, will be in effect for a period of
thirteen months from the Initial Date of Deposit and will, unless renewed,
terminate at the end of the period. See "Insurance on the Bonds" in Part B
of this Prospectus.
(solid bullet) Sponsor's contracts for the purchase of all or a portion of
these Bonds (approximately ____% of the aggregate principal amount of the
Bonds in the Trust) are either on a "when, as and if issued" basis or are
delayed delivery Bonds and are expected to be settled on or before
____________.
(questionmark) These Bonds were issued at an original issue discount on
___________ at a price of ____% of their original principal amount.
_ These Bonds are of the same issue as another Bond in the Trust.
For industry concentrations of the Bonds in the Trust, see page 1.
See "Notes to Portfolio" on page 9.
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from ____________ to ____________. All contracts to purchase Bonds
are expected to be settled on or prior to ____________ unless otherwise
indicated.
Other information regarding the Bonds in the Trust on the Initial Date of
Deposit is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Aggregate Annual Annual
offering Cost of Profit or Insurance Interest
Price of Bonds to (Loss) to Bid Price Cost to Income
Trust Bonds Sponsor Sponsor of Bonds Trust to Trust
Pennsylvania Insured Trust,
Series 1 $ $ $ $ $ $
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor reflects
underwriting profits or losses received or incurred by the Sponsor through
its participation in underwriting syndicates but such amounts reflect the
cost of insurance obtained by the Sponsor prior to the Initial Date of
Deposit for individual Bonds. The Offering and Bid Prices of Bonds were
determined by Muller Data Corporation.
(2) All ratings are by Standard & Poor's unless otherwise indicated. Such
ratings were obtained from a municipal bond information reporting service.
The "AAA" rating on each Bond is a result of insurance. Insurance, however,
does not cover certain market risks associated with fixed income securities
such as accelerated payments of principal, mandatory redemptions prior to
maturity or interest rate risks. See "Insurance on the Bonds" in Part B of
this Prospectus and "Description of Bond Ratings" in the Information
Supplement.
(3) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year or, if
currently redeemable, the redemption price in effect on the Initial Date of
Deposit. Issues of Bonds are redeemable at declining prices (but not below
par value) in subsequent years except for original issue discount Bonds
which are redeemable at prices based on the issue price plus the amount of
original issue discount accreted to the redemption date plus, if
applicable, some premium, the amount of which will decline in subsequent
years. "S.F." indicates a sinking fund is established with respect to an
issue of Bonds. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the
terms and provisions of such Bonds. See "Risk Factors" in Part B of this
Prospectus for a discussion of Bond redemptions and a description of
certain of such unusual or extraordinary circumstances under which Bonds
may be redeemed. Distributions will generally be reduced by the amount of
the income which would otherwise have been paid with respect to redeemed
Bonds and there will be distributed to Unit holders the principal amount
and any premium received on such redemption (except to the extent the
proceeds of the redeemed Bonds are used to pay for Unit redemptions). The
estimated current return and the estimated long-term return in this event
may be affected by such redemptions. For the Federal and state tax effect
on Unit holders of such redemptions and resultant distributions, see "Tax
Status" in Part B of this Prospectus.
(4) Ratings by Moody's Investors Service, Inc. Such ratings were obtained
from a municipal bond information reporting service.
PENNSYLVANIA INSURED TRUST, SERIES 1
STATEMENT OF NET ASSETS
(Fidelity Defined Trusts - Municipal Income Trust Series 1)
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
____________, 1997
Net Assets
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $
Accrued interest on underlying bonds (2)(3)(4)
Organizational Costs (5)
Less distributions payable (4) ___
Accrued Organizational Costs (5)
Net assets $
Outstanding units
Analysis of Net Assets
Cost to investors (6) $
Less gross underwriting commissions (6) ___
Net assets $
____________________
(1) The aggregate offering price of the bonds for the Trust at the opening
of business on the Initial Date of Deposit and the cost to the Trust are
the same. The offering price is determined by the Evaluator.
(2) Pursuant to delivery statements relating to contracts to purchase
bonds, an irrevocable letter of credit has been allocated among each Trust
included in the Fidelity Defined Trusts - Tax-Free Series 1 as collateral.
The amount of available letter of credit and the amount expected to be
utilized as collateral for the Trust is shown below. The amount expected
to be utilized is (a) the cost to the Trust of the principal amount of the
bonds to be purchased, (b) accrued interest on those bonds to the Initial
Date of Deposit, and (c) accrued interest on those bonds from the Initial
Date of Deposit to the expected dates of delivery of the bonds, which is
exclusive of the amount by which the Trustee has agreed to reduce its fees
during the first year ($).
Accrued
Aggregate Accrued Interest to
Letter of Credit Offering Interest to Expected
To be Price of Date of Dates of
Trust Available Utilized Bonds Deposit Delivery
Pennsylvania Insured
Trust, Series 1 $ $ $ $ $
____________________
(3) Insurance coverage providing for the scheduled payment of principal and
interest on all Bonds deposited in the Trust and delivered to the Trustee
has been obtained directly by the Bond issuer, the underwriters, the
Sponsor or others prior to the Initial Date of Deposit.
(4) The Trustee will advance to the Trust the amount of net interest
accrued to __________, the First Settlement Date, for distribution to the
Sponsor as the Unit holder of record.
(5) The Trust (and therefore Unitholders) will bear all or a portion of its
organizational costs which will be deferred and amortized over five years.
Organizational costs have been estimated based on a projected size of
$___________ for the Trust. To the extent the Trust is larger or smaller,
the estimate will vary.
(6) The aggregate cost to investors and the aggregate gross underwriting
commissions of ___% are computed assuming no reduction of sales charge for
quantity purchases.
REPORT OF INDEPENDENT AUDITORS
THE SPONSOR, NATIONAL FINANCIAL SERVICES CORPORATION, AND UNITHOLDERS
Fidelity Defined Trusts - Municipal Income Trust Series 1
Pennsylvania Insured Trust, Series 1
We have audited the accompanying statement of net assets, including the
portfolio, of Pennsylvania Insured Trust, Series 1 (the "TRUST"), included
in Fidelity Defined Trusts - Municipal Income Trust Series 1, as of the
opening business on ____________, 1997. This statement of net assets is
the responsibility of the Trust's Sponsor. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of it assets is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statement of
net assets. Our procedures included confirmation of the letter of credit
held by the Trustee and deposited in the Trust on ____________, 1997. An
audit also includes assessing the accounting principles used and
significant estimates made by the Sponsor, as well as evaluating the
overall presentation of the statement of net assets. We believe that our
audit of the statement of net assets provides a reasonable basis for our
opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the financial position of Pennsylvania
Insured Trust, Series 1, included in Fidelity Defined Trusts - Municipal
Income Trust Series 1, at the opening of business on __________, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
Pennsylvania, Pennsylvania
____________, 1997
Fidelity Defined Trusts
Municipal Income Trust Series
Prospectus
Part B
National Financial Services Corporation
82 Devonshire Street
Boston, Massachusetts 02109
TRUSTEE:
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
1-800-887-6826
THIS PART B MUST BE
ACCOMPANIED BY PART A.
, 1997
Please Retain this Prospectus
for Future Reference
FIDELITY
DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES
PROSPECTUS - PART B
(GENERAL TERMS)
_____________, 1997
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A. BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
FURTHER DETAIL REGARDING CERTAIN OF THE INFORMATION PROVIDED IN THE
PROSPECTUS MAY BE OBTAINED WITHIN FIVE BUSINESS DAYS OF WRITTEN OR
TELEPHONIC REQUEST TO THE TRUSTEE AT 4 NEW YORK PLAZA, NEW YORK, NY
10004-2413 OR (800) 257-8787.
INTEREST INCOME TO A TRUST AND TO UNITHOLDERS, IN THE OPINION OF COUNSEL,
UNDER EXISTING LAW IS EXEMPT FROM FEDERAL INCOME TAX. CAPITAL GAINS, IF
ANY, ARE SUBJECT TO TAX. IN ADDITION, INTEREST INCOME OF STATE TRUSTS IS,
IN THE OPINION OF COUNSEL, EXEMPT, TO THE EXTENT INDICATED, FROM STATE AND
LOCAL TAXES. INTEREST INCOME OF ANY TRUST OTHER THAN A STATE TRUST MAY BE
SUBJECT TO STATE AND LOCAL TAXES.
CURRENTLY OFFERED AT PUBLIC OFFERING PRICE PLUS INTEREST ACCRUED TO THE
DATE OF SETTLEMENT. THE MINIMUM AMOUNT WHICH AN INVESTOR MAY INITIALLY
PURCHASE OF A TRUST IS $5,000.
THIS FIDELITY DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES consists of
the underlying separate unit investment trust set forth in Part A of this
Prospectus. The various trusts are collectively referred to herein as the
"Fidelity Defined Trusts," the "Fidelity Advisor Defined Trusts", the "MITs
Trusts" or the "Trusts." Each Trust initially consists of delivery
statements relating to contracts to purchase Bonds and, thereafter, will
consist of a diversified portfolio of obligations issued by or on behalf of
states and territories of the United States and authorities and political
subdivisions thereof (see "Portfolio" appearing in Part A of this
Prospectus). Trusts which consist of obligations from several states are
referred to herein as "National Trusts" and Trusts which consist of
obligations from a single state are referred to herein as "State Trusts."
Except in specific instances as noted in Part A of this Prospectus, the
information contained in this Part B shall apply to each Trust in its
entirety. All obligations in each Trust are covered by policies of
insurance obtained from the MBIA Insurance Corporation guaranteeing payment
of principal and interest when due. All such policies of insurance remain
effective so long as the obligations are outstanding. As a result of such
insurance, the Bonds in each portfolio of the Trusts have received a rating
of "Aaa" by Moody's Investors Service, Inc. ("MOODY'S") and the Bonds in
the Trusts and the Units of each such Trust have received a rating of "AAA"
by Standard & Poor's, a division of the McGraw Hill Companies ("STANDARD &
POOR'S"). INSURANCE RELATES ONLY TO THE BONDS IN THE TRUSTS AND NOT TO THE
UNITS OFFERED HEREBY OR TO THEIR MARKET VALUE. (See "Insurance on the
Bonds.")
THE OBJECTIVES of a Trust are tax-exempt income and conservation of capital
through a diversified investment in tax-exempt Bonds. The payment of
interest and the preservation of principal are, of course, dependent upon
the continuing ability of the issuers of Bonds and of any insurer thereof
to meet their obligations thereunder. There is no guarantee that a Trust's
objectives will be achieved. (See "Risk Factors.")
DISTRIBUTIONS of interest received by a Trust will be made semi-annually
unless the Unitholder elects to receive them monthly. (See "Distributions
to Unitholders.") Distribution of funds in the Principal Account, if any,
will ordinarily be made semi-annually.
FOR ESTIMATED LONG TERM RETURNS AND ESTIMATED CURRENT RETURNS to
Unitholders in each Trust on the business day prior to the Date of Deposit,
see Part A of this Prospectus and "Estimated Long Term Return and Estimated
Current Return."
THE PUBLIC OFFERING PRICE per Unit of each Trust during the initial
offering period is equal to a pro rata share of the OFFERING prices of the
Bonds in such Trust's portfolio plus a sales charge of up to ____% of the
Public Offering Price (equivalent to _____% of the net amount invested);
the sales charge is somewhat lower on Trusts with lesser average
maturities. (See "Public Offering of Units.") The Secondary Market Public
Offering Price per Unit for each Trust will be equal to a pro rata share of
the sum of BID prices of the Bonds in such Trust plus the sales charges
determined based on the number of years remaining to the maturity of each
Bond. Accrued interest from the preceding Record Date to, but not
including, the settlement date (normally three business days after
purchase) is added to the Public Offering Price. The sales charge is
reduced on a graduated scale for sales involving at least $100,000 or
10,000 Units and will be applied on whichever basis is more favorable to
the investor. (See "Public Offering of Units.")
A UNITHOLDER MAY REDEEM UNITS at the office of the Trustee at prices based
upon the BID prices of the Bonds. The price received upon redemption may
be more or less than the amount paid by Unitholders, depending upon the
value of the Bonds on the date of tender for redemption. (See
"Redemption.") The Sponsor, although not required to do so, intends to
make a secondary market for the Units of the Trusts at prices based upon
the BID prices of the Bonds in the respective Trusts. (See "Market for
Units.")
RISK FACTORS. An investment in a Trust should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer or an insurer to pay the principal of
or interest on a bond when due, volatile interest rates, early call
provisions, and changes to the tax status of the Bonds. See Part A of this
Prospectus and "Risk Factors."
UNITS OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
TABLE OF CONTENTS
Heading Page
The Fidelity Defined Trusts - Municipal Income Trust Series 4
Objectives of the Trusts 5
Summary of Portfolios 5
Risk Factors 5
Composition of Trusts 9
Insurance on the Bonds 11
Public Offering of Units 13
Market for Units 16
Accrued Interest 17
Public Distribution of Units 18
Estimated Long Term Return and Estimated Current Return 20
Tax Status 21
Trust Expenses 24
Distributions to Unitholders 26
Distribution Reinvestment 27
Reports to Unitholders 28
Unit Value and Evaluation 28
Ownership and Transfer of Units 29
Redemption 30
Purchase of Units by the Sponsor 32
Trust Administration 32
The Trustee 33
The Sponsor 34
Other Information 35
The Fidelity Defined Trusts - Municipal Income Trust Series
This Fidelity Defined Trusts - Municipal Income Trust Series is one of a
series of separate but similar investment companies created by the Sponsor,
each of which is designated by a different Series number. The underlying
unit investment trusts contained in this Series are combined under one
Trust Agreement. Specific information regarding this Trust is set forth in
Part A of this Prospectus. The various Fidelity Defined Trusts - Municipal
Income Trust Series are collectively referred to herein as the "TRUSTS."
This Series was created under the laws of the State of New York pursuant to
a Trust Agreement dated the Date of Deposit (the "INDENTURE") between
National Financial Services Corporation (the "SPONSOR") and The Chase
Manhattan Bank (the "TRUSTEE").<F2>
The Sponsor has deposited with the Trustee delivery statements relating to
contracts for the purchase of municipal debt obligations together with
funds represented by an irrevocable letter of credit issued by a major
commercial bank in the amount, including accrued interest, required for
their purchase (or the obligations themselves) (the "BONDS"). See
"Portfolio" in Part A of this Prospectus, for a description of the Bonds
deposited in a Trust. Some of the delivery statements may relate to
contracts for the purchase of "when issued" or other Bonds with delivery
dates after the date of settlement for a purchase made on the Date of
Deposit. See the "Portfolio" in Part A of this Prospectus and "Composition
of Trusts" for a discussion of the Sponsor's obligations in the event of a
failure of any contract for the purchase of any of the Bonds and its
limited right to substitute other bonds to replace any failed contract.
Payment of interest on the Bonds in each Trust, and of principal at
maturity, is guaranteed under policies of insurance obtained by the Sponsor
or by the issuers of the Bonds. (See "Insurance on the Bonds.")
The Trustee has delivered to the Sponsor registered Units which represent
ownership of the entire Trust, and which are offered for sale by this
Prospectus. Each Unit of a Trust represents a fractional undivided
interest in the principal and net income of such Trust in the ratio set
forth in "Essential Information" in Part A of this Prospectus. Units may
only be sold in states in which they are registered. To the extent that
Units of any Trust are redeemed by the Trustee, the aggregate value of such
Trust's assets will decrease by the amount paid to the redeeming
Unitholder, but the fractional undivided interest of each unredeemed Unit
in such Trust will increase proportionately. The Sponsor will initially,
and from time to time thereafter, hold Units in connection with their
offering.
Objectives of the Trusts
The objectives of the Trusts are income exempt from Federal income tax and,
in the case of State Trusts, state income taxes, and where applicable,
local and/or intangibles taxes, and conservation of capital, through an
investment in obligations issued by or on behalf of states and territories
of the United States and authorities and political subdivisions thereof,
the interest on which is, in the opinion of recognized bond counsel to the
issuing governmental authorities, exempt from Federal income tax under
existing law and certain state income tax and intangibles taxes, if any,
for purchasers who qualify as residents of that State in which Bonds are
issued. Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in each Trust has been obtained by the
Sponsor or by the issuers of such Bonds from MBIA Insurance Corporation,
and as a result of such insurance the Bonds in the Trusts are rated "Aaa"
by Moody's and both the Bonds in the Trusts and the Units of the Trusts are
rated "AAA" by Standard & Poor's. (See "Insurance on the Bonds" herein and
"Description of Ratings" in the Information Supplement.) There is, of
course, no guarantee that the Trusts' objectives will be achieved. For a
comparison of net after-tax return for various tax brackets see the
"Taxable Equivalent Estimated Current Return Tables" included in Part A of
this Prospectus.
