FILE NO. 333-21085
Securities and Exchange Commission
Washington, D.C. 20549-1004
to
Amendment No. 1
to
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
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
______________
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 - Part A Front Cover Page
(b) Title of securities issued ) Prospectus - Part A Front Cover Page
2. Name and address of Depositor ) Prospectus - Part A Essential
) Information
) The Sponsor
3. Name and address of Trustee ) Prospectus - Part A 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 - Part A Front Cover Page
units ) Fidelity Defined Trusts - Municipal
) Income Trust Series
) Prospectus - Part A Portfolio
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, charges and expenses ) Prospectus - Part A Front Cover
Page
) Prospectus - Part A Essential Information
) Prospectus - Part A Portfolio
)
) Trust Expenses
) Public Offering of Units
(b) Certain information regarding )
periodic payment plan ) *
certificates )
(c) Certain percentages ) Prospectus - Part A Front Cover Page
) Prospectus - Part A 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 ) Prospectus - Part A Special Trust
) Information
(f) Certain profits to be received ) Public Offering of Units
by depositor, principal ) Public Offering of Units
underwriter, trustee or any ) Prospectus - Part A Portfolio
affiliated persons )
(g) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Ownership and Transfer of Units
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
) Composition of Trusts
) Trust Administration
17. Withdrawal or redemption ) Redemption
) Trust Administration
18. (a) Receipt and disposition ) Prospectus - Part A Front Cover Page
of income ) Distribution to Unitholders
(b) Reinvestment of distributions ) Distribution Reinvestment
(c) Reserves or special funds ) Trust Expenses
) Redemption
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Reports to Unitholders
) Trust Administration
20. Certain miscellaneous provisions ) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Prospectus - Part A 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 - Part A Front Cover Page
) Prospectus - Part A Essential
) Information
) Trust Expenses
) Public Offering of Units
) Unit Value and Evaluation
(b) Schedule as to offering ) *
price )
(c) Variation in offering price ) *
to certain persons )
45. Suspension of Redemption Rights ) *
46. (a) Redemption valuation ) Redemption
) Trust Administration
) Unit Value and Evaluation
(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 ) Prospectus - Part A Special Trust
) 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 ) Prospectus - Part A Report of
Independent
1(c) to Form S-6) ) Certified Public Accountants
Prospectus - Part A Statements of
Condition
______________________________________________
* Inapplicable, omitted, answer negative or not required
The investor is advised to read and retain this Prospectus for future
reference.
FIDELITY
DEFINED TRUSTS
MUNICIPAL INCOME
TRUST, SERIES 1
UNITS OF THE TRUSTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY BANK, AND UNITS ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION AND INVOLVE INVESTMENT RISK INCLUDING
LOSS OF PRINCIPAL.
SPONSOR: NATIONAL
FINANCIAL
SERVICES
CORPORATION
THESE SECURITIES
HAVE NOT BEEN
APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF
THIS PROSPECTUS.
ANY REPRESENTATION
TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(large solid bullet) Insured Massachusetts Trust Series 1
(large solid bullet) Insured Pennsylvania Trust Series 1
PROSPECTUS
MARCH 5, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA 02109
Table of Contents Pag
e
Insured Massachusetts Trust, Series 1
Insured Pennsylvania Trust, Series 1
Report of Independent Auditors
Part B
The Fidelity Defined Trusts - Municipal Income Trust Series
Objectives of the Trusts
Summary of Portfolios
Risk Factors
Composition of Trusts
Insurance on the Bonds
Public Offering of Units
Market for Units
Accrued Interest
Public Distributions of Units
Estimated Long Term Return and Estimated Current Return
Tax Status
Trust Expenses
Distributions to Unitholders
Distribution Reinvestment
Reports to Unitholders
Unit Value and Evaluation
Ownership and Transfer of Units
Redemption
Purchase of Units by the Sponsor
Trust Administration
The Trustee
The Sponsor
Other Information
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. UNDER THE SECURITIES
ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE
IS MADE.
_______
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUSTS, THE TRUSTEE, OR THE SPONSOR. THE TRUSTS ARE
REGISTERED AS UNIT INVESTMENT TRUSTS UNDER THE INVESTMENT COMPANY ACT OF
1940. SUCH REGISTRATION DOES NOT IMPLY THAT THE TRUSTS OR THE UNITS HAVE
BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES OR
ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
_______
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
PROSPECTUS - PART A
SUMMARY
INSURED MASSACHUSETTS TRUST, SERIES 1 (the "Insured Massachusetts 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
herein.
INSURED PENNSYLVANIA TRUST, SERIES 1 (the "Insured Pennsylvania 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 income tax, as detailed
herein.
INSURED MASSACHUSETTS TRUST, SERIES 1
Insured Massachusetts Trust, Series 1 (the "INSURED MASSACHUSETTS 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 Insured Massachusetts 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 Insured Massachusetts Trust consists of seven obligations of issuers
located in the State of Massachusetts. The Bond issues in the Insured
Massachusetts 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 Insured Massachusetts 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 ISSUES PURPOSE OF ISSUE PORTFOLIO PERCENTAGE
1 Health Care 16.7%
1 Transportation 16.7%
3 University and School 46.7%
2 Water & Sewer 20.0%
Each of five Bond issues represents 16.7% or more of the aggregate
principal amount of the Bonds in the Insured Massachusetts Trust or a total
of approximately 83.3%. The largest such issue represents approximately
16.7%. None of the Bonds in the Trust are subject to call within seven
years of the Initial Date of Deposit, although certain bonds may be subject
to an extraordinary call.
All of the Bonds included in the Insured Massachusetts 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 and the Units in the Insured Massachusetts Trust have
received a rating of "AAA" by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("STANDARD & POOR'S").
INSURED MASSACHUSETTS TRUST, SERIES 1
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT OF THE BONDS -
MARCH 5, 1997
SPONSOR: NATIONAL FINANCIAL SERVICES CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
EVALUATOR: MULLER DATA CORPORATION
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General Information
Principal Amount of Bonds in the Trust $ 3,000,000
Number of Units 300,000
Fractional Undivided Interest in the Trust per Unit 1/300,000
Principal Amount (Par Value) of Bonds per Unit $ 10.00
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 2,870,791
Aggregate Offering Price Evaluation per Unit $ 9.569
Sales Charge 4.75% (4.987% of the Aggregate Offering Price Evaluation per Unit) (1) $ 0.477
Public Offering Price per Unit (2) $ 10.046
Sponsor's Initial Repurchase Price per Unit (2) $ 9.567
Redemption Price per Unit (3) $ 9.526
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 0.520
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 0.043
</TABLE>
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First Settlement Date March 10, 1997
Discretionary Liquidation Amount The Insured Massachusetts Trust may be terminated if
the value of such 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
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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) The sales charge is reduced for purchases of $50,000 or greater. See
"Public Offering of Units" in Part B of this Prospectus.
(2) 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
"Market for Units" in Part B of this Prospectus.
(3) See "Redemption" in Part B of this Prospectus.
UNDERWRITING*
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NAME ADDRESS NUMBER OF UNITS
Fidelity Capital Markets World Trade Center, 164 Northern 290,000
Avenue, Suite 630, Boston, MA 02210
Oppenheimer & Company, Incorporated One World Financial Center, 200 Liberty 10,000
Street, 8th Floor, New York, NY 10281
</TABLE>
* See "Public Distribution of Units - Underwriting concessions" in Part B
of this Prospectus.
SPECIAL TRUST INFORMATION
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 0.53583
Estimated Annual Trust Expense per Unit:
Trustee's Fees (1) $ 0.01390
Evaluator's Fees $ 0.00520
Organizational Expenses (2) $ 0.00400
Other Estimated Expenses $ 0.00230
Less: Estimated Annual Expense per Unit $ 0.02540
Estimated Net Annual Interest Income per Unit $ 0.51043
Estimated Daily Rate of Net Interest Accrual per Unit $ 0.001418
Initial Distribution- April 20, 1997 (3) $ 0.04253
Estimated Regular Distribution (3) (Commencing May 20, 1997) $ 0.04253
Estimated Current Return Based on Public Offering Price (4) 5.08%
Estimated Long-Term Return Based on Public Offering Price (4) 5.12%
Estimated Average Maturity of Bonds 25.9 years
CUSIP 316094 101
____________________
(1) The Trustee's annual fee includes up to $0.07per $1,000 principal
amount of securities which is paid to the Sponsor in reimbursement of the
Sponsor's cost of providing certain bookkeeping and administrative services
to its own customers.
(2) The Insured Massachusetts Trust (and therefore the Unitholders) will
bear 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."
(3) Additional information concerning distributions of interest and
principal can be found in "Distributions to Unitholders" in Part B of this
Prospectus.