<F2> Reference is made to the Trust Agreement and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreement.
Summary of Portfolios
In selecting Bonds for the respective Trusts, the following factors, among
others, were considered: (i) the Standard & Poor's rating of the Bonds or
the Moody's rating of the Bonds (see "Objectives of the Trusts" herein and
"Description of Ratings" in the Information Supplement for a description of
minimum rating standards), (ii) the prices of the Bonds relative to other
bonds of comparable quality and maturity, (iii) the diversification of
Bonds as to purpose of issue and location of issuer, (iv) the maturity
dates of the Bonds, and (v) the availability of MBIA Insurance Corporation
insurance on such Bonds. (See "Insurance on the Bonds.")
Risk Factors
An investment in Units of any Trust should be made with an understanding of
the risks that such an investment may entail. Each Trust consists of
fixed-rate municipal debt obligations. As such, the value of the debt
obligations and therefore of the Units will decline with increases in
interest rates. In general, the longer the period until the maturity of a
Bond, the more sensitive its value will be to fluctuations in interest
rates. The Sponsor cannot predict the extent or timing of such
fluctuations and, accordingly, their effect upon the value of the debt
obligations. Additional risk factors include the ability of the issuer,
or, if applicable, an insurer, to make payments of interest and principal
when due, "mandatory put" features, early call provisions and the potential
for changes in the tax status of the Bonds. As set forth in Part A of this
Prospectus, the Trusts may contain or be concentrated in one or more of the
types of bonds discussed below. The following paragraphs briefly discuss
certain circumstances which may adversely affect the ability of issuers of
Bonds held in the portfolio of a Trust to make payment of principal and
interest thereon, and which also therefore may adversely affect the ratings
of such Bonds. Because of the insurance obtained by the Sponsor or by the
issuers of the Bonds, such changes should not adversely affect a Trust's
receipt of principal and interest, the Standard & Poor's AAA or Moody's Aaa
ratings of the Bonds in the Trust portfolio, or the Standard & Poor's AAA
rating of the Units of each such Trust. The Bonds described below may be
subject to special or extraordinary redemption provisions. For economic
risks specific to the individual Trusts, see Part A of this Prospectus and
the Appendices to the Information Supplement of this Prospectus.
HEALTH FACILITY OBLIGATIONS are obligations of issuers whose revenues are
derived from services provided by hospitals or other health care
facilities, including nursing homes. The ability of such issuers to make
debt service payments on these obligations is dependent on various factors,
including occupancy levels of the facility, demand for services, wages of
employees, overhead expenses, competition from other similar providers,
government regulation, the cost of malpractice insurance, and the degree of
governmental financial assistance, including Medicare and Medicaid.
HOUSING OBLIGATIONS are obligations of issuers whose revenues are primarily
derived from mortgage loans on single family residences or housing projects
for low to moderate income families. Housing obligations are generally
prepayable at any time and therefore their average life will ordinarily be
less than their stated maturities. The ability of such issuers to make
debt service payments on these obligations is dependent on various factors,
including occupancy levels, rental income, mortgage default rates, taxes,
operating expenses, governmental regulations and the appropriation of
subsidies.
INDUSTRIAL REVENUE OBLIGATIONS are industrial revenue bonds ("IRBS"),
including pollution control revenue bonds, which are tax-exempt securities
issued by states, municipalities, public authorities or similar entities to
finance the cost of acquiring, constructing or improving various industrial
projects. Debt service payment on IRBs is dependent upon various factors,
including the creditworthiness of the corporate operator of the project
and, if applicable, corporate guarantor, revenues generated from the
project, expenses associated with the project and regulatory and
environmental restrictions.
ELECTRIC UTILITY OBLIGATIONS are obligations of issuers whose revenues are
primarily derived from the sale of electric energy. The ability of such
issuers to make debt service payments on these obligations is dependent on
various factors, including the rates for electricity, the demand for
electricity, the degree of competition, governmental regulation, overhead
expenses and variable costs, such as fuel.
TRANSPORTATION FACILITY REVENUE OBLIGATIONS are obligations of issuers
which are payable from and secured by revenues derived from the ownership
and operation of airports, public transit systems and ports. The ability
of issuers to make debt service payments on airport obligations is
dependent on the capability of airlines to meet their obligations under use
agreements. Due to increased competition, deregulation, increased fuel
costs and other factors, many airlines may have difficulty meeting their
obligations under these use agreements. Bonds that are secured primarily
by the revenue collected by a public transit system typically are
additionally secured by a pledge of sales tax receipts collected at the
state or local level, or of other governmental financial assistance. The
revenue of issuers of transit system obligations will be affected by
variations in utilization, which in turn may, be affected by the degree of
local governmental subsidization, competition from other forms of
transportation, and increased costs. Port authorities derive their
revenues primarily from fees imposed on ships using the facilities which
may fluctuate depending on the local economy and on competition from
competing forms of transportation such as air, rail and trucks. The
revenues of issuers which derive their payments from bridge, road or tunnel
toll revenues could be adversely affected by, increases in fuel costs,
competition from toll-free vehicular bridges and roads and alternative
modes of transportation.
WATER AND/OR SEWERAGE OBLIGATIONS are obligations of issuers whose revenues
are payable from user fees from the sale of water and/or sewerage services.
The problems of such issuers include the ability, to obtain rate increases,
population declines, the limitations on operations and increased costs and
delays attributable to environmental considerations, the difficulties
obtaining new supplies of fresh water, the effect of conservation programs
and in "no-growth" zoning ordinances.
UNIVERSITY AND COLLEGE REVENUE OBLIGATIONS are obligations of issuers whose
revenues are derived mainly from tuition, dormitory revenues, grants and
endowments. General problems faced by such issuers include declines in the
number of "college" age individuals, possible inability to raise tuitions
and fees, the uncertainty of continued receipt of Federal grants and state
funding, and government legislation or regulations which may adversely
affect the revenues or costs of such issuers.
DEDICATED-TAX SUPPORTED OBLIGATIONS are obligations of issuers which are
payable from and secured by tax revenues from a designated source, which
revenues are pledged to secure the bonds. The various types of Bonds
described below differ in structure and with respect to the rights of the
bondholders to the underlying property. Each type of dedicated-tax
supported Bond has distinct risks, only some of which are set forth below.
One type of dedicated-tax supported Bond is secured by the incremental tax
received on either real property or on sales within a specifically defined
geographical area; such tax generally will not provide bondholders with a
lien on the underlying property or revenues. Another type of dedicated-tax
supported Bond is secured by a special tax levied on real property within a
defined geographical area in such a manner that the tax is levied on those
who benefit from the project; such bonds typically provide for a statutory
lien on the underlying property for unpaid taxes. A third type of
dedicated-tax supported Bond may be secured by a tax levied upon the
manufacture, sale or consumption of commodities or upon the license to
pursue certain occupations or upon corporate privileges within a taxing
jurisdiction. As to any of these types of Bonds, the ability of the
designated revenues to satisfy the interest and principal payments on such
bonds may be affected by changes in the local economy, the financial
success of the enterprise responsible for the payment of the taxes, the
value of any property on which taxes may be assessed and the ability to
collect such taxes in a timely fashion. Each of these factors will have a
different affect on each distinct type of dedicated-tax supported bonds.
MUNICIPAL LEASE OBLIGATIONS are obligations that are secured by lease
payments of a governmental entity and are normally subject to annual budget
appropriations of the leasing governmental entity. A governmental entity
that enters into such a lease agreement cannot obligate future governments
to appropriate for and make lease payments but covenants to take such
action as is necessary to include any lease payments due in its budgets and
to make the appropriations therefor. A governmental entity's failure to
appropriate for and to make payments under its lease obligation could
result in insufficient funds available for payment of the obligations
secured thereby.
ORIGINAL ISSUE DISCOUNT OBLIGATIONS AND STRIPPED OBLIGATIONS are bonds
which were issued with nominal interest rates less than the rates then
offered by comparable securities and as a consequence were originally sold
at a discount from their face, or par, values. In a stable interest rate
environment, the market value of an original issue discount bond would tend
to increase more slowly in early years and in greater increments as the
bond approached maturity.
Certain of the original issue discount obligations in a Trust may be zero
coupon bonds. Zero coupon bonds do not provide for the payment of any
current interest; the buyer receives only the right to receive a final
payment of the face amount of the bond at its maturity. Zero coupon bonds
are subject to substantially greater price fluctuations during periods of
changing market interest rates than are securities of comparable quality
that pay interest currently.
Original issue discount obligations, including zero coupon bonds, may be
subject to redemption at prices based on the issue price plus the amount of
original issue discount accreted to redemption (the "ACCRETED VALUE") plus,
if applicable, some premium. Pursuant to such call provisions, an original
issue discount bond may be called prior to its maturity date at a price
less than its face value. See the "Portfolio" appearing in Part A of this
Prospectus for more information about the call provisions of portfolio
Bonds.
Certain of the Bonds in a Trust may be stripped obligations, which
represent evidences of ownership with respect to either the principal
amount of or a payment of interest on a tax-exempt obligation ("STRIPPED
OBLIGATIONS"). Each Stripped Obligation has been purchased at a discount
from the amount payable at maturity. A Stripped Obligation therefore has
economic characteristics similar to zero coupon bonds, as described above.
Unitholders should consult their own tax advisers with respect to the state
and local tax consequences of owning original issue discount bonds or
Stripped Obligations. Under applicable provisions governing determination
of state and local taxes, interest on original issue discount obligations
or Stripped Obligations may be deemed to be received in the year of accrual
even though there is no corresponding cash payment.
Certain bonds may carry a "MANDATORY PUT" (also referred to as a "MANDATORY
TENDER" or "MANDATORY REPURCHASE") feature pursuant to which the holder of
such bonds will receive payment of the full principal amount thereof on a
stated date prior to the maturity date unless such holder affirmatively
acts to retain the bond. The Trustee does not have the authority to act to
retain Bonds with such features; accordingly, it will receive payment of
the full principal amount of any such Bonds on the stated put date and such
date is therefore treated as the maturity date of such Bonds in selecting
Bonds for the respective Trusts and for purposes of calculating the average
maturity of the Bonds in any Trust.
Composition of Trusts
Each Trust initially consists of delivery statements relating to contracts
to purchase Bonds (or of such Bonds) as are listed under "Portfolio" in
Part A of this Prospectus and, thereafter, of such Bonds as may continue to
be held from time to time (including certain securities deposited in a
Trust in substitution for Bonds not delivered to a Trust or in exchange or
substitution for Bonds upon certain refundings), together with accrued and
undistributed interest thereon and undistributed cash realized from the
disposition of Bonds. Because certain of the Bonds in certain 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 any way for any default, failure or defect in any Bonds. In the
event of a failure to deliver any Bond that has been purchased for a Trust
under a contract, including those securities purchased on a "when, as and
if issued" basis ("FAILED BONDS"), the Sponsor is authorized under the
Trust Agreement to direct the Trustee to acquire other securities
("REPLACEMENT BONDS") to make up the original corpus of such Trust.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The contracts to
purchase Bonds delivered to the Trustee represent an obligation by issuers
or dealers to deliver Bonds to the Sponsor for deposit in the Trusts.
Certain of the contracts relate to Bonds which have not been issued as of
the Date of Deposit and which are commonly referred to as "WHEN ISSUED" or
"WHEN, AS AND IF ISSUED" Bonds. Although the Sponsor believes it unlikely,
if such Bonds, or replacement bonds described below, are not acquired by a
Trust or if their delivery is delayed, the Estimated Current Returns and
Estimated Long Term Returns shown in Part A of this Prospectus may be
reduced. Certain of the contracts for the purchase of Bonds provide for
delivery dates after the date of settlement for purchases made on the Date
of Deposit. Interest on such "WHEN ISSUED" and "DELAYED DELIVERY" Bonds
accrues to the benefit of Unitholders commencing with the first settlement
date for the Units. However, in the opinion of counsel, Unitholders who
purchase their Units prior to the date such Bonds are actually delivered to
the Trustee must reduce the tax basis of their Units for interest accruing
on such Bonds during the interval between their purchase of Units and the
delivery of the Bonds because such amounts constitute a return of
principal. As a result of such adjustment, the Estimated Current Returns
set forth in Part A of this Prospectus (which are based on the Public
Offering Price as of the business day prior to the Date of Deposit) may be
slightly lower than Unitholders will receive after the first year, assuming
the Portfolio does not change and estimated annual expense does not vary
from that set forth under "Essential Information" in Part A of this
Prospectus. Those Bonds in each Trust purchased with delivery dates after
the date of settlement for purchases made on the Date of Deposit are so
noted in the "Portfolio" in Part A of this Prospectus.
LIMITED REPLACEMENT OF CERTAIN BONDS. Neither the Sponsor nor the Trustee
shall be liable in any way for any default, failure or defect in any Bond.
In the event of a failure to deliver any Bond that has been purchased for a
Trust under a contract, including those Bonds purchased on and when, as and
if issued basis ("FAILED BONDS"), the Sponsor is authorized under the
Indenture to direct the Trustee to acquire other specified Bonds
("REPLACEMENT BONDS") to make up the original corpus of a Trust within 20
days after delivery of notice of the failed contract and the cost to such
Trust (exclusive of accrued interest) may not exceed the amount of funds
reserved for the purchase of the Failed Bonds. The Replacement Bonds must
satisfy the criteria previously described for the Trusts and shall be
substantially identical to the Failed Bonds they replace in terms of (i)
the exemption from federal and state taxation; (ii) maturity and; (iii)
cost to such Trust. In addition, Replacement Bonds shall not be "WHEN, AS
AND IF ISSUED" Bonds. Whenever a Replacement Bond has been acquired for a
Trust, the Trustee shall, within five days after the delivery thereof, mail
or deliver a notice of such acquisition to all Unitholders of the Trust
involved. Once the original corpus of a Trust is acquired, the Trustee
will have no power to vary the investment of such Trust.
To the extent Replacement Bonds are not acquired, the Sponsor shall refund
to all Unitholders of the Trust involved the sales charge attributable to
such Failed Bonds not replaced, and the principal and accrued interest
attributable to such Bonds shall be distributed not more than 30 days after
the determination of such failure or at such earlier time as the Trustee in
its sole discretion deems to be in the interest of the Unitholders. Any,
such accrued interest paid to Unitholders will be paid by the Sponsor and,
accordingly, will not be treated as tax-exempt income. In the event Failed
Bonds in a Trust could not be replaced, the Net Annual Interest Income per
Unit for such Trust would be reduced and the Estimated Current Return
thereon might be lowered.
SALE, MATURITY AND REDEMPTION OF BONDS. Certain of the Bonds may from time
to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms. The proceeds from such events will be used to
pay for Units redeemed or distributed to Unitholders and not reinvested;
accordingly, no assurance can be given that a Trust will retain for any
length of time its present size and composition.
All of the Bonds in each Trust are subject to being called or redeemed in
whole or in part prior to their stated maturities pursuant to the optional
redemption provisions described in the "Portfolio" in Part A of this
Prospectus and in most cases pursuant to sinking fund, special or
extraordinary redemption provisions. See the discussion of the various
types of bond issues, above, for information on the call provisions of such
bonds, particularly single family mortgage revenue bonds.
The exercise of redemption or call provisions on the Bonds will (except to
the extent the proceeds of the called Bonds are used to pay for Unit
redemptions) result in the distribution of principal and may result in a
reduction in the amount of subsequent interest distributions; it may also
affect the current return on Units of the Trust involved. The exercise of
redemption or call provisions on the Bonds is more likely to occur in
situations where when the Bonds have an offering side evaluation which
represents a premium over par (as opposed to a discount from par). (In the
case of original issue discount bonds, such redemption is generally to be
made at the issue price plus the amount of original issue discount accreted
to the date of redemption; such price is referred to herein as "ACCRETED
VALUE"). Because Bonds may have been valued at prices above or below par
value or the then current accreted value at the time Units were purchased,
Unitholders may realize gain or loss upon the redemption of portfolio
Bonds. (See "Tax Status" and "Distributions to Unitholders" herein and the
"Portfolio" in Part A of this Prospectus.)
CERTAIN TAX MATTERS, LITIGATION. Certain of the Bonds in a Trust's
portfolio may be subject to continuing requirements such as the actual use
of bond proceeds, manner of operation of the project financed from bond
proceeds or rebate of excess earnings on bond proceeds that may affect the
exemption of interest on such Bonds from Federal income taxation. Although
at the time of issuance of each of the Bonds in each Trust an opinion of
bond counsel was rendered as to the exemption of interest on such
obligations from Federal income taxation, and the issuers covenanted to
comply with all requirements necessary to retain the tax-exempt status of
the Bonds, there can be no assurance that the respective issuers or other
obligors on such obligations will fulfill the various continuing
requirements established upon issuance of the Bonds. A failure to comply
with such requirements may cause a determination that interest on such
obligations is subject to Federal income taxation, perhaps even
retroactively from the date of issuance of such Bonds, thereby reducing the
value of the Bonds and subjecting Unitholders to unanticipated tax
liabilities.
To the best knowledge of the Sponsor, there is no litigation pending as of
the Date of Deposit in respect of any Bonds which might reasonably be
expected to have a material adverse effect on any of the Trusts. It is
possible that after the Date of Deposit, litigation may be initiated with
respect to Bonds in any Trust. Any such litigation may affect the validity
of such Bonds or the tax-exempt nature of the interest thereon, but while
the outcome of litigation of such nature can never be entirely predicted,
the opinions of bond counsel to the issuer of each Bond on the date of
issuance state that such Bonds were validly issued and that the interest
thereon is, to the extent indicated, exempt from Federal income tax.
Insurance on the Bonds
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in each Trust has been obtained by the Sponsor or by
the issuers or underwriters of the Bonds from the MBIA Insurance
Corporation (the "INSURER"). Certain of the Bonds in a Trust may be
covered by a policy or policies of insurance obtained by the issuers or
underwriters of the Bonds from other insurers. The claims-paying ability
of the Insurer was rated "AAA Prime Grade" by Standard & Poor's. Moody's
rates all bond issuers insured by the Insurer "Aaa" and short-term loans
"MIG l," both designated to be of the highest quality. The Insurer has
issued a policy or policies of insurance covering each of the Bonds in the
Trusts, each policy to remain in force until the payment in full of such
Bonds and whether or not the Bonds continue to be held by a Trust. By the
terms of each policy the Insurer will unconditionally guarantee to the
holders or owners of the Bonds the payment, when due, required of the
issuer of the Bonds of an amount equal to the principal of and interest on
the Bonds as such payments shall become due but not be paid (except that in
the event of any acceleration of the due date of principal by reason of
mandatory or optional redemption, default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have
been due had there not been an acceleration).
The Insurer 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 the Insurer. The Insurer is a limited liability
corporation rather than a several liability association. The Insurer is
domiciled in the State of New York and licensed to do business in 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. The Insurer has one European
branch in the Republic of France.
As of December 31, 1995 the Insurer had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital
and surplus of $1.3 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of March 31, 1996, the Insurer had admitted
assets of $4.0 billion (unaudited), total liabilities of $2.7 billion
(unaudited), and total capital and surplus of $1.3 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities.
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and
limitations on investments, reports of financial condition, and
requirements regarding reserves for unearned premiums, losses and other
matters. A significant portion of the assets of insurance companies are
required by law to be held in reserve against potential claims on policies
and is not available to general creditors. Although the federal government
does not regulate the business of insurance, federal initiatives including
pension regulation, controls on medical care costs, minimum standards for
no-fault automobile insurance, national health insurance, tax law changes
affecting life insurance companies and repeal of the antitrust exemption
for the insurance business can significantly impact the insurance business.
The above ratings are not recommendations to buy, sell or hold the Bonds,
and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of either or both
ratings may have an adverse effect on the market price of the Bonds.
Because the insurance on the Bonds, if any, will be effective so long as
the Bonds are outstanding, such insurance will be taken into account in
determining the market value of the Bonds and therefore some value
attributable to such insurance will be included in the value of the Units
of the Trusts. The insurance does not, however, guarantee the market value
of the Bonds or of the Units.
Public Offering of Units
The Public Offering Price of the Units of each Trust is equal to the
Trustee's determination of the aggregate offering prices of the Bonds
deposited therein (minus any advancement to the principal amount of a Trust
made by the Trustee) plus a sales charge set forth in "Essential
Information" in Part A of this Prospectus, in each case adding to the total
thereof cash held by the Trust, if any, and dividing the sum so obtained by
the number of Units outstanding in the Trust. See "Unit Value and
Evaluation."
The sales charge applicable to quantity purchases is reduced on a graduated
scale for sales to any purchaser of at least $100,000 or 10,000 Units and
will be applied on whichever basis is more favorable to the investor.
Sales charges during the primary offering period are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Percent Percent
of of Net
Dollar Amount of Transaction/ Offering Amount
Number of Units Price Invested
Less than $100,000/10,000 Units
$100,000/10,000 Units but less than $250,000/25,000 Units
$250,000/25,000 Units but less than $500,000/50,000 Units
$500,000/50,000 Units but less than $1,000,000/100,000 Units
$1,000,000/100,000 Units or more
</TABLE>
For "secondary market" sales the Public Offering Price per Unit of each
Trust is determined by adding to the Trustee's determination of the BID
price of each Bond in a Trust a sales charge determined in accordance with
the table set forth below based upon the number of years remaining to the
maturity of each such Bond. See "Unit Value and Evaluation." The effect
of this method of sales charge calculation will be that different sales
charge rates will be applied to the various Bonds in a Trust portfolio
based upon the maturities of such Bonds. As shown, the sales charge on
Bonds in each maturity range (and therefore the aggregate sales charge on
the purchase) is reduced with respect to purchases of at least $100,000:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Amount of Purchase
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
$100,000 $250,000 $500,000
Under to to to $1,000,000
Years to Maturity $100,000 $249,999 $499,999 $999,999 or More
Less than 1
1 but less than 2
2 but less than 3
3 but less than 4
4 but less than 5
5 but less than 7
7 but less than 10
10 but less than 13
13 but less than 16
16 or more
</TABLE>
The secondary market sales charges above are expressed as a percent of the
net amount invested; expressed as a percent of the Public Offering Price,
the maximum sales charge on a Trust, for instance one consisting entirely
of Bonds with 16 years or more to maturity, would be ____% (____% of the
net amount invested). The actual secondary market sales charge included in
the Public Offering Price of any particular Trust will depend on the
maturities of the Bonds in the portfolio of such Trust.
At all times while Units are being offered for sale, the Sponsor will
appraise or cause to be appraised daily the value of the underlying Bonds
in each Trust as of 4:00 p.m. eastern time on each day on which the New
York Stock Exchange (the "EXCHANGE") is normally open or as of any earlier
closing time on a day on which the Exchange is scheduled in advance to
close at such earlier time and will adjust the Public Offering Price of the
Units commensurate with such appraisal. Such Public Offering Price will be
effective for all orders received by a dealer or the Sponsor at or prior to
4:00 p.m. eastern time on each such day or as of any earlier closing time
on a day on which the Exchange is scheduled in advance to close at such
earlier time. Orders received after that time, or on a day when the
Exchange is closed for a scheduled holiday or weekend, will be held until
the next determination of price.
Accrued interest from the preceding Record Date to, but not including, the
settlement date of the transaction (three business days after purchase)
will be added to the Public Offering Price to determine the purchase price
of Units. See "Accrued Interest."
The reduced sales charges resulting from quantity discounts as shown on the
table 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
primary market or during the secondary market at the Public Offering Price
less the concession the Sponsor typically would allow such broker-dealer.
See "Public Distribution of Units." In addition, investors who purchase
Units of a Trust for deposit in a Fidelity sponsored 401K or other
retirement plan may purchase such Units less the concession the Sponsor
would typically allow a broker-dealer.
Had Units of a Trust been available for sale at the opening of business on
the Initial Date of Deposit, the Public Offering Price would have been as
shown under "Essential Information" in Part A of this Prospectus. The
Public Offering Price per Unit of a Trust on the date of this Prospectus or
on any subsequent date will vary from the amount stated under "Essential
Information" in Part A of this Prospectus in accordance with fluctuations
in the prices of the underlying Bonds and the amount of accrued interest on
the Units. The aggregate bid and offering side evaluations of the Bonds
shall be determined (i) on the basis of current bid or offering prices of
the Bonds, (ii) if bid or offering prices are not available for any
particular Bond, on the basis of current bid or offering prices for
comparable bonds, (iii) by determining the value of Bonds on the bid or
offer side of the market by appraisal, or (iv) by any combination of the
above.
The initial or primary Public Offering Price of the Units in each Trust is
based upon a pro rata share of the OFFERING prices per Unit of the Bonds in
such Trust plus the applicable sales charge. The secondary market Public
Offering Price of each Trust is based upon a pro rata share of the BID
prices per Unit of the Bonds in such Trust plus the applicable sales
charge. The OFFERING prices of Bonds in a Trust may be expected to average
between 1/2% to 2% more than the BID prices of such Bonds. The difference
between the bid side evaluation and the offering side evaluation of the
Bonds in each Trust on the business day prior to the Date of Deposit is
shown in the discussion of each Trust portfolio.
The foregoing evaluations and computations shall be made as of the
evaluation time stated under "Essential Information" in Part A of this
Prospectus, on each business day commencing with the Initial Date of
Deposit of the Bonds, effective for all sales made during the preceding
24-hour period.
Whether or not Units are being offered for sale, the Sponsor will determine
the aggregate value of each Trust as of 4:00 p.m. eastern time: (i) on each
June 30 or December 31 (or, if such date is not a business day, the last
business day prior thereto), (ii) on any day on which a Unit is tendered
for redemption (or the next succeeding business day if the date of tender
is a non-business day) and (iii) at such other times as may be necessary.
For this purpose, a "business day" shall be any day on which the Exchange
is normally open. (See "Unit Value and Evaluation.")
The prices at which the Bonds deposited in the Trusts would have been
offered to the public on the business day prior to the Date of Deposit were
determined by the Trustee on the basis of an evaluation of such Bonds
prepared by Muller Data Corporation, a firm regularly engaged in the
business of evaluating, quoting or appraising comparable bonds. Muller
Data Corporation evaluated the Bonds as so insured. (See "Insurance on the
Bonds.")
The amount by which the Trustee's determination of the OFFERING PRICES of
the Bonds deposited in the Trusts was greater or less than the cost of such
Bonds to the Sponsor was PROFIT OR LOSS to the Sponsor exclusive of any
underwriting profit. (See Part A of this Prospectus.) The Sponsor also may
realize FURTHER PROFIT OR SUSTAIN FURTHER LOSS as a result of fluctuations
in the Public Offering Price of the Units.
The Interest on the Bonds 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 A of this Prospectus. The
amount of net interest income which accrues per Unit may change as Bonds
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 (the date of settlement), payments may be made prior thereto.
A person will become the owner of Units 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, or prior to the
acquisition of all Portfolio Securities by a Trust, may be used in the
Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934.
Market for Units
During the initial public offering period, the Sponsor intends to offer to
purchase Units of each Trust at a price equivalent to the pro rata share
per Unit of the OFFERING prices of the Bonds in such Trust (plus accrued
interest). Afterward, although it is not obligated to do so, the Sponsor
intends to maintain a secondary market for Units of each Trust at its own
expense and continuously to offer to purchase Units of each Trust at
prices, subject to change at any time, which are based upon the BID prices
of Bonds in the respective portfolios of the Trusts. Unitholders who wish
to dispose of their Units should inquire of the Trustee or their broker as
to the current Redemption Price. (See "Redemption.").
Certificates, if any, for Units are delivered to the purchaser as promptly
after the date of settlement (three business days after purchase) as the
Trustee can complete the mechanics of registration, normally within 48
hours after registration instructions are received. Purchasers of Units to
whom Certificates are issued will be unable to exercise any right of
redemption until they have received their Certificates as tender of the
Certificate, properly endorsed for transfer. (See "Redemption.")
Accrued Interest
Accrued interest is the accumulation of unpaid interest on a bond from the
last day on which interest thereon was paid. Interest on Bonds in each
Trust is accounted for daily on an accrual basis. For this reason, the
purchase price of Units of a Trust will include not only the Public
Offering Price but also the proportionate share of accrued interest to the
date of settlement. Accrued interest does not include accrual of original
issue discount on zero coupon bonds, Stripped Obligations or other original
issue discount bonds. Interest accrues to the benefit of Unitholders
commencing with the settlement date of their purchase transaction.
In an effort to reduce the amount of accrued interest that investors would
have to pay in addition to the Public Offering Price, the Trustee has
agreed to advance to each Trust the amount of accrued interest due on the
Bonds as of the Date of Deposit (which has been designated the first Record
Date for all plans of distribution). This accrued interest will be paid to
the Sponsor as the holder of record of all Units on the Date of Deposit.
Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only accrued interest from the Date of
Deposit to, but not including, the date of settlement of the investor's
purchase (three business days after purchase), less any distributions from
the related Interest Account. The Trustee will recover its advancements
(without interest or other cost to the Trusts) from interest received on
the Bonds deposited in each Trust.
The Trustee has no cash for distribution to Unitholders until it receives
interest payments on the Bonds in the Trusts. Since municipal bond
interest is accrued daily but paid only semi-annually, during the initial
months of the Trusts, the Interest Accounts, consisting of accrued but
uncollected interest and collected interest (cash), will be predominantly
the uncollected accrued interest that is not available for distribution.
However, due to advances by the Trustee, the Trustee will provide a first
distribution between approximately 30 and 60 days after the Date of
Deposit. Assuming each Trust retains its original size and composition and
expenses and fees remain the same, annual interest collected and
distributed will approximate the estimated Net Annual Interest Income set
forth in Part A of this Prospectus. However, the amount of accrued
interest at any point in time will be greater than the amount that the
Trustee will have actually received and distributed to the Unitholders.
Therefore, there will always remain an item of accrued interest that is
included in the Purchase Price and the redemption price of the Units.
Interest is accounted for daily and a proportionate share of accrued and
undistributed interest computed from the preceding Record Date is added to
the daily valuation of each Unit of each Trust. (See Part A of this
Prospectus and "Distributions to Unitholders.") As Bonds mature, or are
redeemed or sold, the accrued interest applicable to such bonds is
collected and subsequently distributed to Unitholders. Unitholders who
sell or redeem all or a portion of their Units will be paid their
proportionate share of the remaining accrued interest to, but not
including, the third business day following the date of sale or tender.
Public Distribution of Units
It is the intention of the Sponsor to qualify Units of National Trusts for
sale under the laws of substantially all of the states of the United States
of America, and Units of State Trusts only in the state for which the Trust
is named and selected other states.
To facilitate the handling of transactions, sales of Units shall be limited
to initial transactions involving a minimum of $5,000. The Sponsor
reserves the right to reject, in whole or in part, any order for the
purchase of Units.
The Sponsor plans to allow a discount to brokers and dealers in connection
with the primary distribution of Units and also in secondary market
transactions. The primary market discounts are as follows:
Dollar Amount of Discount
Transaction Per Unit
Less than $100,000
$100,000 but less than $250,000
$250,000 but less than $500,000
$500,000 but less than $1,000,000
$1,000,000 or more
The Sponsor currently intends to maintain a secondary market for Units of
each Trust. See "Market for Units." The amount of the dealer concession
on secondary market purchases of Trust Units through the Sponsor will be
computed based upon the value of the Bonds in the Trust portfolio,
including the sales charge computed as described in "Public Offering of
Units," and adjusted to reflect the cash position of a Trust's principal
account, and will vary with the size of the purchase as shown in the
following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of Purchase
</TABLE>
$100,000 $250,000 $500,000
Under to to to $1,000,000
Years to Maturity $100,000 $249,999 $499,999 $999,999 or More
Less than 1
1 but less than 2
2 but less than 3
3 but less than 4
4 but less than 5
5 but less than 7
7 but less than 10
10 but less than 13
13 but less than 16
16 or more
The Sponsor reserves the right to change the foregoing dealer concessions
from time to time.
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 these
customers is retained by or remitted to the banks in the amounts shown in
the above table. The Glass-Steagall Act prohibits banks from underwriting
Trust Units; the Act does, however, permit certain agency transactions and
banking regulators have not indicated that these particular agency
transactions are not permitted under the Act. In Texas and in certain
other states, any bank making Units available must be registered as a
broker-dealer under state law.
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 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 contests 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 Units or the amount that a Trust will receive
from the Units sold.