(4) 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 are set forth under "Estimated Cash Flows to
Unitholders."
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 Goodwin, Procter & Hoar LLP, special Massachusetts
counsel to the Trust, under existing law:
For Massachusetts income tax purposes, if the Trust is an "investment"
trust within the meaning of 26 CFR (sub-section)301.7701-4(c) and is
classified as a trust under that regulation, it will be treated as a fixed
investment trust as that term is defined in Section 62.8.1 of Title 830 of
the Code of Massachusetts Regulations, and, therefore, will not be subject
as an entity to Massachusetts income taxation under Chapter 62 of the
Massachusetts General Laws.
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 distribution 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 insured interest bearing obligations
issued by Massachusetts, its counties, municipalities, authorities,
political subdivisions or instrumentalities or by Puerto Rico, the Virgin
Islands, Guam, or the Northern Mariana Islands ("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 such Trust in their Massachusetts gross
income to the extent that such earnings or distributions are derived from
the proceeds of insurance on the Obligations 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 and if and to the extent that such
earnings or distributions represent tax-exempt interest excludable from
gross incomes for federal tax purposes, PROVIDED that, at the time such
policies are purchased, the amounts paid for such policies are reasonable,
customary and consistent with the reasonable expectations that the issuer
of the Obligations, rather than the insurer, will pay debt service on the
bonds.
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 Obligations.
Each 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 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;
such 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 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 Obligations
delivered to the Trustee after the Unitholders pay for their Units, for
accrued original issue discount with respect to each Obligation which, at
the time the Obligation was issued, had original issue discount.
The Units of the Trust(s) 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. The Massachusetts estate tax for
a deceased Unitholder who is a resident of Massachusetts is a so-called
"sponge tax," a tax that will not exceed the allowable federal credit, and
therefore the holding of Units does not directly affect the amount of
Massachusetts estate tax due.
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 $121,200. 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
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SINGLE RETURN JOINT RETURN TAX RATE 5.00% 5.50% 6.00%
TAXABLE EQUIVALENT YIELD
$0 - 24.65 $0 - 41.2 25.2% 6.68% 7.35% 8.02%
24.65 - 59.75 41.2 - 99.6 36.6 7.89 8.68 9.47
59.75 - 124.65 99.6 - 151.75 39.3 8.23 9.06 9.88
124.65 - 271.05 151.75 - 271.05 43.7 8.88 9.77 10.65
Over 271.05 Over 271.05 46.9 9.41 10.35 11.29
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INSURED MASSACHUSETTS TRUST, SERIES 1
PORTFOLIO
UNITS RATED "AAA" (hollow bullet) AT THE OPENING OF BUSINESS
ON THE INITIAL DATE OF DEPOSIT OF THE BONDS - MARCH 5, 1997
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AGGREGAT DESCRIPTION (1) ORIGINAL COST
E REDEMPTIO RATING
PRINCIPAL N (2)
PROVISION
(3)
$ 500,000 Massachusetts State Water Resources Authority, 2004 @ AAA $ 472,120
General Revenue Bonds, 1993 Series C, 5.25% Due 102
12/01/2020
400,000 Massachusetts State Industrial Finance Agency, Revenue 2006 @ AAA 391,320
Bonds, College of the Holy Cross, 1996 Issue, 5.50% 102
Due 3/01/2020
500,000 Massachusetts Health and Educational Facilities Authority, 2004 @ AAA 474,940
Revenue Bonds, New England Medical Center Hospitals 102
Issue, Series G, 5.375% Due 7/01/2024
500,000 Massachusetts State Industrial Finance Agency, Revenue 2007 @ AAA 490,510
Bonds, Dexter School Project Issue, Series 1997, 5.45% 102
Due 5/01/2019
500,000 Massachusetts State Industrial Finance Agency, Revenue 2007 @ AAA 468,960
Bonds, Babson College Issue, Series 1997 A, 5.25% 102
Due 10/01/2027
500,000 Massachusetts Bay Transit Authority, General 2005 @ AAA 478,745
Transportation System Bonds, 1995 Series B, 5.375% 101
Due 3/01/2025
100,000 South Essex Massachusetts Sewerage District 2006 @ AAA 94,196
(Massachusetts), General Obligation Sewer Bonds, 1996 102
Series A, 5.25% Due 6/15/2024
$ 3,000,00 $2,870,7
0 91
</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.
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from February 26, 1997 to March 3, 1997. All contracts to purchase
Bonds are expected to be settled on or prior to March 10, 1997 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>
TRUST AGGREGATE ANNUAL
OFFERING COST OF PROFIT OR INTEREST
PRICE OF BONDS TO (LOSS) TO BID PRICE INCOME
BONDS SPONSOR SPONSOR OF BONDS TO TRUST
Insured Massachusetts Trust, $ 2,870,791 $ 2,871,177 $ (386) $ 2,857,936 $ 160,750
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.
All of the Bonds in the Trust were issued at an original issue discount for
industry concentrations of the Bonds in the Insured Massachusetts Trust,
see page 1.
(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.
INSURED MASSACHUSETTS TRUST, SERIES 1
STATEMENT OF NET ASSETS
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
MARCH 5, 1997
<TABLE>
<CAPTION>
<S> <C>
Net Assets
Delivery statements relating to Sponsor's contracts to purchase $ 2,870,791
tax-exempt municipal bonds (1)(2)(3)
Accrued interest on underlying bonds (2)(3)(4) 21,793
Organizational Costs (5) 6,000
$ 2,898,584
Less distributions payable (4) $ 21,793
Accrued Organizational Costs (5) 6,000
Net assets $ 2,870,791
Outstanding units 300,000
Analysis of Net Assets
Cost to investors (6) $ 3,013,954
Less gross underwriting commissions (6) (143,163)
Net assets $ 2,870,791
</TABLE>
(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 - Municipal Income Trust Series 1
as collateral. The amount of available letter of credit and the amount
expected to be utilized as collateral for the Insured Massachusetts Trust
is shown below. The amount expected to be utilized is (a) the cost to the
Insured Massachusetts 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ACCRUED
AGGREGATE INTEREST TO
LETTER OF CREDIT OFFERING EXPECTED
TO BE PRICE OF DATES OF
TRUST AVAILABLE UTILIZED BONDS DELIVERY
Insured Massachusetts Trust, Series 1 $ 3,100,000 $ 2,894,817 $ 2,870,791 $ 24,026
</TABLE>
(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 Insured Massachusetts Trust the amount
of net interest accrued to March 10, 1997, the First Settlement Date, for
distribution to the Sponsor as the Unit holder of record.
(5) The Insured Massachusetts Trust (and therefore Unitholders) will bear a
portion of its organizational costs ($6,000) which will be deferred and
amortized over five years.
(6) The aggregate cost to investors and the aggregate gross underwriting
commissions of 4.75% are computed assuming no reduction of sales charge for
quantity purchases.
FIDELITY DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES 1
INSURED MASSACHUSETTS TRUST, SERIES 1
DATE OF DEPOSIT MARCH 5, 1997
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the estimated distributions per 100 Units of
interest and prinicpal to Unitholders. The table assumes no changes in
Trust expenses with the exception of the amortization of organizational
expenses, which are being amortized over five years, no redemptions or
sales of the underlying Securities prior to maturity and the receipt of all
principal due upon maturity. To the extent the foregoing assumptions
change, actual distributions will vary.
DATES ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DISTRIBUTION DISTRIBUTION DISTRIBUTION
April 1997 - March 2002 $ 4.253 $ 4.253
April 2002 - April 2019 4.286 4.286
May 2019 4.034 $ 166.666 170.700
June 2019 - Feb 2020 3.549 3.549
Mar 2020 3.345 133.333 136.678
April 2020 - Nov 2020 2.953 2.953
Dec 2020 2,710 166.666 169.376
Jan 2021 - May 2024 2.243 2.243
June 2024 2.243 33.333 35.576
July 2024 1.877 166.666 168.543
Aug 2024 - Feb 2025 1.374 1.374
Mar 2025 1.125 166.666 167.791
April 2025 - Sept 2027 0.647 0.647
Oct 2027 0.404 166.666 167.070
INSURED PENNSYLVANIA TRUST, SERIES 1
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
THE PART B OF THE PROSPECTUS DATED MARCH 5, 1997. BOTH PARTS A AND B OF THE
PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Insured Pennsylvania Trust, Series 1 (the "INSURED PENNSYLVANIA 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 Insured Pennsylvania 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 Insured Pennsylvania Trust consists of seven obligations of issuers
located in the State of Pennsylvania. The Bond issues in the Insured
Pennsylvania 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 Insured Pennsylvania 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 ISSUES PURPOSE OF ISSUE PORTFOLIO PERCENTAGE
3 General Obligation 50.0%
2 Health Care 30.0%
1 Recreation 3.3%
1 Lease Revenue 16.7%
Each of five Bond issues represents 16.7% or more of the aggregate
principal amount of the Bonds in the Insured Pennsylvania Trust or a total
of approximately 83.3%. The largest such issue represents approximately
16.7%. None of the Bonds in the Trust are subject to call within eight
years of the Initial Date of Deposit, although certain bonds may be subject
to an extraordinary call.