PROFITS OF SPONSOR. In addition to receiving the difference between the
gross sales charge of Units of a Trust and the applicable dealer
concessions, the Sponsor may also realize a profit or a loss resulting from
the difference between the purchase prices of the Bonds to the Sponsor and
the cost of such Bonds to a Trust, which is based on the offering side
evaluation of the Bonds. See "Portfolio" in Part A of this Prospectus.
The Sponsor may also realize profits or losses with respect to Bonds
deposited in a Trust which were acquired from underwriting syndicates of
which the Sponsor was a member. An underwriter or underwriting syndicate
purchases securities from the issuer on a negotiated or competitive bid
basis, as principal, with the motive of marketing such Bonds to investors
at a profit. The Sponsor may realize additional profits or losses during
the initial offering period on unsold Units as a result of changes in the
daily evaluation of the Bonds in a Trust.
Estimated Long Term Return and Estimated Current Return
The Estimated Long Term Return for each Trust is a measure of the return to
the investor expected to be earned over the estimated life of the Trust.
The Estimated Long Term Return represents an average of the yields to
maturity (or call) of the Bonds in a Trust's portfolio calculated in
accordance with accepted bond practice and adjusted to reflect expenses and
sales charges. Under accepted bond practice, tax-exempt bonds are
customarily offered to investors on a "yield price" basis, which involves
computation of yield to maturity or to an earlier call date (whichever
produces the lower yield), and which takes into account not only the
interest payable on the bonds but also the amortization or accretion of any
premium over, or discount from, the par (maturity) value inherent in the
bond's purchase price. In the calculation of Estimated Long Term Return,
the average yield for a Trust's portfolio is derived by weighting each
Bond's yield by the market value of the Bond and by the amount of time
remaining to the date to which the Bond is priced. This weighted average
yield is then adjusted to reflect estimated expenses, is compounded, and is
reduced by a factor which represents the amortization of the sales charge
over the expected average life of a Trust. The Estimated Long Term Return
calculation does not take into account the effect of a first distribution
which may be less than a regular distribution or may be paid at some point
after 30 days (or a second distribution which may be less than a normal
distribution for Unitholders who choose the semi-annual plan of
distribution), and it also does not take into account the difference in
timing of payments to Unitholders who choose the semi-annual plan of
distribution, which will reduce the return.
Estimated Current Return is computed by dividing the Net Annual Interest
Income per Unit by the Public Offering Price. In contrast to Estimated
Long Term Return, Estimated Current Return does not reflect the
amortization of premium or accretion of discount, if any, on the Bonds in a
Trust's portfolio. Net Annual Interest Income per Unit is calculated by
dividing the annual interest income to a Trust, less estimated expenses, by
the number of Units outstanding.
Net Annual Interest Income per Unit, used to calculate Estimated Current
Return, will vary with changes in fees and expenses of the Trustee and the
Evaluator and with the redemption, maturity, exchange or sale of Bonds. A
Unitholder's actual return may vary significantly from the Estimated
Long-Term Return, based on their holding period, market interest rate
changes, other factors affecting the prices of individual bonds in the
portfolio, and differences between the expected remaining life of portfolio
bonds and the actual length of time that they remain in a Trust; such
actual holding periods may be reduced by termination of a Trust, as
described in "Other Information." Since both the Estimated Current Return
and the Estimated Long Term Return quoted herein are based on the market
value of the underlying Bonds on the business day prior to the Date of
Deposit, subsequent calculations of these performance measures will reflect
the then current market value of the underlying Bonds and may be higher or
lower. The Sponsor will provide estimated cash flow information relating
to a Trust without charge to each potential investor who receives this
prospectus and makes an oral or written request to the Sponsor for such
information.
A portion of the monies received by a Trust may be treated, in the first
year only, as a return of principal due to the inclusion in a Trust's
portfolio of "when-issued" or other Bonds having delivery dates after the
date of settlement for purchases made on the Date of Deposit. A
consequence of this treatment is that in the computation of Estimated
Current Return for the first year, such monies are excluded from Net Annual
Interest Income and treated as an adjustment to the Public Offering Price.
(See "Essential Information" appearing in Part A of this Prospectus,
"Composition of Trusts" and "Tax Status.")
A comparison of tax-free and equivalent taxable estimated current returns
with the returns on various taxable investments is one element to consider
in making an investment decision. The Sponsor may from time to time in its
advertising and sales materials compare the then current estimated returns
on a Trust and returns over specified periods on other similar Trusts with
returns on taxable investments such as corporate or U.S. Government bonds,
bank CD's and money market accounts or money market funds, each of which
has investment characteristics that may differ from those of a Trust. U.S.
Government bonds, for example, are backed by the full faith and credit of
the U.S. Government and bank CD's and money market accounts are insured by
an agency of the federal government. Money market accounts and money
market funds provide stability of principal, but pay interest at rates that
vary with the condition of the short-term debt market. The investment
characteristics of the Trusts are described more fully elsewhere in the
Prospectus.
Tax Status
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exemption of interest thereon from Federal
income tax were rendered by bond counsel to the respective issuing
authorities. In addition, with respect to State Trusts, where applicable,
bond counsel to the issuing authorities rendered opinions as to the
exemption of interest on such Bonds, when held by residents of the state in
which the issuers of such Bonds are located, from state income taxes and
certain state or local intangibles and local income taxes. For a
discussion of the tax status of State Trusts see Part A of this Prospectus.
Neither the Sponsor nor its counsel have made any special review for the
Trusts of the proceedings relating to the issuance of the Bonds or of the
basis for the opinions rendered in connection therewith. If the interest
on a Bond should be determined to be taxable, the Bond would generally have
to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date of which
interest is determined to be taxable.
Federally tax-exempt income, including income on Units of the Trusts, will
be taken into consideration in computing the portion, if any, of social
security benefits received that will be included in a taxpayer's gross
income subject to the Federal income tax.
Gain realized on the sale or redemption of the Bonds by the Trustee or of a
Unit by a Unitholder is includable in gross income for Federal income tax
purposes, and may be includable in gross income for state tax purposes.
(Such gain does not include any amounts received in respect of tax-exempt
accrued interest or accrued original issue discount, if any.) A portion of
a Unitholder's gain, to the extent of accreted market discount, may be
treated as ordinary income rather than capital gain if the Bonds were
purchased by a Trust at a market discount or if the Unitholder purchased
his or her Units at a market discount on or after April 30, 1993. Market
discount can arise based on the price a Trust pays for the Bonds or the
price a Unitholder pays for his or her Units. Market discount that
accretes while a Trust holds a Bond would be recognized as ordinary income
by the Unitholders when principal payments are received on the Bond, upon
sale or at redemption (including early redemption), or upon the sale or
redemption of his or her Units, unless a Unitholder elects to include
market discount in taxable income as it accrues. The market discount rules
are complex and Unitholders should consult their tax advisors regarding
these rules and their application.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under
existing law:
(1) The Trusts are not associations taxable as corporations for Federal
income tax purposes. Tax-exempt interest received by each Trust on Bonds
deposited therein will retain its status as tax-exempt interest, for
Federal income tax purposes, when received by a Trust and when distributed
to the Unitholders, except that the alternative minimum tax and
environmental tax (the "SUPERFUND TAX") applicable to corporate Unitholders
may, in certain circumstances, include in the amount on which such taxes
are calculated a portion of the interest income received by a Trust. See
"Certain Tax Matters Applicable to Corporate Unitholders," below;
(2) Each Unitholder of a Trust is considered to be the owner of a pro rata
portion of such Trust under Subpart E, subchapter J of Chapter 1 of the
Internal Revenue Code of 1986 (the "CODE") and will have a taxable event
when a Trust disposes of a Bond or when the Unitholder redeems or sells
Units. Unitholders must reduce the tax basis of their Units for their
share of accrued interest received by a Trust, if any, on Bonds delivered
after the date the Unitholders pay for their Units 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 Bonds (whether by sale, payment at maturity, redemption or otherwise),
gain or loss is recognized to the Unitholder. The amount of any such gain
or loss is measured by comparing the Unitholder's pro rata share of the
total proceeds from such disposition with the Unitholder's basis for his or
her fractional interest in the asset disposed of. In the case of a
Unitholder who purchases Units, such basis (before adjustment for earned
original issue discount and amortized bond premium, if any) is determined
by apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the date of acquisition of the Units. The
tax cost reduction requirements of said Code relating to amortization of
bond premium may, under some circumstances, result in the Unitholder
realizing a taxable gain when his or her Units are sold or redeemed for an
amount equal to their original cost; and
(3) Any amounts paid on defaulted Bonds held by the Trustee under policies
of insurance issued with respect to such Bonds will be excludable from
Federal gross income if, and to the same extent as, such interest would
have been so excludable if paid by the respective issuer, PROVIDED that, at
the time such policies are purchased, the amounts paid for such policies
are reasonable, customary and consistent with the reasonable expectation
that the issuer of the bonds, rather than the insurer, will pay debt
service on the bonds. Paragraph (2) of this opinion is accordingly
applicable to policy proceeds representing maturing interest.
In the opinion of Carter, Ledyard & Milburn, counsel to the Trustee, and,
in the absence of a New York Trust from the Series, special counsel for the
Series for New York tax matters, under existing law:
Under the income tax laws of the State and City of New York, each Trust is
not an association taxable as a corporation and the income of each Trust
will be treated as the income of the Unitholders.
For a summary of each opinion of special counsel to the respective State
Trusts for state tax matters, see Part A of this Prospectus.
ALL STATEMENTS IN THE PROSPECTUS CONCERNING EXEMPTION FROM FEDERAL, STATE
OR OTHER TAXES ARE THE OPINION OF COUNSEL AND ARE TO BE SO CONSTRUED.
The Internal Revenue Code provides that interest on indebtedness incurred
or continued to purchase or carry obligations, the interest on which is
wholly exempt from Federal income taxes, is not deductible. Because each
Unitholder is treated for Federal income tax purposes as the owner of a pro
rata share of the Bonds owned by the applicable Trust, interest on borrowed
funds used to purchase or carry Units of such Trust will not be deductible
for Federal income tax purposes. Under rules used by the Internal Revenue
Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units
may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Units
(however, these rules generally do not apply to interest paid on
indebtedness incurred to purchase or improve a personal residence).
Similar rules are generally applicable for state tax purposes. Special
rules apply in the case of certain financial institutions that acquire
Units. Investors with questions regarding these issues should consult with
their tax advisers.
For purposes of computing the alternative minimum tax for individuals and
corporations, interest on certain specified tax-exempt private activity
bonds is included as a preference item. The Trusts do not include any such
bonds.
CERTAIN TAX MATTERS APPLICABLE TO CORPORATE UNITHOLDERS. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax
depend upon the corporation's alternative minimum taxable income ("AMTI"),
which is the corporation's taxable income with certain adjustments. One of
the adjustment items used in computing AMTI and the Superfund Tax of a
corporation (other than an S corporation, Regulated Investment Company,
Real Estate Investment Trust, or REMIC) is an amount equal to 75% of the
excess of such corporation's "adjusted current earnings" over an amount
equal to its AMTI (before such adjustment item and the alternative tax net
operation loss deduction). Although tax-exempt interest received by each
of the Trusts on Bonds deposited therein will not be included in the gross
income of corporations for Federal income tax purposes, "adjusted current
earnings" includes all tax-exempt interest, including interest on all Bonds
in a Trust and tax-exempt original issue discount.
Corporate Unitholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them resulting under the
Federal tax law, including the corporate alternative minimum tax, the
Superfund Tax and the branch profits tax imposed by Section 884 of the
Code.
EXCEPT AS NOTED ABOVE AND IN PART A OF THIS PROSPECTUS, THE EXEMPTION OF
INTEREST ON STATE AND LOCAL OBLIGATIONS FOR FEDERAL INCOME TAX PURPOSES
DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME OR OTHER TAX LAWS
OF ANY STATE OR CITY. THE LAWS OF THE SEVERAL STATES VARY WITH RESPECT TO
THE TAXATION OF SUCH OBLIGATIONS.
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 A 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 and will
share in profits, if any, related to the deposit of Bonds in the Trusts.
The Trustee receives for its services fees set forth under "Essential
Information" in Part A of this Prospectus. The Trustee fee which is
calculated monthly is based on the largest aggregate principal amount of
Bonds 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 Agreement to make from
time to time certain non-interest bearing advances to the Trusts.
During the first year the Trustee has agreed to lower its fees and absorb
expenses by the amount set forth under "Essential Information" in Part A of
this Prospectus. The Trustee's fee will not be increased in future years
in order to make up this reduction in the Trustee's fee. 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 A of this Prospectus in return for the
Sponsor providing certain bookkeeping and administrative services to its
own customers.
For evaluation of Bonds 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 A of this Prospectus, based upon the
largest aggregate principal amount of Bonds 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) and insurance costs, but not including any fees and expenses
charged by any agent for custody and safeguarding of Bonds) 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 all Trusts 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.
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 the 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.
Distributions to Unitholders
Interest received by the Trustee on the Bonds in each Trust, including that
part of the proceeds of any disposition of Bonds which represents accrued
interest and including any insurance proceeds representing interest due on
defaulted Bonds, shall be credited to the "Interest Account" of such Trust
and all other moneys received by the Trustee shall be credited to the
"Principal Account" of such Trust.
The pro rata share of cash in the Principal Account in each Trust will be
computed as of each semi-annual Record Date and distributions to the
Unitholders as of such Record Date will be made on or shortly after the
fifteenth day of the month. Proceeds received from the disposition,
including sale, call or maturity, of any of the Bonds and all amounts paid
with respect to zero coupon bonds and Stripped Obligations will be held in
the Principal Account and either used to pay for Units redeemed or
distributed on the Distribution Date following the next semi-annual Record
Date. The Trustee is not required to make a distribution from the
Principal Account of any Trust unless the amount available for distribution
in such account equals at least ten cents per Unit.
The pro rata share of the Interest Account in each Trust will be computed
by the Trustee each month as of each Record Date and distributions will be
made on or shortly after the fifteenth day of the month to Unitholders of
such Trust as of the Record Date who are entitled to distributions at that
time under the plan of distribution chosen. Persons who purchase Units
between a Record Date and a Distribution Date will receive their first
distribution on the Distribution Date following the next Record Date under
the applicable plan of distribution.
Purchasers of Units who desire to receive interest distributions on a
monthly basis may elect to do so at the time of purchase during the initial
public offering period. Those indicating no choice will be deemed to have
chosen the semi-annual distribution plan. All Unitholders, however, who
purchase Units during the initial public offering period and who hold them
of record on the first Record Date will receive the first distribution of
interest. Thereafter, Record Dates for monthly distributions will be the
first day of each month; and Record Dates for semi-annual distributions
will be the first day of May and November. See Part A of this Prospectus
for details of distributions per Unit of each Trust under the various plans
based upon estimated Net Annual Interest Income at the Date of Deposit.
The amount of the regular distributions will generally change when Bonds
are redeemed, mature or are sold or when fees and expenses increase or
decrease. For the purpose of minimizing fluctuations in the distributions
from the Interest Account of a Trust, the Trustee is authorized to advance
such amounts as may be necessary to provide for interest distributions of
approximately equal amounts. The Trustee shall be reimbursed, without
interest, for any such advances from funds in the Interest Account of such
Trust. The Trustee's fee takes into account the costs attributable to the
outlay of capital needed to make such advances.
The plan of distribution selected by a Unitholder will remain in effect
until changed. Unitholders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the
prior owner. Unitholders desiring to change their plan of distribution may
do so by sending a written notice requesting the change, together with any
Certificate(s), to the Trustee. The notice and any Certificate(s) must be
received by the Trustee not later than the semi-annual Record Date to be
effective as of the semi-annual distribution following the subsequent
semi-annual Record Date. Unitholders are requested to make any such
changes within 45 days prior to the applicable Record Date. Certificates
should only be sent by registered or certified mail to minimize the
possibility of their being lost or stolen. (See "Ownership and Transfer of
Units.")
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust or, to the extent funds are not sufficient therein, from
the Principal Account of a Trust, amounts needed for payment of expenses of
such Trust. The Trustee also may withdraw from said accounts such amount,
if any, as it deems necessary to establish a reserve for any governmental
charges payable out of such Trust. Amounts so withdrawn shall not be
considered a part of the Trust's assets until such time as the Trustee
shall return all or any part of such amounts to the appropriate account.
In addition, the Trustee shall withdraw from the Interest Account and the
Principal Account of a Trust such amounts as may be necessary to cover
redemptions of Units of such Trust by the Trustee. Funds which 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 banking procedures.
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. 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
"Distributions to Unitholders."
Reports to Unitholders
The Trustee shall furnish Unitholders of a Trust in connection with each
distribution, a statement of the amount of interest, if any, and the amount
of other receipts (received since the preceding distribution) being
distributed, expressed in each case as a dollar amount representing the pro
rata share of each Unit of a Trust outstanding and a year to date summary
of all distributions paid on said Units. 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 registered Unitholder
of a Trust a statement with respect to such Trust (i) as to the Interest
Account: interest received (including amounts representing interest
received upon any disposition of Bonds), and, except for any State Trust,
the percentage of such interest by states in which the issuers of the Bonds
are located, deductions for fees and expenses of such Trust, redemption of
Units and the balance remaining after such distributions and deductions,
expressed in each case both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last
business day of such calendar year; (ii) as to the Principal Account: the
dates of disposition of any Bonds and the net proceeds received therefrom
(excluding any portion representing accrued interest), the amount paid for
purchase of Replacement Bonds, the amount paid upon redemption of Units,
deductions for payment of applicable taxes and fees and expenses of the
Trustee, and the balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount representing
the pro rata share of each Unit outstanding on the last business day of
such calendar year; (iii) a list of the Bonds held and the number of Units
outstanding on the last business day of such calendar year; (iv) the Unit
Value based upon the last computation thereof made during such calendar
year; and (v) amounts actually distributed during such calendar year from
the Interest Account and from the Principal Account, separately stated,
expressed both as total dollar amounts and as dollar amounts representing
the pro rata share of each Unit outstanding. Each annual statement will
reflect pertinent information in respect of all plans of distribution so
that Unitholders may be informed regarding the results of other plans of
distribution.
Unit Value and Evaluation
The value of each Trust is determined by the Sponsor on the basis of (1)
the cash on hand in a Trust or moneys in the process of being collected,
(2) the value of the Bonds in a Trust based on the BID prices of the Bonds
and (3) interest accrued thereon not subject to collection, LESS (1)
amounts representing taxes or governmental charges payable out of a Trust
and (2) the accrued expenses of a Trust. The result of such computation is
divided by the number of Units of such Trust outstanding as of the date
thereof to determine the per Unit value ("UNIT VALUE") of such Trust. The
Sponsor may determine the value of the Bonds in each Trust (1) on the basis
of current BID prices of the Bonds obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Trust, (2) if bid
prices are not available for any of the Bonds, on the basis of bid prices
for comparable bonds, (3) by causing the value of the Bonds to be
determined by others engaged in the practice of evaluating, quoting or
appraising comparable bonds or (4) by any combination of the above.
Although the Unit Value of each Trust is based on the BID prices of the
Bonds, the Units are sold initially to the public at the Public Offering
Price based on the OFFERING prices of the Bonds.
Because the insurance obtained by the Sponsor or by the issuers of Bonds
with respect to the Bonds in the Trusts is effective so long as such Bonds
are outstanding, such insurance will be taken into account in determining
the bid and offering prices of such Bonds and therefore some value
attributable to such insurance will be included in the value of Units of
Trusts that include such Bonds.
Ownership and Transfer of Units
The ownership of Units is evidenced by book entry positions recorded on the
books and records of the Trustee unless the Unitholder expressly requests
that the purchased Units be evidenced in Certificate form. The Trustee is
authorized to treat as the owner of Units that person who at the time is
registered as such on the books of the Trustee. Any Unitholder who holds a
Certificate may change to book entry ownership by submitting to the Trustee
the Certificate along with a written request that the Units represented by
such Certificate be held in book entry form. Likewise, a Unitholder who
holds Units in book entry form may obtain a Certificate for such Units by
written request to the Trustee. Units may be held in denominations of one
Unit or any multiple or fraction thereof. Fractions of Units are computed
to three decimal places. Any Certificates issued will be numbered serially
for identification, and are issued in fully registered form, transferable
only on the books of the Trustee. Book entry Unitholders will receive a
Book Entry Position Confirmation reflecting their ownership.
For Trusts allowing optional plans of distribution, Certificates for Units
will bear an appropriate notation on their face indicating which plan of
distribution has been selected. When a change is made, the existing
Certificates must be surrendered to the Trustee and new Certificates issued
to reflect the currently effective plan of distribution. There will be no
charge for this service. Holders of book entry Units can change their plan
of distribution by making a written request to the Trustee, which will
issue a new Book Entry Position Confirmation to reflect such change.
Units are transferable by making a written request to the Trustee and, in
the case of Units evidenced by Certificate(s), by presenting and
surrendering such Certificate(s) to the Trustee, at its address listed on
the back cover of this Part B of the Prospectus, properly endorsed or
accompanied by a written instrument or instruments of transfer. The
Certificate(s) should be sent registered or certified mail for the
protection of the Unitholder. Each Unitholder must sign such written
request, and such Certificate(s) or transfer instrument, exactly as his
name appears on (a) the face of the Certificate (s) representing the Units
to be transferred, or (b) the Book Entry Position Confirmation(s) relating
to the Units to be transferred. Such signature(s) must be guaranteed by a
guarantor acceptable to the Trustee. In certain instances the Trustee may
require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority. Mutilated
Certificates must be surrendered to the Trustee in order for a replacement
Certificate to be issued. Although at the date hereof no charge is made
and none is contemplated, a Unitholder may be required to pay $2.00 to the
Trustee for each Certificate reissued or transfer of Units requested and to
pay any governmental charge which may be imposed in connection therewith.
REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATES
To obtain a new Certificate replacing one that has been lost, stolen, or
destroyed, the Unitholder must furnish the Trustee with sufficient
indemnification and pay such expenses as the Trustee may incur. This
indemnification must be in the form of an Open Penalty Bond of
Indemnification. The premium for such an indemnity bond may vary, but
currently amounts to 1% of the market value of the Units represented by the
Certificate. In the case however, of a Trust as to which notice of
termination has been given, the premium currently amounts to 0.5% of the
market value of the Units represented by such Certificate.
Redemption
A Unitholder may redeem all or a portion of his or her Units by tendering
to the Trustee certificates representing the Units to be redeemed, or in
the case of uncertificated Units, delivery of a request for redemption,
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. Certificates should 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.
On the third business day following the date of tender, the Unitholder will
be entitled to receive in cash for each Unit tendered an amount equal to
the Unit Value of such Trust determined by the Trustee, as of 4:00 p.m.
eastern time on the date of tender (or as of any earlier closing time on a
day on which the Exchange is scheduled in advance to close at such earlier
time) as defined hereafter, plus accrued interest to, but not including,
the third business day after the date of tender ("REDEMPTION PRICE"). The
price received upon redemption may be more or less than the amount paid by
the Unitholder depending on the value of the Bonds on the date of tender.
Unitholders should check with the Trustee or their broker to determine the
Redemption Price before tendering Units.
The "date of tender" is deemed to be the date on which the request for
redemption of Units is received in proper form by the Trustee, except that
as regards a redemption request received after 4:00 p.m. eastern time (or
as of any earlier closing time on a day on which the Exchange is scheduled
in advance to close at such earlier time) or on any day on which the New
York Stock Exchange (the "EXCHANGE") is normally closed, the date of tender
is the next day on which such Exchange is normally open for trading and
such request will be deemed to have been made on such day and the
redemption will be effected at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account of the appropriate Trust or, if the balance therein is
insufficient, from the Principal Account of such Trust. All other amounts
paid on redemption shall be withdrawn from the Principal Account. The
Trustee is empowered to sell underlying Bonds of a Trust in order to make
funds available for redemption. (See "Trust Administration.") Units so
redeemed shall be cancelled. To the extent that Bonds are sold from a
Trust, the size and diversity of such Trust will be reduced. Such sales
may be required at a time when Bonds would not otherwise be sold and might
result in lower prices than might otherwise be realized.
The Redemption Price is determined on the basis of the BID prices of the
Bonds in each Trust, while the initial Public Offering Price of Units will
be determined on the basis of the OFFERING prices of the Bonds, as of 4:00
p.m. eastern time on any day on which the Exchange is normally open for
trading (or as of any earlier closing time on a day on which the Exchange
is scheduled in advance to close at such earlier time) and such
determination is made. As of any given time, the difference between the
bid and offering prices of such Bonds may be expected to average 1/2% to 2%
of principal amount. In the case of actively traded Bonds, the difference
may be as little as 1/4 to 1/2 of 1%, and in the case of inactively traded
Bonds such difference usually will not exceed 3%.
The right of redemption may be suspended and payment postponed for any
period during which the Securities and Exchange Commission determines that
trading in the municipal bond market is restricted or an emergency exists,
as a result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit.
Under regulations issued by the Internal Revenue Service, the Trustee will
be required to withhold a specified 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 his or her
tax return. Under normal circumstances the Trustee obtains the
Unitholder's tax identification number from the selling broker at the time
the Certificate or Book Entry Return Confirmation is issued, and this
number is printed on the Certificate or Book Entry Return Confirmation and
on distribution statements. If a Unitholder's tax identification number
does not appear as described above, or if it is incorrect, the Unitholder
should contact the Trustee before redeeming Units to determine what action,
if any, is required to avoid this "back-up withholding."
Purchase of Units by the Sponsor
The Trustee will notify the Sponsor of any tender of Units for redemption.
If the Sponsor's bid in the secondary market at that time equals or exceeds
the Redemption Price it may purchase such Units by notifying the Trustee
before the close of business on the second succeeding business day and by
making payment therefor to the Unitholder not later than the day on which
payment would otherwise have been made by the Trustee. (See "Redemption.")
The Sponsor's current practice is to bid at the Redemption Price in the
secondary market. Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units.
Trust Administration
Bonds will be removed from a Trust as they mature or are redeemed by the
issuers thereof. See Part A of this Prospectus and "Risk Factors" for a
discussion of call provisions of portfolio Bonds.
The Indenture also empowers the Trustee to sell Bonds for the purpose of
redeeming Units tendered by any Unitholder, and for the payment of expenses
for which income may not be available. Under the Indenture, the Sponsor is
obligated to provide the Trustee with a current list of Bonds in each Trust
to be sold in such circumstances. In deciding which Bonds should be sold
the Sponsor intends to consider, among other things, such factors as: (1)
market conditions; (2) market prices of the Bonds; (3) the effect on income
distributions to Unitholders of the sale of various Bonds; (4) the effect
on principal amount of underlying Bonds per Unit of the sale of various
Bonds; (5) the financial condition of the issuers; and (6) the effect of
the sale of various Bonds on the investment character of a Trust. Such
sales, if required, could result in the sale of Bonds by the Trustee at
prices less than original cost to a Trust. To the extent Bonds are sold,
the size and diversity of such Trust will be reduced.
In addition, the Sponsor is empowered to direct the Trustee to liquidate
Bonds upon the happening of certain other events, such as default in the
payment of principal and/or interest, an action of the issuer that will
adversely affect its ability to continue payment of the principal of and
interest on its Bonds, or an adverse change in market, revenue or credit
factors affecting the investment character of the Bonds. If a default in
the payment of the principal of and/or interest on any of the Bonds occurs,
and if the Sponsor fails to instruct the Trustee whether to sell or
continue to hold such Bonds within 30 days after notification by the
Trustee to the Sponsor of such default, the Indenture provides that the
Trustee shall liquidate said Bonds forthwith and shall not be liable for
any loss so incurred. The Sponsor may also direct the Trustee to liquidate
Bonds in a Trust if the Bonds in such Trust are the subject of an advanced
refunding, generally considered to be when refunding bonds are issued and
the proceeds thereof are deposited in irrevocable trust to retire the
refunded Bonds on their redemption date.
Except as stated in "Composition of Trusts" regarding the limited right of
substitution of Replacement Bonds for Failed Bonds, and except for
refunding securities that may be exchanged for Bonds under certain
conditions specified in the Indenture, the Indenture does not permit either
the Sponsor or the Trustee to acquire or deposit bonds either in addition
to, or in substitution for, any of the Bonds initially deposited in a
Trust.
The Trustee
The Trustee and its address are stated on the back cover of this Part B of
the Prospectus. The Trustee is subject to supervision and examination by
the Federal Deposit Insurance Corporation, the Board of Governors of the
Federal Reserve System and either the Comptroller of the Currency or state
banking authorities.
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE
The Sponsor and the Trustee shall be under no liability to Unitholders for
taking any action or for refraining from any action in good faith pursuant
to the Indenture, or for errors in judgment, but shall be liable only for
their own negligence, lack of good faith or willful misconduct. The
Trustee shall not be liable for depreciation or loss incurred by reason of
the sale by the Trustee of any of the Bonds. In the event of the failure
of the Sponsor to act under the Indenture, the Trustee may act thereunder
and shall not be liable for any action taken by it in good faith under the
Indenture.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Bonds or upon the interest thereon or
upon it as Trustee under the Indenture or upon or in respect of any Trust
which the Trustee may be required to pay under any present or future law of
the United States of America or of any other taxing authority having
jurisdiction. In addition, the Indenture contains other customary
provisions limiting the liability of the Trustee.
SUCCESSOR TRUSTEES AND SPONSORS
The Trustee or any successor trustee may resign by executing an instrument
of resignation in writing and filing same with the Sponsor and mailing a
copy of a notice of resignation to all Unitholders then of record. Upon
receiving such notice, the Sponsor is required to promptly appoint a
successor trustee. If the Trustee becomes incapable of acting or is
adjudged a bankrupt or insolvent, or a receiver or other public officer
shall take charge of its property or affairs, the Sponsor may remove the
Trustee and appoint a successor by written instrument. The resignation or
removal of a trustee and the appointment of a successor trustee shall
become effective only when the successor trustee accepts its appointment as
such. Any successor trustee shall be a corporation authorized to exercise
corporate trust powers, having capital, surplus and undivided profits of
not less than $5,000,000. Any corporation into which a trustee may be
merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which a trustee shall be a party, shall
be the successor trustee.
If upon resignation of a trustee no successor 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 Sponsor fails to undertake any of its duties under the Indenture,
and no express provision is made for action by the Trustee in such event,
the Trustee may, in addition to its other powers under the Indenture (1)
appoint a successor sponsor or (2) terminate the Indenture and liquidate
the Trusts.
The Sponsor
National Financial Services Corporation (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 3d 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 3d 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
November 30, 1996, it manages more than $415 billion in assets in over 27
million individual shareholder accounts.
If at any time the Sponsor shall fail to perform any of its duties under
the 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 Agreements and
liquidate the Trusts as provided therein, or (c) continue to act as Trustee
without terminating the Trust Agreements.
The foregoing financial information with regard to the Sponsor relates to
the Sponsor only and not to these 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 out its
contractual obligations with respect to the Trusts. More comprehensive
financial information can be obtained upon request from the Sponsor.
To help advisers and investors better understand and more efficiently use
an investment in the Trusts to reach their investment goals, the Sponsor
may advertise and create specific investment programs and systems. For
example, such activities may include presenting information on how to use
an investment in the Trusts, alone or in combination with an investment in
other mutual funds or unit investment trusts sponsored by NFSC, to
accumulate assets for future education needs or periodic payments such as
insurance premiums. The Trusts' sponsor may produce software or additional
sales literature to promote the advantages of using the Trusts to meet
these and other specific investor needs.
Other Information
AMENDMENT OF INDENTURE
The Indenture may be amended by the Trustee and the Sponsor without the
consent of any of the Unitholders (1) to cure any ambiguity or to correct
or supplement any provision thereof which may be defective or inconsistent,
or (2) to make such other provisions as shall not adversely affect the
Unitholders, PROVIDED, HOWEVER, that the Indenture may not be amended to
increase the number of Units in any Trust or to permit the deposit or
acquisition of bonds either in addition to, or in substitution for any of
the Bonds initially deposited in any Trust except as stated in "Composition
of Trusts" regarding the limited right of substitution of Replacement Bonds
and except for the substitution of refunding bonds under certain
circumstances. The Trustee shall advise the Unitholders of any amendment
promptly after execution thereof.
TERMINATION OF INDENTURE
Each Trust may be liquidated at any time by written consent of 66-2/3% of
the Unitholders or by the Trustee when the value of such Trust, as shown by
any evaluation, is less than 20% of the original principal amount of such
Trust and will be liquidated by the Trustee in the event that Units not yet
sold aggregating more than 60% of the Units originally created are tendered
for redemption by the Sponsor thereby reducing the net worth of such Trust
to less than 40% of the principal amount of the Bonds originally deposited
in the portfolio. (See "Essential Information" appearing in Part A of this
Prospectus.) The sale of Bonds from the Trusts upon termination may result
in realization of a lesser amount than might otherwise be realized if such
sale were not required at such time. For this reason, among others, the
amount realized by a Unitholder upon termination may be less than the
principal amount of Bonds originally represented by the Units held by such
Unitholder. The Indenture will terminate upon the redemption, sale or
other disposition of the last Bond held thereunder, but in no event shall
it continue beyond the end of the calendar year preceding the fiftieth
anniversary of its execution.