Approximately 33.3% of the aggregate principal amount of the Bonds in the
Insured Pennsylvania Trust were purchased at a premium over par value.
Certain of these Bonds are subject to redemption pursuant to call
provisions in approximately nine years after the Initial Date of Deposit.
See "Insured Pennsylvania Trust, Series 1-Portfolio" contained herein and
"Description of Bond Ratings" in the Information Supplement.
All of the Bonds included in the Insured Pennsylvania 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 Insured Pennsylvania Trust have received a
rating of "Aaa" by Moody's Investors Service, Inc. ("MOODY'S") and the
Bonds and the Units in the Insured Pennsylvania Trust have received a
rating of "AAA" by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("STANDARD & POOR'S").
INSURED PENNSYLVANIA TRUST, SERIES 1
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT OF THE MARCH 5,
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 $ 3,000,000
Number of Units 300,000
Fractional Undivided Interest in the Trust per Unit 1/300,000
Principal Amount (Par Value) of Bonds per Unit $ 10.000
Public Offering Price:
Aggregate Offering Price Evaluation of Bonds in the Portfolio $ 2,878,967
Aggregate Offering Price Evaluation per Unit $ 9.597
Sales Charge 4.75% (4.987% of the Aggregate Offering Price Evaluation per Unit) (1) $ 0.478
Public Offering Price per Unit (2) $ 10.075
Sponsor's Initial Repurchase Price per Unit (2) $ 9.597
Redemption Price per Unit (3) $ 9.554
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 0.521
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 0.043
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
First Settlement Date March 10, 1997
Discretionary Liquidation Amount The Insured Pennsylvania Trust may be terminated if the
value of such 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) The sales charge is reduced for purchases of $50,000 or greater. See
"Public Offering of Units" in Part B of this Prospectus.
(2) 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
"Market for Units" in Part B of this Prospectus.
(3) See "Redemption" in Part B of this Prospectus.
UNDERWRITING*
NAME ADDRESS NUMBER OF UNITS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fidelity Capital Markets World Trade Center, 164 Northern 280,000
Avenue, Suite 630, Boston, MA 02210
Fahnestock & Company, Incorporated 1500 Walnut Street, Philadelphia, PA 10,000
19102
Advest Incorporated 90 State House Square, 6th Floor, 10,000
Hartford, CT 06103
</TABLE>
* See "Public Distribution of Units - Underwriting concessions" in Part B
of this Prospectus.
SPECIAL TRUST INFORMATION
Calculation of Estimated Net Annual Unit Income
Estimated Annual Interest Income per Unit $ 0.54042
Estimated Annual Trust Expense per Unit:
Trustee's Fees $ 0.01360
Evaluator's Fees 0.00520
Organizational Expenses (2) $ 0.00400
Other Estimated Expenses $ 0.00230
Less: Estimated Annual Expense per Unit $ 0.02510
Estimated Net Annual Interest Income per Unit $ 0.51532
Estimated Daily Rate of Net Interest Accrual per Unit $ 0.001431
Initial Distribution- April 20,1997 (3) $ 0.04294
Estimated Regular Distribution (3) $ 0.04294
Estimated Current Return Based on Public Offering Price (4) 5.11%
Estimated Long-Term Return Based on Public Offering Price (4) 5.15%
Estimated Average Maturity of Bonds 28.1 years
CUSIP 316094
119
(1) The Trustee's annual fee includes up to $0.07 per $1,000 principal
amount of securities which is paid to the Sponsor in reimbursement of the
Sponsor's cost of providing certain bookkeeping and administrative services
to its own customers.
(2) The Insured Pennsylvania Trust (and therefore the Unitholders) will
bear 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."
(3) Additional information concerning distributions of interest and
principal can be found in "Distributions to Unitholders" in Part B of this
Prospectus.
(4) 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 are set forth under "Estimated Cash Flows to
Unitholders".
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 Chapman and Cutler, special counsel for the Trust for
Pennsylvania tax matters, under existing law:
We have examined certain laws of the State of Pennsylvania (the "STATE")
to determine their applicability to the Pennsylvania Trust (the "TRUST")
and to the holders of Units in the Trust who are residents of the State of
Pennsylvania (the "UNITHOLDERS"). The assets of the Trust will consist of
interest-bearing obligations issued by or on behalf of the State, any
public authority, commission, board or other agency created by the State or
a political subdivision of the State, or political subdivisions thereof
(the "BONDS"). Distributions of income with respect to the Bonds received
by the Trust will be made monthly.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued by the State or its municipalities, as the case may be, (ii) the
interest thereon is excludable from gross income for federal income tax
purposes, (iii) the interest thereon is exempt from Pennsylvania State and
local taxes and (iv) the Bonds are exempt from county personal property
taxes. This opinion does not address the taxation of persons other than
full-time residents of Pennsylvania.
Based on the foregoing, and review and consideration of existing State laws
as of this date, it is our opinion, and we herewith advise you, as follows:
(1) The Trust will have no tax liability for purposes of the personal
income tax (the "PERSONAL INCOME TAX"), the corporate income tax (the
"CORPORATE INCOME TAX") and the capital stock-franchise tax (the
`"FRANCHISE TAX"), all of which are imposed under the Pennsylvania Tax
Reform Code of 1971, or the Philadelphia School District Investment Net
Income Tax (the "PHILADELPHIA SCHOOL TAX") imposed under Section 19-1804 of
the Philadelphia Code of Ordinances.
(2) Interest on the Bonds, net of Trust expenses, which is exempt from the
Personal Income Tax when received by the Trust and which would be exempt
from such tax if received directly by a Unitholder, will retain its status
as exempt from such tax when received by the Trust and distributed to such
Unitholder. Interest on the Bonds which is exempt from the Corporate
Income Tax and the Philadelphia School Tax when received by the Trust and
which would be exempt from such taxes if received directly by a Unitholder,
will retain its status as exempt from such taxes when received by the Trust
and distributed to such Unitholder.
(3) Distributions from the Trust attributable to capital gains recognized
by the Trust upon its disposition of a Bond issued on or after February 1,
1994, will be taxable for purposes of the Personal Income Tax and the
Corporate Income Tax. No opinion is expressed with respect to the taxation
of distributions from the Trust attributable to capital gains recognized by
the Trust upon its disposition of a Bond issued before February 1, 1994.
(4) Distributions from the Trust attributable to capital gains recognized
by the Trust upon its disposition of a Bond will be exempt from the
Philadelphia School Tax if the Bond was held by the Trust for a period of
more than six months and the Unitholder held his Unit for more than six
months before the disposition of the Bond. If, however, the Bond was held
by the Trust or the Unit was held by the Unitholder for a period of less
than six months, then distributions from the Trust attributable to capital
gains recognized by the Trust upon its disposition of a Bond issued on or
after February 1, 1994 will be taxable for purposes of the Philadelphia
School Tax; no opinion is expressed with respect to the taxation of any
such gains attributable to Bonds issued before February 1, 1994.
(5) Insurance proceeds paid under policies which represent maturing
interest on defaulted obligations will be exempt from the Corporate Income
Tax to the same extent as such amounts are excluded from gross income for
federal income tax purposes. No opinion is expressed with respect to
whether such insurance proceeds are exempt from the Personal Income Tax or
the Philadelphia School Tax.
(6) Each Unitholder will recognize gain for purposes of the Corporate
Income Tax if the Unitholder redeems or sells Units of the Trust to the
extent that such a transaction results in a recognized gain to such
Unitholder for federal income tax purposes and such gain is attributable to
Bonds issued on or after February 1, 1994. No opinion is expressed with
respect to the taxation of gains realized by a Unitholder on the sale or
redemption of a Unit to the extent such gain is attributable to Bonds
issued prior to February 1, 1994.
(7) A Unitholder's gain on the sale or redemption of a Unit will be subject
to the Personal Income Tax, except that no opinion is expressed with
respect to the taxation of any such gain to the extent it is attributable
to Bonds issued prior to February 1, 1994.
(8) A Unitholder's gain upon a redemption or sale of Units will be exempt
from the Philadelphia School Tax if the Unitholder held his Unit for more
than six months and the gain is attributable to Bonds held by the Trust for
a period of more than six months. If, however, the Unit was held by the
Unitholder for less than six months or the gain is attributable to Bonds
held by the Trust for a period of less than six months, then the gains will
be subject to the Philadelphia School Tax; except that no opinion is
expressed with respect to the taxation of any such gains attributable to
Bonds issued before February 1, 1994.
(9) The Bonds will not be subject to taxation under the County Personal
Property Tax Act of June 17, 1913 (the "PERSONAL PROPERTY TAX"). Personal
property taxes in Pennsylvania are imposed and administered locally, and
thus no assurance can be given as to whether Units will be subject to the
Personal Property Tax in a particular jurisdiction. However, in our
opinion, Units should not be subject to the Personal Property Tax.
Unitholders should be aware that, generally, interest on indebtedness
incurred or continued to purchase or carry Units is not deductible for
purposes of the Personal Income Tax, the Corporate Income Tax or the
Philadelphia School Tax.
We have not examined any of the Bonds to be deposited and held in the Trust
or the proceedings for the issuance thereof or the opinions of bond counsel
with respect thereto, and therefore express no opinion as to the exemption
from federal or state income taxation of interest on the Bonds if interest
thereon had been received directly by a Unitholder.
Chapman and Cutler has expressed no opinion with respect to taxation under
any other provision of Pennsylvania law. Ownership of the Units may result
in collateral Pennsylvania tax consequences to certain taxpayers.
Prospective investors should consult their tax advisors as to the
applicability of any such collateral consequences.
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 $121,200. 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 RETURN JOINT RETURN TAX RATE 5.00% 5.50% 6.00%
TAXABLE EQUIVALENT YIELD
$0 - 24.65 $0 - 41.20 17.4% 6.05% 6.66% 7.26%
24.65 - 59.75 41.20- 99.60 30.0 7.14 7.86 8.57
59.75- 124.65 99.60- 151.75 32.9 7.46 8.20 8.95
124.65 - 271.05 151.75 - 271.05 37.8 8.04 8.84 9.65
Over 271.05 Over 271.05 41.3 8.52 9.37 10.22
</TABLE>
INSURED PENNSYLVANIA TRUST, SERIES 1
PORTFOLIO
UNITS RATED "AAA" (hollow bullet) AT THE OPENING OF BUSINESS
ON THE INITIAL DATE OF DEPOSIT OF THE BONDS - MARCH 5, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AGGREGAT DESCRIPTION (1) ORIGINAL COST
E REDEMPTIO RATING(
PRINCIPAL N 2)
PROVISION(
3)
$ 500,000 Lehigh County (Pennsylvania), General Purpose 2005 @ AAA $ 493,330
Authority, Hospital Revenue Bonds (Lehigh Valley 102
Hospital), Series B of 1995, 5.625% Due 7/1/2025
400,000 Allegheny County Hospital Development Authority 2005 @ AAA 378,456
(Pennsylvania), Health Care Revenue Bonds, Series of 102
1995 (University of Pittsburgh Medical Center System),
5.375% Due 12/1/2025
100,000 Dauphin County General Authority (Commonwealth of Non-Callab AAA 25,931
Pennsylvania), County Guaranteed Revenue Bonds, le
Series of 1993, 0.00% Due 10/01/2020
500,000 Philadelphia Authority for Industrial Development, Lease 2007 @ AAA 477,460
Revenue Bonds, 1996 Series A, (City of Philadelphia 102
Project), 5.375% Due 2/15/2027
500,000 County of Luzerne (Pennsylvania), General Obligation 2007 @ AAA 501,355
Bonds, Series of 1997, 5.625% Due 12/15/2007 100
500,000 Bellefonte Area School District (Centre County, 2006 @ AAA 489,290
Pennsylvania), General Obligation Bonds, Series of 1996, 100
5.50% Due 5/15/2026
500,000 McKeesport Area School District (Allegheny County, 2006 @ AAA 513,145
Pennsylvania), General Obligation Bonds, Series of 1996, 100
6.00% Due 10/01/2006
$ 3,000,00 $ 2,878,9
0 67
</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.
NOTES TO PORTFOLIO
(1) Sponsor's contracts to purchase Bonds were entered into during the
period from February 26, 1997 to March 3, 1997. All contracts to purchase
Bonds are expected to be settled on or prior to March 10, 1997.
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>
TRUST AGGREGATE ANNUAL
OFFERING COST OF PROFIT OR INTEREST
PRICE OF BONDS TO (LOSS) TO BID PRICE INCOME
BONDS SPONSOR SPONSOR OF BONDS TO TRUST
Insured Pennsylvania Trust, $ 2,878,967 $ 2,873,756 $ 5,211 $ 2,866,228 $ 162,125
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.
All of the Bonds in the Trust were issued at an original issue discount.
For industry concentrations of the Bonds in the Insured Pennsylvania Trust,
see page 10.
(2) All ratings are by Standard & Poor's unless otherwise indicated.
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.
INSURED PENNSYLVANIA TRUST, SERIES 1
STATEMENT OF NET ASSETS
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT
MARCH 5, 1997
Net Assets
Delivery statements relating to Sponsor's contracts to
purchase tax-exempt municipal bonds (1)(2)(3) $ 2,878,967
Accrued interest on underlying bonds (2)(3)(4) 43,763
Organizational Costs (5) 6,000
2,928,730
Less distributions payable (4) 43,763
Accrued Organizational Costs (5) 6,000
Net assets $ 2,878,967
Outstanding units 300,000
Analysis of Net Assets
Cost to investors (6) $ 3,022,538
Less gross underwriting commissions (6) (143,571)
Net assets $ 2,878,967
(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 - Municipal Income Trust Series 1
as collateral. The amount of available letter of credit and the amount
expected to be utilized as collateral for the Insured Pennsylvania Trust is
shown below. The amount expected to be utilized is (a) the cost to the
Insured Pennsylvania 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ACCRUED
AGGREGATE INTEREST TO
LETTER OF CREDIT OFFERING EXPECTED
TO BE PRICE OF DATES OF
TRUST AVAILABLE UTILIZED BONDS DELIVERY
Insured Pennsylvania Trust, Series 1 $ 3,100,000 $ 2,924,982 $ 2,878,967 $ 46,015
</TABLE>
(3) Insurance coverage providing for the scheduled payment of principal and
interest on all Bonds deposited in the Insured Pennsylvania 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 Insured Pennsylvania Trust the amount
of net interest accrued to March 10, 1997, the First Settlement Date, for
distribution to the Sponsor as the Unit holder of record.
(5) The Insured Pennsylvania Trust (and therefore Unitholders) will bear a
portion of its organizational costs ($6,000) which will be deferred and
amortized over five years.
(6) The aggregate cost to investors and the aggregate gross underwriting
commissions of 4.75% are computed assuming no reduction of sales charge for
quantity purchases.
FIDELITY DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES 1
INSURED PENNSYLVANIA TRUST, SERIES 1
DATE OF DEPOSIT MARCH 5, 1997
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the estimated distributions per 100 Units of
interest and principal to Unitholders. The table assumes no changes in
Trust expenses with the exception of the amortization of Organizational
Expenses, which are being amortized over five years, no redemptions or
sales of the underlying Securities prior to maturity and the receipt of all
principal due upon maturity or first par date if earlier. To the extent the
foregoing assumptions change, actual distributions will vary.
DATES ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL TOTAL
DISTRIBUTION DISTRIBUTION DISTRIBUTION
April 1997 - March 2002 $ 4.294 $ 4.294
April 2002 - Sept 2006 4.327 4.327
Oct 2006 4.049 $ 166.666 170.715
Nov 2006 - Nov 2007 3.513 3.513
Dec 2007 3.513 166.666 170.179
Jan 2008 2.862 2.862
Feb 2008 - Sept 2020 2.750 2.750
Oct 2020 2.750 33.333 36.083
Nov 2020 - June 2025 2.754 2.754
July 2025 2.494 166.666 169.160
Aug 2025 - Nov 2025 1.992 1.992
Dec 2025 1.793 133.333 135.126
Jan 2026 - April 2026 1.410 1.410
May 2026 1.410 166.666 168.076
June 2026 0.773 0.773
July 2026 - Feb 2027 0.665 166.666 167.331
Mar 2027 0.043 0.043
REPORT OF INDEPENDENT AUDITORS
THE SPONSOR, NATIONAL FINANCIAL SERVICES CORPORATION, AND UNITHOLDERS
FIDELITY DEFINED TRUSTS - MUNICIPAL INCOME TRUST SERIES 1
We have audited the accompanying statements of net assets, including the
portfolios, of Fidelity Defined Trusts - Municipal Income Trust, Series 1
(the "Trust") (consisting of Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1), as of the opening of business on
March 5, 1997. The statements of net assets and portfolios are the
responsibility of the Trustee and the Sponsor. Our responsibility is to
express an opinion on such financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities at December
5, 1997 and an irrevocable letter of credit deposited to purchase
securities by correspondence with The Chase Manhattan Bank, the Trustee. An
audit also includes assessing the accounting principles used and
significant estimates made by the Trustee and the Sponsor, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fidelity Defined Trusts
- - Municipal Income Trust Series, 1 (consisting of Insured Massachusetts
Trust, Series 1 and Insured Pennsylvania Trust, Series 1), as of the
opening of business on March 5, 1997 in conformity with generally accepted
accounting principles.