Written notice of any termination specifying the time or times at which
Unitholders may surrender their Certificates, if any, for cancellation
shall be given by the Trustee to each Unitholder at the address appearing
on the registration books of a Trust maintained by the Trustee. Within a
reasonable time thereafter, the Trustee shall liquidate any Bonds in a
Trust then held and shall deduct from the assets of such Trust any accrued
costs, expenses or indemnities provided by the Indenture which are
allocable to such Trust, including estimated compensation of the Trustee
and costs of liquidation and any amounts required as a reserve to provide
for payment of any applicable taxes or other governmental charges. The
Trustee shall then distribute to Unitholders of such Trust their pro rata
share of the balance of the Interest and Principal Accounts. With such
distribution the Unitholders shall be furnished a final distribution
statement, in substantially the same form as the annual distribution
statement, of the amount distributable. At such time as the Trustee in its
sole discretion shall determine that any amounts held in reserve are no
longer necessary, it shall make distribution thereof to Unitholders in the
same manner.
LEGAL OPINION
The legality of the Units offered hereby has been passed upon by Chapman
and Cutler, 111 West Monroe Street, Chicago, Illinois 60603. Special
counsel for the Trusts for respective state tax matters are named in "Tax
Status" for each Trust appearing in Part A of this Prospectus. Carter,
Ledyard & Milburn, 2 Wall Street, New York, New York 10005, has acted as
counsel for the Trustee with respect to the Series, and, in the absence of
a New York Trust from the Series, as special New York tax counsel for the
Series.
AUDITORS
The "Statement of Condition" and "Schedule of Investments" at the Date of
Deposit included in Part A of this Prospectus have been audited by Deloitte
& Touche LLP, independent public accountants, as indicated in their report
in Part A of this Prospectus, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
SUPPLEMENTAL INFORMATION
Upon written or telephonic request to the Trustee, investors will receive
at no cost to the investor supplemental information about a Trust, which
has been filed with the Securities and Exchange Commission and is intended
to supplement information contained in Part A and Part B of this
Prospectus. The supplemental information includes more detailed
information concerning certain of the Bonds included in the Trusts
contained in the applicable Series and more specific risk information
concerning the individual State Trusts. This supplement also includes
additional general information about the Sponsor and the Trusts.
APPENDIX A
MASSACHUSETTS DISCLOSURE
Except to the extent the Massachusetts Trust invests in temporary
investments, the Massachusetts Trust will invest substantially all of its
net assets in Massachusetts Municipal Obligations. The Massachusetts Trust
is therefore susceptible to political, economic or regulatory factors
affecting issuers of Massachusetts Municipal Obligations. Without intending
to be complete, the following briefly summarizes the current financial
situation, as well as some of the complex factors affecting the financial
situation, in the Commonwealth of Massachusetts (the "COMMONWEALTH"). It
is derived from sources that are generally available to investors and is
based in part on information obtained from various agencies in
Massachusetts. No independent verification has been made of the accuracy
or completeness of the following information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on Commonwealth or local
governmental finances generally, will not adversely affect the market value
of Massachusetts Obligations in the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
Since 1988, there has been a significant slowdown in the Commonwealth's
economy, as indicated by a rise in unemployment, a slowing of its per
capita income growth and declining state revenues. Since fiscal 1991, the
Commonwealth's revenues for state government programs have exceeded
expenditures; however, no assurance can be given that lower than expected
tax revenues will not resume and continue.
1996 FISCAL YEAR BUDGET. On July 21, 1995, the Governor signed the
Commonwealth's budget for fiscal 1996. The fiscal 1996 budget is based on
estimated budgeted revenues and other sources of approximately $16.778
billion, which includes fiscal 1996 tax revenues of $11.653 billion.
Estimated fiscal 1996 tax revenues are approximately $490 million, or 4.3%
higher than estimated fiscal 1995 tax revenues.
Fiscal 1996 non-tax revenues are projected to total $5.158 billion,
approximately $66 million, or 1.3% less than fiscal 1995 non-tax revenues
of approximately $5.224 billion. Federal reimbursements are projected to
decrease by approximately $1 million from approximately $2.970 billion in
fiscal 1995 to approximately $2.969 billion in fiscal 1996, primarily as a
result of increased reimbursements for Medicare spending, offset by a
reduction in reimbursements received in 1995 for one-time Medicare expenses
incurred in fiscal 1994 and fiscal 1995. Fiscal 1996 departmental revenues
are projected to decline by approximately $94 million, or 7.4%, from
approximately $1.273 billion in fiscal 1995 to approximately $1.179 billion
in fiscal 1996. Major changes in projected non-tax received for fiscal
1996 include a decline in motor vehicle license and registration fees,
reduction of abandoned property revenues and a decrease due to
non-recurring revenues received in fiscal 1995 from hospitals and nursing
homes as part of Medicare fiscal rate settlements and other reimbursements
by municipal hospitals to the state.
Fiscal 1996 appropriations in the Annual Appropriations Act total
approximately $16.847 billion, including approximately $25 million in
gubernatorial vetoes overridden by the legislature. In the final
supplemental budget for fiscal 1995, approved on August 24, 1995, another
$71.1 million of appropriations were continued for use in 1996.
As of February 1, 1996, the Governor had signed into law fiscal 1996
supplemental appropriations totalling approximately $23.5 million,
including approximately $12.6 million to fund higher education collective
bargaining contracts and $5.6 million for the Department of Social
Services. These appropriations were offset by approximately $10.4 million
in line item reductions, including a reduction of $9.8 million for the
state's debt service contract assistance to the MBTA. Both the House and
Senate have passed supplemental appropriation bills totalling $64.8 million
primarily relating to snow and ice removal costs incurred by both the
Commonwealth and cities and towns. The bills are currently awaiting
resolution by a conference committee of the House and Senate. On January
26, 1996 and February 9, 1996, the Governor filed additional supplemental
appropriation bills totalling approximately $7.3 million for costs relating
to prison overcrowding relief as well as reimbursement costs associated
with a court settlement. No action has been taken on these bills by either
branch of the Legislature.
As of May 28, 1996, fiscal 1996 projected spending is approximately $16.963
billion, including approximately $153.2 million reserved for contingencies.
Projected revenues are approximately $16.851 billion. The fiscal 1996 tax
revenue projection is $11.684 billion, which represents an increase of
approximately $80 million from the earlier estimate, based upon tax revenue
collections through April 1996.
The fiscal 1996 budget is based on numerous spending and revenue estimates
the achievement of which cannot be assured.
1995 FISCAL YEAR. Budgeted revenues and other sources, including non-tax
revenues, collected in fiscal 1995 were approximately $16.387 billion,
approximately $837 million, or 5.4% above fiscal 1994 revenues of $15.550
billion. Fiscal 1995 tax revenues collections were approximately $11.163
billion, approximately, $12 million above the Department of Revenue's
revised fiscal year 1995 tax revenue estimate of $10.151 billion and $556
million, or 5.2% above fiscal year tax revenues of $10.607 billion.
Budgeted expenditures and other uses of funds in fiscal 1995 were
approximately $16.251 billion, approximately $728 million, or 4.7% above
fiscal 1994 budgeted expenditures and uses of $15.523 billion.
The Commonwealth ended fiscal 1995 with an operating gain of $137 million
and an ending fund balance of $726 million.
On February 10, 1995, the Governor signed into law certain reforms to the
Commonwealth's program for Aid to Families with Dependent Children ("AFDC")
which will take effect on July 1, 1995, subject to federal approval of
certain waivers. The revised program reduces AFDC benefits to able bodied
recipients by 2.75%, while allowing them to keep a larger portion of their
earned wages, requires approximately 22,000 able-bodied parents of
school-aged children to work or perform community service for 20 hours per
week and requires approximately 16,000 recipients who have children between
the ages of two and six to participate in an education or training program
or perform community service. The plan also establishes a pilot program
for up to 2,000 participants that offers tax credits and wage subsidies to
employers who hire welfare recipients. Parents who find employment will be
provided with extended medical benefits and day care benefits for up to one
year. The plan mandates paternal identification, expands funding for
anti-fraud initiatives, and requires parents on AFDC to immunize their
children. Parents who are disabled, caring for a disabled child, have a
child under the age of two, or are teenagers living at home and attending
high school, will continue to receive cash assistance. Since most
provisions of the new law do not take effect until July 1, 1995, the
Executive Office for Administration projects that the reforms will not
materially affect fiscal 1995 public assistance spending. The fiscal 1995
expenditure estimate of $16.449 billion includes $247.8 million
appropriated to fund the Commonwealth's public assistance programs for the
last four months of fiscal 1995. The Commonwealth is currently evaluating
the new law's impact on fiscal 1996 projected spending for public
assistance programs.
On November 8, 1994, the voters in the statewide general election approved
an initiative petition that would slightly increase the portion of the
gasoline tax revenue credited to the Highway Fund, one of the
Commonwealth's three major budgetary funds, prohibit the transfer of money
from the Highway Fund to other funds for non-highway purposes and not
permit including the Highway Fund balance in the computation "consolidated
net surplus" for purposes of state finance laws. The initiative petition
also provides that no more than 15% of gasoline tax revenues may be used
for mass transportation purposes, such as expenditures related to the
Massachusetts Bay Transit Authority. The Executive Office of
Administration and Finance is analyzing the effect, if any, this initiative
petition, which became law on December 8, 1994, may have on the fiscal 1995
budget and it currently does not expect it to have any materially adverse
impact. This is not a constitutional amendment and is subject to amendment
or repeal by the Legislature, which may also, notwithstanding the terms of
the petition, appropriate moneys from the Highway Fund in such amounts and
for such purposes as it determines, subject only to a constitutional
restriction that such moneys be used for highways or mass transit purposes.
1994 FISCAL YEAR. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year
1994 tax revenue estimate of $10.694 billion and $677 million above fiscal
1993 tax revenues of $9.930 billion. Budgeted revenues and other sources,
including non-tax revenues, collected in fiscal 1994 were approximately
$15.550 billion. Total revenues and other sources increased by
approximately 5.7% from fiscal 1993 to fiscal 1994 while tax revenues
increased by 6.8% for the same period. Budgeted expenditures and other
uses of funds in fiscal 1994 were approximately $15.523 billion, which is
$826.5 million or approximately 5.6% higher than fiscal 1993 budgeted
expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599
million.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base
spending of $1.288 billion of approximately $175 million in fiscal 1994.
The Executive Office for Administration and Finance expects the annual
increases in expenditures above the fiscal 1993 base spending of $1.288
billion to be approximately $396 million in fiscal 1995, $625 million in
fiscal 1996 and $868 million in fiscal 1997. Additional annual increases
are also expected in later fiscal years. The fiscal 1995 budget as signed
by the Governor includes $896 million in appropriations to satisfy this
legislation.
1993 FISCAL YEAR. The Commonwealth's budgeted expenditures and other uses
were approximately $14.696 billion in fiscal 1993, which is approximately
$1.280 billion or 9.6% higher than fiscal 1992 expenditures and other uses.
Final fiscal 1993 budgeted expenditures were $23 million lower than the
initial July 1992 estimates of fiscal 1993 budgeted expenditures. Budgeted
revenues and other sources for fiscal 1993 totalled approximately, $14.710
billion, including tax revenues of $9.930 billion. Total revenues and
other sources increased by approximately 6.9% from fiscal 1992 to fiscal
1993, while tax revenues increased by 4.7% for the same period. Overall,
fiscal 1993 ended with a surplus of revenues and other sources over
expenditures and other uses of $13.1 million and aggregate ending fund
balances in the budgeted operating funds of the Commonwealth of
approximately $562.5 million. After payment in full of the distribution of
local aid to the Commonwealth's cities and towns ("LOCAL AID") and the
retirement of short term debt, the Commonwealth showed a year end cash
position of approximately $622.2 million, as compared to a projected
position of $485.1 million.
1992 FISCAL YEAR. The Commonwealth's budgeted expenditures and other uses
were approximately $13.4 billion in fiscal 1992, which is $238.7 million or
1.7% lower than fiscal 1991 budgeted expenditures. Final fiscal 1992
budgeted expenditures were $300 million more than the initial July 1991
estimates of budgetary expenditures, due in part to increases in certain
human services programs, including an increase of $268.7 million for the
Medicaid program and $50.0 million for mental retardation consent decree
requirements. Budgeted revenues and other sources for fiscal 1992 totalled
approximately $13.7 billion (including tax revenues of approximately $9.5
billion), reflecting an increase of approximately 0.7% from fiscal 1991 to
1992 and an increase of 5.4% in tax revenues for the same period. Overall,
fiscal 1992 is estimated to have ended with an excess of revenues and other
sources over expenditures and other uses of $312.3 million. After payment
in full of Local Aid in the amount of $514.0 million due on June 30, 1992,
retirement of the Commonwealth's outstanding commercial paper (except for
approximately $50 million of bond anticipation notes) and certain other
short term borrowings, as of June 30, 1992, the end of fiscal 1992, the
Commonwealth showed a year-end cash position of approximately $731 million,
as compared with the Commonwealth's cash balance of $182.3 million at the
end of fiscal 1991.
1991 FISCAL YEAR. Budgeted expenditures for fiscal 1991 were approximately
$13.659 billion, as against budgeted revenues and other sources of
approximately $13.634 billion. The Commonwealth suffered an operating loss
of approximately $21.2 million. Application of the adjusted fiscal 1990
fund balances of $258.3 million resulted in a fiscal 1991 budgetary surplus
of $237.1 million. State law requires that approximately $59.2 million of
the fiscal year ending balances of $237.1 million be placed in the
Stabilization Fund, a reserve from which funds can be appropriated (i) to
make up any difference between actual state revenues in any fiscal year in
which actual revenues fall below the allowable amount, (ii) to replace
state and local losses by federal funds or (iii) for any event, as
determined by the legislature, which threatens the health, safety or
welfare of the people or the fiscal stability of the Commonwealth or any of
its political subdivisions.
Upon taking office in January 1991, the new Governor proposed a series of
legislative and administrative actions, including withholding of allotments
under Section 9C of Chapter 29 of the General Laws, intended to eliminate
the projected deficits. The new Governor's review of the Commonwealth's
budget indicated projected spending of approximately $14.1 billion with an
estimated $850 million in budget balancing measures that would be needed
prior to the close of fiscal 1991. At that time, estimated tax revenues
were revised to approximately $8.8 billion, $903 million less than was
estimated at the time the fiscal 1991 budget was adopted. The Legislature
adopted a number of the Governor's recommendations and the Governor took
certain administrative actions not requiring legislative approval,
including the adoption of a state employee furlough program. It is
estimated by the Commonwealth that spending reductions achieved through
savings initiatives and withholding of allotments total approximately
$484.3 million in aggregate for fiscal 1991. However, these savings and
reductions may be impacted negatively by litigation pursued by third
parties concerning the Governor's actions under Section 9C of Chapter 29 of
the General Laws and with regard to the state employee furlough program.
In addition, the new administration in May 1991 filed an amendment to its
Medicaid state plan that enables it to claim 50% federal reimbursement on
uncompensated care payments for certain hospitals in the Commonwealth. As
a result, in fiscal 1991, the Commonwealth obtained additional non-tax
revenues in the form of federal reimbursements equal to approximately $513
million on account of uncompensated care payments. This reimbursement
claim was based upon recent amendments of federal law contained in the
Omnibus Budget Reconciliation Act of 1990 and, consequently, on relatively
undeveloped federal laws, regulations and guidelines. At the request of
the federal Health Care Financing Administration, the Office of Inspector
General of the United States Department of Health and Human Services has
commenced an audit of the reimbursement. The administration, which had
reviewed the matter with the Health Care Financing Administration prior to
claiming the reimbursement, believes that the Commonwealth will prevail in
the audit. If the Commonwealth does not prevail, the Commonwealth would
have the right to contest an appeal, but could be required to pay all or
part of Medicaid reimbursements with interest and to have such amount
deducted from future reimbursement payments.