Deloitte & Touche, LLP
New York, New York
March 5, 1997
PROSPECTUS - PART B
(GENERAL TERMS)
MARCH 5, 1997
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 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").<F1>
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" for each Trust 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
Initial Date of Deposit. See the "Portfolio" for each Trust 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
the entire ownership of each 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" for each Trust 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" for each Trust
included in Part A of this Prospectus.
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.
<F1>1 Reference is made to the Trust Agreement and any statements
contained herein are qualified in their entirety by the provisions ofthe
Trust Agreement.
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" for
each Trust 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 Initial 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
Initial Date of Deposit. Interest on such "WHEN ISSUED" and "DELAYED
DELIVERY" Bonds begins accruing to the benefit of Unitholders on their
dates of delivery. Because "when, as and if issued" Bonds have not yet been
issued, as of the Initial Date of Deposit each Trust is subject to the risk
that the issuers thereof might decide not to proceed with the offering of
such Bonds or that the delivery of such Bonds or the delayed delivery Bonds
may be delayed. If such Bonds, or replacement bonds described below, are
not acquired by a Trust or if their delivery is delayed, the estimated
Long-Term Return and Estimated current Return set forth under "Essential
Information" for each Trust in Part A of this Prospectus may be reduced.
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" for each Trust 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" for each Trust 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 September 30, 1996, the Insurer had admitted
assets of $4.3 billion (unaudited), total liabilities of $2.9 billion
(unaudited), and total capital and surplus of $1.4 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" for each Trust 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 $50,000. Sales charges during
the primary offering period are as follows:
DOLLAR AMOUNT OF TRANSACTION PERCENT PERCENT
OF OF NET
OFFERING AMOUNT
PRICE INVESTED
Less than $50,000 4.75% 4.987%
$50,000/5,000 Units but less than $100,000 4.50 4.712
$100,000/10,000 Units but less than $250,000 4.25 4.439
$250,000/25,000 Units but less than $500,000 4.00 4.167
$500,000/50,000 Units but less than $1,000,000 3.25 3.359
$1,000,000/100,000 Units or more 2.75 2.828
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 dollar weighted average maturity
of a Trust. 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:
SALES CHARGE (% OF PUBLIC OFFERING PRICE)
YEARS TO MATURITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNT OF INVESTMENT LESS THAN 2 TO 4.99 5 TO 9.99 10 OR MORE
2
Less than $50,000 2.50% 3.50% 4.00% 4.90%
$50,000 but less than $100,00 2.25 3.25 3.75 4.75
$100,000 but less than $250,000 2.00 3.00 3.50 4.50
$250,000 but less than $500,000 1.75 2.75 3.25 4.25
$500,000 but less than $1,000,000 1.00 2.00 2.50 3.50
$1,000,000 or more 0.50 1.50 2.00 3.00
</TABLE>
At all times while Units are being offered for sale, the Evaluator 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."
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" for each Trust 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" for each Trust 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 Initial 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" for each Trust 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 Initial 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 "Special Trust Information" for each Trust 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 Bonds 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 First Settlement Date (which has been designated the first
Record Date ). This accrued interest will be paid to the Sponsor as the
holder of record of all Units on the First Settlement Date. Consequently,
the amount of accrued interest to be added to the Public Offering Price of
Units will include only accrued interest from the First Settlement Date 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 Initial 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 for each Trust. 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 TRANSACTION DEALER
CONCESSION
(AS OF % OF
PUBLIC
OFFERING
PRICE) (1)
Less than $50,000 3.25%
$50,000 but less than $100,000 3.25
$100,000 but less than $250,000 3.25
$250,000 but less than $500,000 3.25
$500,000 but less than $1,000,000 2.50
$1,000,000 or more 2.00
(1) Dealers who sell on or before March 19, 1997 an aggregate of $100,000,
$250,000 or $500,000 of Units in a Trust will receive an additional dealer
concession of 0.1%, 0.2% or 0.25%, respectively, of the Public Offering
Price.
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 a 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:
SALES CHARGE (% OF PUBLIC OFFERING PRICE)
YEARS TO MATURITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
2 TO 4.99 5 TO 9.99 10 OR MORE
LESS THAN
2
AMOUNT OF PURCHASE
Less than $50,000 1.75% 2.75% 3.25% 4.00%
$50,000 but less than $100,00 1.50 2.50 3.00 4.00
$100,000 but less than $250,000 1.25 2.25 2.75 3.75
$250,000 but less than $500,000 1.25 2.25 2.75 3.50
$500,000 but less than $1,000,000 0.50 1.50 2.00 2.75
$1,000,000 or more 0.25 1.25 1.75 2.25
</TABLE>
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
underwriters and 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 an underwriter or 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
underwriters and 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.
UNDERWRITING CONCESSIONS. The Sponsor will receive from the underwriters
set forth in Part A of this Prospectus the excess over the gross sales
commissions contained in the following table. In addition, the underwriter
shall be entitled to the rebate set forth below for sales made which were
eligible for a quantity discount in the amounts set forth below.
AMOUNT UNDERWRITTEN REBATE (AS A
UNDERWRITING % OF PUBLIC
CONCESSION OFFERING
(AS A % OF PRICE)
PUBLIC
OFFERING
PRICE)
Less than $50,000 3.60% %
$50,000 but less than $100,00 3.60 0.25
$100,000 but less than $250,000 3.60 0.50
$250,000 but less than $500,000 3.60 0.75
$500,000 but less than $1,000,000 2.80 0.70
$1,000,000 2.30 0.70
or more
PROFITS OF SPONSOR. In addition to receiving the difference between the
gross sales charge of Units of a Trust and the applicable dealer or
underwriter 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" for each Trust 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.
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 opening of business on the Initial
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 Initial 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" for each Trust 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 exclusion of interest thereon from Federal
gross income 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 on which interest is
determined to be taxable.
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. (It
should be noted in this connection that such gain does not include any
amounts received in respect of accrued interest or accrued original issue
discount, if any.)
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 and interest and accrued original issue discount on
Bonds which are excludable from gross income under the Internal Revenue
Code of 1986 will retain its status when distributed to the Unitholders;
however, such interest may be taken into account is computing the
alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"). 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 each asset 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. If the Unitholder disposes of a Unit, he is deemed
thereby to have disposed of his entire pro rata interest in all assets of
the Trust involved including his pro rata portion of all the Bonds
represented by the Unit. Legislative proposals have been made that would
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain as constructive sales for purposes of recognition of
gain (but not loss). Unitholders should consult their own tax advisors
with regard to any such constructive sale rules. 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 to the extent that such interest accrued on such Bonds
before the date the Trust acquired ownership of the Bonds (and the amount
of this reduction may exceed the amount of accrued interest paid to the
seller) 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
(subject to various non-recognition provisions of the Code). 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 valuation date nearest the date
of acquisition of the Units. It should be noted that certain legislative
proposals have been made which could affect the calculation of basis for
Unitholders holding securities that are substantially identical to the
Bonds. Unitholders should consult their own tax advisors with regard to
the calculation of basis. The tax basis 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 or less than 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 in the normal course 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.
Sections 1288 and 1272 of the Code provide a complex set of rules governing
the accrual of original issue discount. These rules provide that original
issue discount accrues either on the basis of a constant compound interest
rate or ratably over the term of the Bond, depending on the date the Bond
was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue
discount which would have previously accrued based on its issue price (its
"ADJUSTED ISSUE PRICE") to prior owners. If a Bond is acquired with
accrued interest, that portion of the price paid for the accrued interest
is added to the tax basis of the Bond. When this accrued interest is
received, it is treated as a return of capital and reduces the tax basis of
the Bond. If a Bond is purchased for a premium, the amount of the premium
is added to the tax basis of the Bond. Bond premium is amortized over the
remaining term of the Bond, and the tax basis of the Bond is reduced each
tax year by the amount of the premium amortized in that tax year. The
application of these rules will also vary depending on the value of the
Bond on the date a Unit holder acquires his Unit, and the price the Unit
holder pays for his Unit. Unit holders should consult their tax advisors
regarding these rules and their application. See "Portfolio" appearing in
Part A for each Trust for information relating to Bonds, if any, issued at
an original issue discount.
The Revenue Reconciliation Act of 1993 (the "TAX ACT") subjects tax-exempt
bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount
(if any) by which the stated redemption price at maturity exceeds an
investor's purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued), subject
to a statutory DE MINIMIS rule. Market discount can arise based on the
price a Trust pays for Bonds or the price a Unitholder pays for his or her
Units. Under the Tax Act, accretion of market discount is taxable as
ordinary income; under prior law the accretion had been treated as capital
gain. 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 the 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.
CERTAIN TAX MATTERS APPLICABLE TO CORPORATE UNITHOLDERS. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax for
taxable years beginning after December 31, 1986 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
operating loss deduction). "Adjusted current earnings" includes all
tax-exempt interest, including interest on all of the Bonds in the Trusts.
Under current Code provisions, the Superfund Tax does not apply to tax
years beginning on or after January 1, 1996. Legislative proposals have
been introduced that would extend the Superfund Tax. Under the provisions
of Section 884 of the Code, a branch profits tax is levied on the
"effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest such as interest on the
Bonds in the Trusts. Unitholders should consult their tax advisers with
respect to the particular tax consequences to them including the corporate
alternative minimum tax, the Superfund Tax and the branch profits tax
imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code
interest on indebtedness incurred or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these
rules generally do not apply to interest paid on indebtedness incurred to
purchase or improve a personal residence). Under Section 265 of the Code,
certain financial institutions that acquire Units generally would not be
able to deduct any of the interest expense attributable to ownership of
Units. Legislative proposals have been made that would extend the financial
institution rules to most corporations. Investors with questions regarding
these issues should consult with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial
user" of the facilities being financed with the proceeds of these Bonds, or
persons related thereto, for periods while such Bonds are held by such a
user or related person, will not be excludable from Federal gross income,
although interest on such Bonds received by others would be excludable from
Federal gross income. "Substantial user" and "related person" are defined
under the Code and U.S. Treasury Regulations. Any person who believes he
or she may be a substantial user or related person as so defined should
contact his tax advisor.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"unmodified adjusted gross income" plus 50% of the Social Security benefits
received exceeds the "base amount." The base amount is $25,000 for
unmarried taxpayers, $32,000 for married taxpayers filing a joint return
and zero for married taxpayers who do not live apart at all times during
the taxable year and who file separate returns. Modified adjusted gross
income is adjusted gross income determined without regard to certain
otherwise allowable deductions and exclusions from gross income and by
including tax-exempt interest. To the extent that Social Security benefits
are includible in gross income, they will be treated as any other item of
gross income.
In addition, under the Tax Act, for taxable years beginning after December
31 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus
50% of Social Security benefits received exceeds an "adjusted base amount."
The adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for
married taxpayers filing a joint return, and zero for married taxpayers who
do not live apart at all times during the taxable year and who file
separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer
whose adjusted gross income already exceeds the base amount or the adjusted
base amount must include 50% or 85%, respectively, of his Social Security
benefits in gross income whether or not he receives any tax-exempt
interest. A taxpayer whose modified adjusted gross income (after inclusion
of tax-exempt interest) does not exceed the base amount need not include
any Social Security benefits in gross income.
For purposes of computing the alternative minimum tax applicable to all
taxpayers (including non-corporate taxpayers) subject to the alternative
minimum tax and the Superfund Tax for corporations, interest on certain
private activity bonds (which includes most industrial and housing revenue
bonds) issued on or after August 8, 1986 is included as an item of tax
preference. Except as otherwise noted in Part One for certain Trusts, the
Trusts do not include any such private activity bonds issued on or after
that date.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For
taxpayers other than corporations, net capital gains (which are defined as
net long-term capital gain over net short-term capital loss for a taxable
year) are subject to a maximum stated marginal tax rate of 28%. However,
it should be noted that legislative proposals are introduced from time to
time that affect tax rates and could affect relative differences at which
ordinary income and capital gains are taxed. Under the Code, taxpayers
must disclose to the Internal Revenue Service the amount of tax-exempt
interest earned during the year.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation,
corporations subject to either the environmental tax or the branch profits
tax, financial institutions, certain insurance companies, certain S
corporations, individual recipients of Social Security or Railroad
Retirement benefits and taxpayers who may be deemed to have incurred or
continued indebtedness to purchase or carry tax-exempt obligations.
Prospective investors should consult their tax advisors as to the
applicability of any such collateral consequences.
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.
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 may charge the Trusts a portfolio surveillance fee for services
performed for the Trusts in an amount not to exceed that amount set forth
in "Special Trust Information" for each Trust 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 "Special Trust
Information" for each Trust 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 "Special Trust Information" for each
Trust 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 up to that portion of the Trustee's
annual fee as set forth under "Special Trust Information" for each Trust in
Part A of this Prospectus in reimbursement of the Sponsor's cost of
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" for each Trust 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 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 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 monthly 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 monthly 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. 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.
See Part A of this Prospectus for details of distributions per Unit of each
Trust 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.
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.
UNIT VALUE AND EVALUATION
The value of each Trust is determined by the Trustee 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 as determined by the Evaluator 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 Evaluator 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.
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 (gross negligence in the case of the Sponsor), 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
December 31, 1996, it manages more than $490 billion in assets in over 29
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 "Statements of Condition" and "Schedules of Investments" at the Initial
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.
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 March 5, 1997. Capitalized terms have
been defined in the Prospectus.
TABLE OF CONTENTS
GENERAL RISK DISCLOSURE
Health Facility Obligations
Housing Obligations
Single Family Mortgage Revenue Bonds
Federally Enhanced Obligations
Industrial Revenue Obligations
Electric Utility Obligations
Transportation Facility Revenue Bonds
Water and/or Sewerage Obligations
University and College Revenue Obligations
Bridge Authority and Tollroad Obligations
Dedicated - Tax Supported Bonds
Municipal Lease Bonds
Original Issue Discount Bonds and Stripped Obligations
DESCRIPTION OF RATINGS
Standard & Poor's Corporation
RATINGS OF INSURED TRUST UNITS
APPENDIX A - MASSACHUSETTS DISCLOSURE
APPENDIX B - PENNSYLVANIA DISCLOSURE
GENERAL RISK DISCLOSURE
An investment in Units of an 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<F2>
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.
<F2> As published by the rating companies
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.
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.
APPENDIX A
MASSACHUSETTS DISCLOSURE
Summary. 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.
The Commonwealth of Massachusetts and certain of its cities and towns and
public bodies have experienced financial difficulties that have adversely
affected their credit standing. The recurrence of such financial
difficulties could adversely affect the market value of the instruments
held in the funds.
Fiscal Matters. The Commonwealth's operating fund structure satisfies the
requirements of state finance law and is in accordance with generally
accepted accounting principles ("GAAP"), as defined by the Governmental
Accounting Standards Board. The General Fund and those special revenue
funds which are appropriated in the annual state budget receive most of the
non-bond and non-federal grant revenues of the Commonwealth. These funds
are referred to herein as the "budgeted operating funds" of the
Commonwealth. They do not include the capital projects funds of the
Commonwealth, into which the proceeds of Commonwealth bonds are deposited.
The three principal budgeted operating funds are the General Fund, the
Highway Fund and the Local Aid Fund. Expenditures from these three funds
generally account for approximately 96% of total expenditures of the
budgeted operating funds.
The Commonwealth's budgeted operating funds for fiscal 1992, 1993, 1994 and
1995 showed an excess of revenues and other sources over expenditures and
other uses of $312.3 million, $13.1 million, $26.8 million and $137 million
and positive fund balances of $549.4 million, $562.5 million, $589.3
million and $726 million, respectively. Over the same period, budgeted
expenditures were approximately $13.420 billion for fiscal 1992, $14.696
billion for fiscal year 1993, $15.523 billion for fiscal 1994 and $16.251
billion for fiscal 1995.
The Commonwealth is in the process of closing its records for fiscal 1996.
Based upon the preliminary financial report of the Commonwealth, budgeted
revenues and other sources collected in fiscal 1996 were approximately
$17.323 billion, and budgeted expenditures and other uses of funds in
fiscal 1996 were approximately $16.896 billion.
The Commonwealth's fiscal 1997 budget is based on numerous spending and
revenue estimates, the achievement of which cannot be assumed. The
Executive Office of Administration and Finance estimates fiscal 1997
budgeted expenditures and other uses will total approximately $17.710
billion, while budgeted revenues and other sources will total approximately
$17.242 billion.
Limitations on Tax Revenues. In Massachusetts, efforts to limit and reduce
levels of taxation have been underway for several years. Limits were
established on state tax revenues by legislation enacted on October 25,
1986 and by an initiative petition approved by the voters on November 4,
1986. The two measures are inconsistent in several respects.
Chapter 62F, which was added to the General laws by initiative petition in
November 1986, establishes a state tax revenue growth limit for each fiscal
year equal to the average positive rate of growth in total wages and
salaries in the Commonwealth, as reported by the federal government, during
the three calendar years immediately preceding the end of such fiscal year.