EMPLOYMENT. Reversing a trend of relatively low unemployment during the
early and mid 1980's, the Massachusetts unemployment rate beginning in 1990
increased significantly to where the Commonwealth's unemployment rate
exceeded the national unemployment rate. During 1990, the Massachusetts
unemployment rate increased from 4.5% in January, to 6.1% in July to 6.7%
in August. During 1991, the Massachusetts unemployment rate averaged 9.0%
while the average United States unemployment rate was 6.7%. The
Massachusetts unemployment rate during 1992 averaged 8.5% while the average
United States unemployment rate was 7.4%. Since 1993, the average monthly
unemployment rate has declined steadily. The Massachusetts unemployment
rate in February 1996 was 5.0%, as compared with the United States
unemployment rate of 5.5% for the same period. Other factors which may
significantly and adversely affect the employment rate in the Commonwealth
include reductions in federal government spending on defense-related
industries. Due to this and other considerations, there can be no
assurance that unemployment in the Commonwealth will not increase in the
future.
DEBT RATINGS. S&P currently rates the Commonwealth's uninsured general
obligation bonds at A+. At the same time, S&P currently rates state and
agency notes at SP1. From 1989 through 1992, the Commonwealth had
experienced a steady decline in its S&P rating, with its decline beginning
in May, 1989, when S&P lowered its rating on the Commonwealth's general
obligation bonds and other Commonwealth obligations from AA+ to AA and
continuing a series of further reductions until March, 1992, when the
rating was affirmed at BBB.
Moody's currently rates the Commonwealth's uninsured general obligation
bonds at Al. From 1989 through 1992, the Commonwealth had experienced a
steady decline in its rating by Moody's since May, 1989. In May, 1989,
Moody's lowered its rating on the Commonwealth's notes from MIG-1 to MIG-2,
and its rating on the Commonwealth's commercial paper from P-1 to P-2. On
June 21, 1989, Moody's reduced the Commonwealth's general obligation rating
from Aa to A. On November 15, 1989, Moody's reduced the rating on the
Commonwealth's general obligations from A to Baa1, and on March 9, 1990,
Moody's reduced the rating of the Commonwealth's general obligation bonds
from Baa1 to Baa.
There can be no assurance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and
municipalities have faced serious financial difficulties which have
affected the credit standing and borrowing abilities of Massachusetts and
its respective entities and may have contributed to higher interest rates
on debt obligations. The continuation of, or an increase in, such
financial difficulties could result in declines in the market values of, or
default on, existing obligations including Massachusetts Obligations in the
Trust. Should there be during the term of the Trust a financial crisis
relating to Massachusetts, its public bodies or municipalities, the market
value and marketability of all outstanding bonds issued by the Commonwealth
and its public authorities or municipalities including the Massachusetts
Obligations in the Trust and interest income to the Trust could be
adversely affected.
TOTAL BOND AND NOTE LIABILITIES. The total general obligation bond
indebtedness of the Commonwealth (including Dedicated Income Tax Debt and
Special Obligation Debt) as of April 1, 1996 was approximately $10.093
billion. There were also outstanding approximately $240 million in general
obligation notes and other short term general obligation debt. The total
bond and note liabilities of the Commonwealth as of April 1, 1996,
including guaranteed bond and contingent liabilities, was approximately
$13.818 billion.
DEBT SERVICE. During the 1980s, capital expenditures were increased
substantially, which has had a short term impact on the cash needs of the
Commonwealth and also accounts for a significant rise in debt service
during that period. In November, 1988, the Executive Office for
Administration and Finance established an administrative limit on
state-financed capital spending in the Capital Projects Fund of $925
million per fiscal year. Capital expenditures were $847.0 million, $694.1
million, $575.9 million, $760.6 million and $902.2 million in fiscal 1991,
fiscal 1992, fiscal 1993, fiscal 1994 and fiscal 1995, respectively.
Commonwealth-financed capital expenditures are projected to be
approximately $898.0 million in fiscal 1996. Debt service expenditures for
fiscal 1991, fiscal 1992, fiscal 1993, fiscal 1994 and fiscal 1995 were
$942.3 million, $898.3 million, $1.140 billion, $1.149 billion, and $1.231
billion, respectively, and are projected to be approximately $1.199 billion
for fiscal 1996. The amounts represented do not include debt service on
notes issued to finance certain Medicare-related liabilities, certain debt
service contract assistance payment to Massachusetts Bay Transportation
Authority ($205.5 million projected in fiscal 1996), the Massachusetts
Convention Center ($24.6 million projected in fiscal 1996), the
Massachusetts Government Land Bank ($6.0 million projected in fiscal 1996),
the Massachusetts Water Pollution Abatement Trust ($16.6 million projected
in fiscal 1996), and grants to municipalities under the school building
assistance program to defray a portion of the debt service costs on local
school bonds ($174.5 million projected in fiscal 1996).
In January, 1990, legislation was passed to impose a limit on debt service
beginning in fiscal 1991, providing that no more than 10% of the total
appropriations in any fiscal year may be expended for payment of interest
and principal on general obligation debt (excluding the Fiscal Recovery
Bonds). The percentage of total appropriations expended from the budgeted
operating funds for debt service (excluding debt service on Fiscal Recovery
Bonds) for fiscal 1994 is 5.6%, which is projected to increase to 5.9% in
fiscal 1995.
CERTAIN LIABILITIES. Among the material future liabilities of the
Commonwealth are significant unfunded general liabilities of its retirement
systems and a program to fund such liabilities; a program whereby, starting
in 1978, the Commonwealth began assuming full financial responsibility for
all costs of the administration of justice within the Commonwealth;
continuing demands to raise aggregate aid to cities, towns, schools and
other districts and transit authorities above current levels; and Medicaid
expenditures which have increased each year since the program was
initiated. The Commonwealth has signed consent decrees to continue
improving mental health care and programs for the mentally retarded in
order to meet federal standards, including those governing receipt of
federal reimbursements under various programs, and the parties in those
cases have worked cooperatively to resolve the disputed issues.
As a result of comprehensive legislation approved in January, 1988, the
Commonwealth is required, beginning in fiscal 1989, to fund future pension
liabilities currently and to amortize the Commonwealth's unfunded
liabilities over 40 years. The funding schedule must provide for annual
payments in each of the ten years ending fiscal 1998 which are at least
equal to the total estimated pay-as-you-go pension costs in each year. As
a result of this requirement, the funding requirements for fiscal 1996,
1997, and 1998 are estimates to be increased to approximately $1.007
billion, $1.061 billion and $1.128 billion, respectively.
LITIGATION. The Commonwealth is engaged in various lawsuits involving
environmental and related laws, including an action brought on behalf of
the U.S. Environmental Protection Agency alleging violations of the Clean
Water Act and seeking to enforce the clean-up of Boston Harbor. The MWRA,
successor in liability to the Metropolitan District Commission, has assumed
primary responsibility for developing and implementing a court-approved
plan for the construction of the treatment facilities necessary to achieve
compliance with federal requirements. Under the Clean Water Act, the
Commonwealth may be liable for costs of compliance in these or any other
Clean Water cases if the MWRA or a municipality is prevented from raising
revenues necessary to comply with a judgment. The MWRA currently projects
that the total cost of construction of the treatment facilities required
under the court's order is approximately $3.557 billion in current dollars,
with approximately $1.046 billion to be spent on or after June 30, 1995.
On October 18, 1995, the court entered an order which reduced the MWRA's
obligation to build certain additional secondary treatment facilities,
which is estimated by the MWRA will save ratepayers approximately $165
million.
The Department of Public Welfare has been sued for the alleged unlawful
denial of personal care attendant services to certain disabled Medicaid
recipients. The Superior Court has denied the plaintiff's motion for
preliminary injunction and has also denied the plaintiff's motion for class
certification. If the plaintiffs were to prevail on their claims and the
Commonwealth were required to provide all of the services sought by the
plaintiffs to all similarly situated persons, it would substantially
increase the annual cost to the Commonwealth if these services are
eventually required. The Department of Public Welfare currently estimates
this increase to be as much as $200 million per year.
There are also actions pending in which recipients of human services
benefits, such as welfare recipients, the mentally retarded, the elderly,
the handicapped, children, residents of state hospitals and inmates of
corrections institutions, seek expanded levels of services and benefits and
in which providers of services to such recipients challenge the rates at
which they are reimbursed by the Commonwealth. To the extent that such
actions result in judgments requiring the Commonwealth to provide expanded
services or benefits or pay increased rates, additional operating and
capital expenditures might be needed to implement such judgments.
In 1995, the Spaulding Rehabilitation Hospital ("SPAULDING") filed an
action to enforce an agreement to acquire its property by eminent domain in
connection with the Central Artery/Third Harbor Tunnel Project. If
successful, Spaulding could recover the fair market value of its property
in addition to its relocation costs with respect to its personal property.
The Commonwealth estimates its potential liability at approximately $50
million.
The Commonwealth faces an additional potential liability of approximately
$40 million in connection with a taking by the Massachusetts Highway
Department related to the relocation of Northern Avenue in Boston.
In addition, there are several tax matters in litigation which could result
in significant refunds to taxpayers if decisions unfavorable to the
Commonwealth are rendered. In BAYBANK, ET AL. V. COMMISSIONER OF REVENUE,
the banks challenge the inclusion of income from tax exempt obligations in
the measure of the bank excise tax. The Appellate Tax Board issued
findings of fact and a report in favor of the Commissioner of Revenue on
September 30, 1993. The case is pending before the Supreme Judicial Court.
The potential liability is approximately $55 million, including similarly
situated banks and tax years after 1990.
In NATIONAL ASSOCIATION OF GOVERNMENT EMPLOYEES V. COMMONWEALTH, the
Superior Court declared that a line item in the Commonwealth's general
appropriations act for fiscal 1994 that increased the state employees'
percentage share of their group health insurance premiums from 10% to 15%
violated the terms of several collective bargaining agreements, and
therefore was invalid under the United States Constitution as regards
employees covered by the agreements. On February 9, 1995, the Supreme
Judicial Court vacated the Superior Court's decision and declared that the
fiscal 1994 line item did not violate the contracts clause. In June, 1995,
the United States Supreme Court denied the plaintiff's writ of certiorari.
Several other unions have filed a companion suit asserting that the premium
increase similarly violated other collective bargaining agreements. The
latter suit is in its initial stages. Prior to the Supreme Judicial
Court's decision the Commonwealth's aggregate liability is estimated to be
approximately $32 million.
A variety of other civil suits pending against the Commonwealth may also
affect its future liabilities. These include challenges to the
Commonwealth's allocation of school aid under Section 9C of Chapter 29 of
the General Laws and to adopt a state employee furlough program. No
prediction is possible as to the ultimate outcome of these proceedings.
On March 22, 1995, the Supreme Judicial Court held in PERINI CORPORATION V.
COMMISSION OF REVENUES that certain deductions from the net worth measure
of the Massachusetts corporate excise tax violate the Commerce Clause of
the United States Constitution. On October 2, 1995, the United States
Supreme Court denied the Commonwealth's petition for writ of certiorari.
The Department of Revenue estimates that tax revenues in the amount of $40
to $55 million may be abated as a result of the Supreme Judicial Court's
decision.
Many factors, in addition to those cited above, have or may have a bearing
upon the financial condition of the Commonwealth, including social and
economic conditions, many of which are not within the control of the
Commonwealth.
EXPENDITURE AND TAX LIMITATION MEASURES. Limits have been established on
state tax revenues by legislation approved by the Governor on October 25,
1986 and by an initiative petition approved by the voters on November 4,
1986. The Executive Office for Administration and Finance currently
estimates that state tax revenues will not reach the limit imposed by
either the initiative petition or the legislative enactment in fiscal 1992.
Proposition 2-1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns, and large
increases in state aid to offset such revenue losses. According to the
Executive Office for Administration and Finance, all of the 351 cities and
towns have now achieved a property tax level of no more than 2.5% of full
property values. Under the terms of Proposition 2-1/2, the property tax
levy can now be increased annually for all cities and towns, almost all by
2.5% of the prior fiscal year's tax levy plus 2.5% of the value of new
properties and of significant improvements to property. Legislation has
also been enacted providing for certain local option taxes. A voter
initiative petition approved at the statewide general election in November,
1990 further regulates the distribution of Local Aid of no less than 40% of
collections from individual income taxes, sales and use taxes, corporate
excise taxes, and the balance of the state lottery fund. If implemented in
accordance with its terms (including appropriation of the necessary funds),
the petition as approved would shift several hundred million dollars to
direct Local Aid.
OTHER TAX MEASURES. To provide revenue to pay debt service on both the
deficit and Medicaid-related borrowings and to fund certain direct Medicaid
expenditures, legislation was enacted imposing an additional tax on certain
types of personal income for 1989 and 1990 taxable years at rates of 0.375%
and 0.75% respectively, effectively raising the tax rate of 1989 from 5% to
5.375% and for 1990 to 5.75%. Recent legislation has effectively further
increased tax rates to 5.95% for tax year 1990 to 6.25% for tax year 1991
and returning to 5.95% for tax year 1992 and subsequent tax years. The tax
is applicable to all personal income except income derived from dividends,
capital gains, unemployment compensation, alimony, rent, interest,
pensions, annuities and IRA/Keogh distributions. The income tax rate on
other interest (excluding interest on obligations of the United States and
of the Commonwealth and its subdivisions), dividends and net capital gains
(after a 50% reduction) was increased from 10% to 12% for tax year 1990 and
subsequent years, by recently enacted legislation.
ESTATE TAX REVISIONS. The fiscal 1993 budget included legislation which
gradually phases out the current Massachusetts estate tax and replaces it
with a "sponge tax" in 1997. The "sponge tax" is based on the maximum
amount of the credit for state taxes allowed for federal estate tax
purposes. The estate tax is phased out by means of annual increases in the
basic exemption from the current $200,000 level. The exemption is
increased to $300,000 for 1993, $400,000 for 1994, $500,000 for 1995 and
$600,000 for 1996. In addition, the legislation includes a full marital
deduction starting July 1, 1994. Currently the marital deduction is
limited to 50% of the Massachusetts adjusted gross estate. The static
fiscal impact of the phase out of the estate tax was estimated to be
approximately $24.8 million in fiscal 1994 and is estimated to be
approximately $72.5 million in fiscal 1995.
OTHER ISSUERS OF MASSACHUSETTS OBLIGATIONS. There are a number of state
agencies, instrumentalities and political subdivisions of the Commonwealth
that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities
are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them may vary considerably from the
credit quality of obligations backed by the full faith and credit of the
Commonwealth. The brief summary above does not address, nor does it
attempt to address, any difficulties and the financial situations of those
other issuers of Massachusetts Obligations.
APPENDIX B
PENNSYLVANIA DISCLOSURE
RISK FACTORS. Prospective investors should consider the financial
difficulties and pressures which the Commonwealth of Pennsylvania and
certain of its municipal subdivisions have undergone. Both the
Commonwealth and the City of Philadelphia have historically experienced
significant revenue shortfalls. There can be no assurance that the
Commonwealth will not experience further declines in economic conditions or
that portions of the municipal obligations purchased by the Fund will not
be affected by such declines. Without intending to be complete, the
following briefly summarizes some of these difficulties and the current
financial situation, as well as some of the complex factors affecting the
financial situation in the Commonwealth. It is derived from sources that
are generally available to investors and is based in part on information
obtained from various agencies in the Commonwealth. No independent
verification has been made of the following information.
STATE ECONOMY. Pennsylvania has been historically identified as a
heavy-industry state although that reputation has changed recently as the
industrial composition of the Commonwealth diversified when the coal, steel
and railroad industries began to decline. The major new sources of growth
in the Commonwealth are in the service sector, including trade, medical and
the health services, education and financial institutions. The
Commonwealth's agricultural industries are also an important component of
its economic structure, accounting for more than $3.6 billion in crop and
livestock products annually while agribusiness and food related industries
support $39 billion in economic activity annually.
Non-manufacturing employment in the Commonwealth has increased steadily
since 1980 to its 1995 level of 82.1 percent of total Commonwealth
employment. The growth in employment experienced in the Commonwealth
during such periods is comparable to the growth in employment in Middle
Atlantic region of the United States. Manufacturing, which contributed
17.9 percent of 1995 non-agricultural employment, has fallen behind both
the services sector and the trade sector as the largest single source of
employment within the Commonwealth. In 1995, the services sector accounted
for 30.4 percent of all non-agricultural employment in the Commonwealth
while the trade sector accounted for 22.8 percent,
The Commonwealth recently experienced a slowdown in its economy. Moreover,
economic strengths and weaknesses vary in different parts of the
Commonwealth. In general, heavy industry and manufacturing have been
facing increasing competition from foreign producers. During 1995, the
annual average unemployment rate in the Commonwealth was 5.9 percent
compared to 5.6 percent for the United States. For March 1996 the
unadjusted unemployment rate was 5.9 percent in the Commonwealth and 5.8
percent in the United States, while the seasonally adjusted unemployment
rate for the Commonwealth was 5.6 percent and for the United States was 5.6
percent.