Chapter 62F also requires that allowable state tax revenues be reduced by
the aggregate amount received by local governmental units from any newly
authorized or increased local option taxes or excises. Any excess in state
tax revenue collections for a given fiscal year over the prescribed limit,
as determined by the State Auditor, is to be applied as a credit against
the then current personal income tax liability of all taxpayers in the
Commonwealth in proportion to the personal income tax liability of all
taxpayers in the commonwealth for the immediately preceding tax year.
Unlike Chapter 29B, as described below, the initiative petition did not
exclude principal and interest payments on Commonwealth debt obligations
from the scope of its tax limit. However, the preamble contained in
Chapter 62F provides that "although not specifically required by anything
contained in this chapter, it is assumed that from allowable state tax
revenues as defined herein the Commonwealth will give priority attention to
the funding of state financial assistance to local governmental units,
obligations under the state governmental pension systems, and payment of
principal and interest on debt and other obligations of the Commonwealth."
The legislation enacted in October 1986, which added Chapter 29B to the
General Laws, also establishes an allowable state revenue growth factor by
reference to total wages and salaries in the Commonwealth. However, rather
than utilizing a three-year average wage and salary growth rate, as used by
Chapter 62F, Chapter 29B utilizes an allowable state revenue growth factor
equal to one-third of positive percentage gain in Massachusetts wages and
salaries, as reported by the federal government, during the three calendar
years immediately preceding the end of a given fiscal year. Additionally,
unlike Chapter 62F, Chapter 29B allows for an increase in maximum state tax
revenues to fund an increase in local aid and excludes from its definition
of state tax revenues (i) income derived from local option taxes and
excises, and (ii) revenues needed to fund debt service costs.
Tax revenues in fiscal 1992 through fiscal 1996 were lower than the limit
set by either Chapter 62F or Chapter 29B, and the Executive Office for
Administration and Finance currently estimates that state tax revenues in
fiscal 1997 will not reach the limit imposed by either of these statutes.
Local Aid, PROPOSITION 2 1/2. In November 1980, voters in the
Commonwealth approved a statewide tax limitation initiative petition,
commonly known as Proposition 2 1/2, to constrain levels of property
taxation and to limit the charges and fees imposed on cities and towns by
certain governmental entities, including county governments. Proposition 2
1/2 is not a provision of the state constitution and accordingly is subject
to amendment or repeal by the Legislature. Proposition 2 1/2, as amended
to date, limits the property taxes that may be levied by any city or town
in any fiscal year to the lesser of (i) 2.5% of the full and fair cash
valuation of the real estate and personal property therein, and (ii) 2.5%
over the previous year's levy limit plus any growth in the tax base from
certain new construction and parcel subdivisions. Proposition 2 1/2 also
limits any increase in the charges and fees assessed by certain
governmental entities, including county governments, on cities and towns to
the sum of (i) 2.5% of the total charges and fees imposed in the preceding
fiscal year, and (ii) any increase in charges for services customarily
provided locally or services obtained by the city or town at its option.
The law contains certain override provisions and, in addition, permits debt
service on specific bonds and notices and expenditures for identified
capital projects to be excluded from the limits by a majority vote at a
general or special election. At the time Proposition 2 1/2 was enacted,
many cities and towns had property tax levels in excess of the limit and
were therefore required to roll back property taxes with a concurrent loss
of revenues. Between fiscal 1981 and fiscal 1996, the aggregate property
tax levy grew from $3.347 billion to $5.924 billion, representing an
increase of approximately 77%. By contrast, according to Federal Bureau of
Labor Statistics, the consumer price index for all urban consumers in
Boston grew during the same period by approximately 92%.
Many communities have responded to the limitation imposed by Proposition 2
1/2 through statutorily permitted overrides and exclusions. Override
activity steadily increased throughout the 1980's before peaking in fiscal
1991 and decreasing thereafter. In fiscal 1992, 65 communities approved
one of the three types of referenda questions (override of levy limit,
exclusion of debt service, or exclusion of capital expenditures) adding
$31.0 million to their levy limits. In fiscal 1993, 59 communities added
$16.3 million through override votes and in fiscal 1994, only 48
communities had successful override referenda which added $8.4 million to
their levy limits. In fiscal 1995, 32 communities added $8.8 million. In
fiscal 1996, 30 communities added $5.8 million to their levy limits.
Although Proposition 2 1/2 will continue to constrain local property tax
revenues, significant capacity exists for overrides in nearly all cities
and towns.
In addition to overrides, Proposition 21/2 allows a community, through
voter approval, to assess taxes in excess of its levy limit for the payment
of certain capital projects (capital outlay expenditure exclusions) and for
the payment of specified debt service costs (debt exclusions). Capital
exclusions were passed by 19 communities in fiscal 1996 and totaled $1.5
million. In fiscal 1996, the impact of successful debt exclusion votes
going back as far as fiscal 1983, was to raise the levy limits of 229
communities by $125.8 million.
COMMONWEALTH FINANCIAL SUPPORT FOR LOCAL GOVERNMENTS. During the 1980s,
the Commonwealth increased payments to its cities, towns and regional
school districts ("Local Aid") to mitigate the impact of Proposition 2 1/2
on local programs and services. In fiscal 1997, approximately 19.9% of the
Commonwealth's budget is estimated to be allocated to direct Local Aid.
Local Aid payments to cities, towns and regional school districts take the
form of both direct and indirect assistance. Direct Local Aid consists of
general revenue sharing funds and specific program funds sent directly to
local governments and regional school districts as reported on the
so-called "cherry sheet" prepared by the Department of Revenue, excluding
certain pension funds and nonappropriated funds.
As a result of comprehensive education reform legislation enacted in June
1993, a large portion of general revenue sharing funds are earmarked for
public education and are distributed through a formula designed to provide
more aid to the Commonwealth's poorer communities. The legislation
established a fiscal 1993 state spending base of approximately $1.288
billion for local education purposes and required annual increases in state
expenditures for such purposes above that base, subject to appropriation,
estimated to be approximately $175 million in fiscal 1994, approximately
$396 million in fiscal 1995, approximately $629 million in fiscal 1996 and
approximately $881 million in fiscal 1997, with additional annual increases
anticipated in later years. The fiscal 1994, 1995, 1996 and 1997 budgets
have fully funded the requirements imposed by this legislation.
Another component of general revenue sharing, the Lottery and Additional
Assistance programs, provides unrestricted funds for municipal use. There
are also several specific programs funded through direct Local Aid, such as
highway construction, school building construction, and police education
incentives.
In addition to direct Local Aid, the Commonwealth has provided substantial
indirect aid to local governments, including, for example, payments for
MBTA assistance and debt service, pensions for teachers, pension
cost-of-living allowances for municipal retirees, housing subsidies and the
costs of courts and district attorneys that formerly had been paid by the
counties.
Direct Local Aid increased from $2.359 billion in fiscal 1992 to $2.547
billion in fiscal 1993 and to $2.727 billion in fiscal 1994. Fiscal 1995
expenditures for direct Local Aid were $2.976 billion, which was an
increase of approximately 9.1 % above the fiscal 1994 level. Fiscal 1996
expenditures for direct Local Aid were $3.246 billion, an increase of
approximately 9.1% above the fiscal 1995 level. It is estimated that
fiscal 1997 expenditures for Direct Local Aid will be $3.534 billion, which
is an increase of approximately 8.9% above the fiscal 1996 level.
Initiative Law. A statute adopted by voter initiative petition at the
November, 1990 statewide election regulates the distribution of Local Aid
to cities and towns. This statute requires that, subject to annual
appropriation, no less than 40% of collections from personal income taxes,
sales and use taxes, corporate excise taxes, and lottery fund proceeds be
distributed to cities and towns. Under the law, the Local Aid distribution
to each city or town would equal no less than 100% of the total Local Aid
received for fiscal 1989. Distributions in excess of fiscal 1989 levels
would be based on new formulas that would replace the current Local Aid
distribution formulas. By its terms, the new formula would have called for
a substantial increase in direct Local Aid in fiscal 1992 and subsequent
years. However, Local Aid payments expressly remain subject to annual
appropriation, and fiscal 1992, fiscal 1993, fiscal 1994, fiscal 1995 and
fiscal 1996 appropriations for Local Aid did not meet, and fiscal 1997
appropriations for Local Aid do not meet, the levels set forth in the
initiative law.
Commonwealth Expenditures. Fiscal 1993 budgeted expenditures were $14.696
billion, an increase of 9.6% from fiscal 1992. Fiscal 1994 budgeted
expenditures were $15.523 billion, an increase of 4.7% from fiscal 1993.