STATE BUDGET. The Commonwealth operates under an annual budget that is
formulated and submitted for legislative approval by the Governor each
February. The Pennsylvania Constitution requires that the Governor's
budget proposal consist of three parts: (i) a balanced operating budget
setting forth proposed expenditures and estimated revenues from all sources
and, if estimated revenues and available surplus are less than proposed
expenditures, a recommendation for specific additional sources of revenue
sufficient to pay the deficiency, (ii) a capital budget setting forth
proposed expenditures to be financed from the proceeds of obligations of
the Commonwealth or its agencies or from operating funds; and (iii) a
financial plan for not less than the succeeding five fiscal years, that
includes for each year projected operating expenditures and estimated
revenues and projected expenditures for capital projects. The General
Assembly may add, change or delete any items in the budget prepared by the
Governor, but the Governor retains veto power over the individual
appropriations passed by the legislature. The Commonwealth's fiscal year
begins on July 1 and ends on June 30.
All funds received by the Commonwealth are subject to appropriation in
specific amounts by the General Assembly or by executive authorization by
the Governor. Total appropriations enacted by the General Assembly may not
exceed the ensuing year's estimated revenues, plus (less) the
unappropriated fund balance (deficit) of the preceding year, except for
constitutionally authorized debt service payments. Appropriations from the
principal operating funds of the Commonwealth (the General Fund, the Motor
License Fund and the State Lottery Fund) are generally made for one fiscal
year and are returned to the unappropriated surplus of the fund if not
spent or encumbered by the end of the fiscal year. The Constitution
specifies that a surplus of operating funds at the end of a fiscal year
must be appropriated for the ensuing year.
Pennsylvania uses the "fund" method of accounting. For purposes of
government accounting, a "fund" is an independent fiscal and accounting
entity with a self-balancing set of accounts, recording cash and/or other
resources together with all related liabilities and equities that are
segregated for the purpose of carrying on specific activities or attaining
certain objectives in accordance with the fund's special regulations,
restrictions or limitations. In the Commonwealth, funds are established by
legislative enactment or in certain cases by administrative action. Over
150 funds have been established for the purpose of recording the receipt
and disbursement of moneys received by the Commonwealth. Annual budgets
are adopted each fiscal year for the principal operating funds of the
Commonwealth and several other special revenue funds. Expenditures and
encumbrances against these funds may only be made pursuant to appropriation
measures enacted by the General Assembly and approved by the Governor. The
General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and federal grants and entitlements that are not specified
by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund.
Debt service on all bond indebtedness of the Commonwealth, except that
issued for highway purposes or for the benefit of other special revenue
funds, is payable from the General Fund.
Financial information for the principal operating funds of the Commonwealth
is maintained on a budgetary basis of accounting, which is used for the
purpose of ensuring compliance with the enacted operating budget. Since
1984, the Commonwealth has also prepared annual financial statements in
accordance with generally accepted accounting principles ("GAAP").
Budgetary basis financial reports are based on a modified cash basis of
accounting, as opposed to a modified accrual basis of accounting prescribed
by GAAP. The budgetary basis financial information is adjusted at fiscal
year-end to reflect appropriate accruals for financial reporting in
conformity with GAAP.
RECENT FINANCIAL CONDITIONS. From fiscal 1984, when the Commonwealth first
prepared its financial statements on a GAAP basis, through fiscal 1989, the
Commonwealth reported a positive unreserved-undesignated fund balance for
its governmental fund types at each fiscal year end. Slowing economic
growth during 1990, leading to a national economic recession beginning in
fiscal 1991, reduced revenue growth and increased costs of certain
governmental programs and contributed to negative unreserved-undesignated
fund balances at the end of the 1990 and 1991 fiscal years. The negative
unreserved-undesignated fund balance was due largely to operating deficits
in the General Fund and the State Lottery Fund during those fiscal years.
Actions taken during fiscal 1992 to bring the General Fund budget back into
balance, including tax increases and expenditure restraints, resulted in a
$1.1 billion reduction to the unreserved-undesignated fund deficit for
combined governmental fund types and a return to a positive fund balance.
Financial performance continued to improve during the 1993 and 1994 fiscal
years. The fund balance for the governmental fund types increased from
$1,692.8 million on June 30, 1993, as restated, to $1,982.0 million on June
30, 1994, an increase of $289.2 million. An unreserved-undesignated fund
balance of $334.7 million was recorded for fiscal 1994 year end. At June
30, 1995, the fund balance totaled $1,927.6 million, including an
unreserved-undesignated fund balance of $104.8 million.
FINANCIAL RESULTS FOR RECENT FISCAL YEARS. For the five-year period from
fiscal 1991 through fiscal 1995, total revenues and other sources rose at a
9.1 percent average annual rate while total expenditures and other uses
grew by 7.4 percent annually. Over two-thirds of the increase in total
revenues and other sources during this period occurred during fiscal 1992
when a $2.7 billion tax increase was enacted to address a fiscal 1991
budget deficit and to fund increased expenditures for fiscal 1992. For the
four-year period from fiscal 1992 through fiscal 1995, total revenues and
other sources increased at an annual average of 3.3 percent, less than
one-half the rate of increase for the five-year period beginning with
fiscal 1991. This slower rate of growth was due, in part, to tax rate
reductions and other tax law revisions that restrained the growth of tax
receipts for fiscal years 1993, 1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal 1991
through fiscal 1995 period. Program areas having the largest increase in
costs for the fiscal 1991 to fiscal 1995 period related to protection of
persons and property, an expansion of state prisons, and public health and
welfare. Recently, efforts to restrain the rapid expansion of public
health and welfare program costs have resulted in expenditure increases at
or below the total rate of increase for total expenditures in each fiscal
year.
FISCAL 1994 FINANCIAL RESULTS. Commonwealth revenues during the 1994
fiscal year totaled $15,210.7 million, $38.6 million above the fiscal year
estimate, and 3.9 percent over Commonwealth revenues during the 1993 fiscal
year. The sales tax was an important contributor to the higher than
estimated revenues. The strength of collections from the sales tax offset
the lower than budgeted performance of the personal income tax that ended
the 1994 fiscal year $74.4 million below estimate. The shortfall in the
personal income tax was largely due to shortfalls in income not subject to
withholding such as interest, dividends and other income. Expenditures,
excluding pooled financing expenditures and net of all fiscal 1994
appropriation lapses, totaled $14,934.4 million representing a 7.2 percent
increase over fiscal 1993 expenditures. Medical assistance and prisons
spending contributed to the rate of spending growth for the 1994 fiscal
year. The Commonwealth maintained an operating balance on a budgetary
basis for fiscal 1994 producing a fiscal year ending unappropriated surplus
of $335.8 million.
FISCAL 1995 FINANCIAL RESULTS. Commonwealth revenues for the 1995 fiscal
year were above estimate and exceeded fiscal year expenditures and
encumbrances. Fiscal 1995 was the fourth consecutive fiscal year the
Commonwealth reported an increase in the fiscal year-end unappropriated
balance. Prior to reserves for transfer to the Tax Stabilization Reserve
Fund, the fiscal 1995 closing unappropriated surplus was $540.0 million, an
increase of $204.2 million over the fiscal 1994 closing unappropriated
surplus prior to transfers.
Commonwealth revenues during the 1995 fiscal year were $4159.4 million, 2.9
percent, above the estimate of revenues used at the time the 1995 fiscal
year budget was enacted. Corporation taxes contributed $329.4 million of
the additional receipts, largely due to higher receipts from the corporate
net income tax. Fiscal 1995 revenues from the corporate net income tax
were 22.6 percent over collections in fiscal 1994 and include the effects
of the reduction of the tax rate from 12.25 percent to 11.99 percent that
became effective with tax years beginning on and after January 1, 1994.
The sales and use tax and miscellaneous revenues also showed strong
year-over-year growth that produced above-estimate revenue collections.
Sales and use tax revenues were $5,526.9 million, $128.8 million above the
enacted budget estimate and 7.9 percent over fiscal 1994 collections. Tax
receipts from both motor vehicle and non-motor vehicle sales contributed to
the higher collections. Miscellaneous revenue collections for fiscal 1995
were $183.5 million, $44.9 million above estimate and were largely due to
additional investment earnings, escheat revenues and other miscellaneous
revenues.
FISCAL 1996 BUDGET. On June 30, 1995, the Governor signed a $16.2 billion
general fund budget, an increase of approximately 2.7 percent over the
total appropriations from Commonwealth revenues in the fiscal 1995 budget.
The appropriations increase for fiscal 1996 is one of the lowest rates in
recent years. Areas receiving the largest budgetary increases are medical
assistance and basic education. In addition, the budget accelerated
corporate net income tax rate reductions, eliminated the inheritance tax
paid by a surviving spouse on jointly-owned property, and made other
business tax reductions.
FISCAL 1997 BUDGET. In February 1996, the Governor presented his proposed
fiscal 1997 budget to the General Assembly. Proposed appropriations from
General Fund Commonwealth revenues totals $16,189.9 million, a reduction
from the estimated $16,219.9 million (including proposed supplemental
appropriations) for fiscal 1996. The proposed reduction represents a
decline of approximately 0.2 percent in appropriations from the prior
fiscal year. Revenue receipts are estimated to increase by $403.9 million,
or 2.5 percent, over anticipated receipts for fiscal 1996. The anticipated
increased revenues, together with the projected $140 million of
appropriation lapses during fiscal 1996 and the proposed draw-down of
approximately $95 million of surplus provide the funding sources for the
proposed budget. The proposed draw-down of the fiscal 1996 unappropriated
surplus produces a projected 1997 fiscal year end surplus of under $5
million, without any consideration of possible appropriation lapses for
fiscal 1997. The decline in appropriation authority over the prior fiscal
year in the proposed budget relies on several program changes, including
$329 million of cost containment efforts in public health and welfare
programs. Other significant cost restraints include reductions to
appropriations for the state-aided colleges and universities and no
increases for the state-related colleges and universities.
DEBT LIMITS AND OUTSTANDING DEBT. The Pennsylvania Constitution permits
the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster; (ii) electorate
approved debt; (iii) debt for capital projects subject to an aggregate
outstanding debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years; and (iv) tax anticipation notes payable in the
fiscal year of issuance.
Under the Pennsylvania Fiscal Code, the Auditor General is required to
certify to the Governor and the General Assembly certain information
regarding the Commonwealth's indebtedness. According to the February 29,
1996 Auditor General certificate, the average annual tax revenues deposited
in all funds in the five fiscal years ended June 30, 1995 was approximately
$17.7 billion, and, therefore, the net debt limitation for the 1996 fiscal
year is $30.9 billion. Outstanding net debt totaled $3.9 billion at June
30, 1995, approximately equal to the net debt at June 30, 1994. At
February 29, 1996, the amount of debt authorized by law to be issued, but
not yet incurred, was $16.5 billion.
Outstanding general obligation debt totaled $5,045.4 million at June 30,
1995, a decrease of $30.4 million from June 30, 1994. Over the ten-year
period ending June 30, 1995, total outstanding general obligation debt
increased at an annual rate of 1.1 percent. Within the most recent
five-year period, outstanding general obligation debt has grown at an
annual rate of 1.7 percent.
DEBT RATINGS. All outstanding general obligation bonds of the Commonwealth
are rated AA - by S&P and Al by Moody's.
CITY OF PHILADELPHIA. The City of Philadelphia (the "CITY" or
"PHILADELPHIA") is the largest city in the Commonwealth, with an estimated
population of 1,585,577 according to the 1990 Census. Philadelphia
experienced a series of general fund deficits for fiscal years 1988 through
1992 which have culminated in serious financial difficulties for the City.
In its 1992 Comprehensive Annual Financial Report, Philadelphia reported a
cumulative general fund deficit of $71.4 million for fiscal year 1992.
In June 1991, the Pennsylvania legislature established the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), a five-member board to
assist Philadelphia in remedying fiscal emergencies. PICA is designed to
provide assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its budgetary and
fiscal affairs. The legislation empowered PICA to issue notes and bonds on
behalf of Philadelphia, and also authorized Philadelphia to levy a
one-percent sales tax, the proceeds of which would be used to pay off the
bonds. In return for Pica's fiscal assistance, Philadelphia is required,
among other things, to establish five-year financial plans that include
balanced annual budgets. Under the legislation, if Philadelphia does not
comply with such requirements, PICA may withhold bond revenues and certain
state funding. At this time, the City is operating under a five-year
fiscal plan approved by PICA on April 17, 1995. Technical modifications
were made to that plan as of July 12, 1995 and the revised plan,
incorporating such technical modifications, was approved by PICA on July
18, 1995. As of November 15, 1995, PICA has issued approximately $1,418.7
million of its Special Tax Revenue Bonds.
No further PICA bonds are to be issued by PICA for the purpose of financing
a capital project or deficit, as the authority for such bond sales expired
on December 31, 1994. PICA's authority to issue debt for the purpose of
financing a cash flow deficit expires on December 31, 1996. Its ability to
refund existing outstanding debt is unrestricted.
In January 1993, Philadelphia anticipated a cumulative general fund budget
deficit of $57 million for the 1993 fiscal year. In response to the
anticipated deficit, the Mayor unveiled a financial plan eliminating the
budget deficit for the 1993 budget year through significant service cuts
that included a plan to privatize certain city-provided services. Due to
an upsurge in tax receipts, cost-cutting and additional PICA borrowings,
Philadelphia completed the 1993 fiscal year with a balanced general fund
budget. The audit findings for fiscal year 1993 show a cumulative general
fund surplus of approximately $3 million for the fiscal year ended June 30,
1993.
In January 1994, the Mayor proposed a $2.3 billion city general fund budget
that included no tax increases, no significant service cuts and a series of
modest health and welfare program increases. At that time, the Mayor also
unveiled a $2.2 billion program (the "PHILADELPHIA ECONOMIC STIMULUS
PROGRAM") designed to stimulate Philadelphia's economy and stop the loss of
1,000 jobs a month. In its 1994 Comprehensive Annual Financial Report,
Philadelphia reported a cumulative general fund surplus of approximately
$15.4 million for the fiscal year ended June 30, 1994, up from
approximately $3 million as of June 30, 1.993. Philadelphia's preliminary
unaudited General Fund financial statements at June 30, 1995 project a
surplus approximating $59.6 million.
S&P's rating on Philadelphia's general obligation bonds is "BBB-." Moody's
rating is currently "Baa."
LITIGATION. The Commonwealth is a party to numerous lawsuits in which an
adverse final decision could materially affect the Commonwealth's
governmental operations and consequently its ability to pay debt service on
its obligations. The Commonwealth also faces tort claims made possible by
the limited waiver of sovereign immunity effected by Act 152, approved
September 28, 1978, as amended. Under the Act, damages for any loss are
limited to $250,000 per person and $1 million for each accident.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
The consents of independent public accountants, rating services
and legal counsel
The following exhibits:
1.1 Proposed form of Trust Agreement (to be filed by amendment).
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be filed by amendment).
3.2 Opinion of counsel as to Federal income tax status of securities being
registered (to be filed by amendment).
3.3. Opinion of counsel as to advancement of funds by Trustee.
3.4. Opinion of counsel as to New York tax status of securities being
registered.
3.5. Opinion of counsel regarding state tax matters.
4.1 Consent of Independent Auditors (to be filed by amendment).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Fidelity Defined Trusts, Municipal Income Trust Series 1 has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and State of Massachusetts
on the ____ day of January, 1997.
Fidelity Defined Trusts, Municipal Income Trust Series 1
(Registrant)
By: National Financial Services Corporation
(Depositor)
David J. Pearlman
Assistant Clerk
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on January __, 1997.
Signature Title
James H. Messenger President and Chairman of the Board
Frederick J. Knapp Director
Robert P. Mazzarella Director
Sherif A. Nada Director
Gordon R. Watson Director
Shaugn Stanley Vice President, Finance and Chief
Financial Officer
David J. Pearlman
(Attorney-in-fact)*
_______________________________
*An executed copy of the related powers of attorney was 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.