Fiscal 1996 budgeted expenditures were $16.896 billion, an increase of 4.0%
from fiscal 1995. It is estimated that fiscal 1997 budgeted expenditures
will be $17.710 billion, an increase of 4.8% over fiscal 1996 levels.
Commonwealth expenditures since 1992 largely reflect significant growth in
several programs and services provided by the Commonwealth, principally
direct Local Aid, Medicaid, group health insurance, debt service, pensions,
higher education, and assistance to the Massachusetts Bay Transportation
Authority and regional transit authorities.
The Commonwealth is responsible for the payment of pension benefits for
state employees and for school teachers throughout the state and for the
cost-of-living increases payable to local government retirees. In 1988,
the Commonwealth adopted a funding schedule under which it is required to
fund future pension liabilities currently and to amortize the accumulated
unfunded liabilities over 40 years. Since the adoption of this schedule,
the amount of the unfunded liability has been reduced significantly. Total
pension expenditures increased at an average annual rate of 8% per year,
rising from $751.5 million in fiscal 1992 to $1.005 billion in fiscal 1996.
Total pension expenses include the costs associated with an early
retirement program for elementary and secondary school teachers mandated by
the 1993 education reform legislation. In fiscal 1997, the anticipated
pension expenditure is $1.074 billion, an increase of 6.9% over fiscal 1996
costs. In fiscal 1996, a number of reform measures affecting pensions were
enacted into law. Among the most notable were a measure consolidating the
assets of the state employees' and teachers' retirement systems into a
single investment fund and another that will reform the disability pension
system.
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 A1. From 1989 through 1992, the Commonwealth had experienced a
steady decline in its rating by Moody's. 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 value 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.
Employment. Between 1988 and 1992, total employment in Massachusetts
declined 10.7 percent. The construction, manufacturing, and trade sectors
experienced the greatest decreases during this time, with more modest
declines taking place in the government, finance, insurance and real
estate, and services sectors. In 1993 and 1994, however, total employment
increased by 1.6 percent and 2.25 percent, respectively. Employment levels
increased in all sectors except manufacturing, and it is expected that the
Central Artery/Tunnel Project and the Boston harbor Cleanup will further
contribute to the growth in employment in the construction sector. The
only employment sector that did not grow in 1993 and 1994 was the
manufacturing sector, which has experienced employment declines in every
year since 1985. The most rapid growth in 1995 came in the construction
sector and the services sector, which grew at rates of 4.7 percent and 4.9
percent, respectively. Total non-agricultural employment in Massachusetts
grew at a rate of 2.4 percent in 1995.
Between 1979 and 1989, the Massachusetts unemployment rate was
significantly lower than the national average. During the economic
recession of the early 1990s, however, the unemployment rate in
Massachusetts was considerably higher than the national average. In 1992,
the unemployment rate in Massachusetts was 2.3 percentage points higher
than the national average: 9.1 percent compared to 6.8 percent. Although
employment was slow to respond to the beginning of the recovery in 1992,
unemployment rates in Massachusetts since 1993 have declined faster than
the national average. As a result, the average annual unemployment rate in
Massachusetts for 1993 was identical to that of the United States, and
since 1994 the unemployment rate in Massachusetts has been slightly below
the national average. The Massachusetts unemployment rate remained stable
at 5.3 percent between September and November of 1995, and fell to 4.5
percent in July of 1996. The unemployment rate in New England was 4.6
percent in July 1996, 4.7 percent in June 1996, and 5.4 percent in July
1995. The United States unemployment rate was 5.1 percent in August 1996,
5.4 percent in July 1996, and 5.6 percent in August 1995.
Litigation. There are pending in state and federal courts within the
Commonwealth and in the Supreme Court of the United States various suits in
which the Commonwealth is a party.
From time to time actions are brought against the Commonwealth by the
recipients of governmental services, particularly recipients of human
services benefits, seeking expanded levels of services and benefits and by
the providers of such services challenging the Commonwealth's reimbursement
rates and methodologies. 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 June, 1993,
in an action challenging the Commonwealth's funding of public primary and
secondary education systems on both federal and state constitutional
grounds, Webby v. Dukakis (now known as McDuffy v. Robertson,), the Supreme
Judicial Court ruled that the Massachusetts Constitution imposes an
enforceable duty on the Commonwealth to provide adequate public education
for all children in the Commonwealth and that the Commonwealth was not at
that time fulfilling this constitutional duty. However, the court also
ruled that no then-present statutory enactment was to be declared
unconstitutional. The court further ruled that the Legislature and the
Governor were to determine the necessary response to satisfy the
Commonwealth's constitutional duty, although a single justice of the court
could retain jurisdiction to determine whether, within a reasonable time,
appropriate legislative action had been taken. Comprehensive education
reform legislation was approved by the Legislature and the Governor later
in June, 1993. On May 10, 1995, the plaintiffs filed a motion for further
relief, arguing that the 1993 legislation did not provide sufficiently for
public education and that its timetable was too slow. It cannot be
determined at this time what further action, if any, the plaintiffs in
McDuffy may take or whether the court will order any further relief.
Challenges by residents of five state schools for the retarded in Ricci v.
Murphy resulted in a consent decree in the 1970's which required the
Commonwealth to upgrade and rehabilitate the facilities in question and to
provide services and community placements in western Massachusetts. The
District Court issued orders in October, 1986 leading to termination of
active judicial supervision. On May 25, 1993, the District Court entered a
final order vacating and replacing all consent decrees and court orders.
In their place, the final order requires lifelong provisions for
individualized services to class members and contains requirements
regarding staffing, maintenance of effort (including funding) and other
matters.
In Hodge v. Gallant, plaintiffs allege that the Division of Medical
Assistance has unlawfully denied personal care attendant services to
certain disabled Medicaid recipients. The Superior Court denied
plaintiffs' motions for a preliminary injunction and class certification.
If plaintiffs were to prevail on their claims and the Commonwealth were
required to provide all of the services sought by plaintiffs to all
similarly situated persons' a substantial increase in the annual cost to
the Commonwealth of these services might eventually be required. The
Division of Medical Assistance currently estimates this increase to be as
much as $200 million per year. In September, 1995, the parties argued
cross motions for summary judgment, which are now under advisement.
In Beaulieu v. Belmont, the plaintiffs are former residents of the Fernald
School, a facility of the Department of Mental Retardation. They allege
that in the 1950's they were fed radioactive isotopes without their
informed consent. They claim violations of their civil rights, battery,
invasion of privacy, loss of consortium and misrepresentation. The amount
of potential liability is estimated to be $25 million.
The Commonwealth is engaged in various lawsuits concerning environmental
and related laws, including an action brought by the U.S. Environmental
Protection Agency alleging violations of the Clean Water Act and seeking to
enforce the clean-up of Boston Harbor. United States v. Metropolitan
District Commission. See also Conservation Law Foundation v. Metropolitan
District Commission. The Massachusetts Water Resources Authority,
successor in liability to the Metropolitan District Commission, has assumed
primary responsibility for developing and implementing a court-approved
plan and timetable for the construction of the treatment facilities
necessary to achieve compliance with the federal requirements. During
fiscal year 1996, the MWRA continued the successful operation of the new
Deer Island Treatment Plant, where new primary facilities opened in
January, 1995, and demolished much of the old treatment plant to make way
for new secondary treatment facilities now under construction. In
addition, the Court approved reducing the size of the secondary plant from
a four-battery to a three-battery facility and accepted a schedule for
completing a revised plan for combined sewer overflow control, saving $1.2
billion in previously anticipated capital expenditures over the next ten
years. The MWRA currently has projected that the total cost of
construction of the wastewater facilities required under the Court's order
is approximately $3.584 billion in current dollars, with approximately $734
million to be spent after June 30, 1996. Under the Clean Water Act, the
Commonwealth may be liable for any costs of complying with any judgment in
these or any other Clean Water Act cases to the extent the MWRA or a
municipality is prevented by state law from raising revenues necessary to
comply with such a judgment.
In Massachusetts Wholesalers of Malt Beverages v. Commonwealth,
associations of bottlers challenged the 1990 amendments to the bottle bill
which escheat abandoned deposits to the Commonwealth. Plaintiffs claimed a
taking; the Commonwealth argued a legitimate regulation of abandoned
amounts. In March, 1993, the Supreme Judicial Court upheld the amendments
except for the initial funding requirement, which the Court held severable.
In August 1994, the Superior Court ruled that the Commonwealth is liable
for certain amounts (plus interest) as a result of the Supreme Judicial
Court's decision. The actual amount will be determined in further
proceedings. In February, 1996, the Commonwealth settled all remaining
issues with one group of plaintiffs, the Massachusetts Soft Drink
Association. Payments to that group will total approximately $7 million.
The legislature appropriated the funds necessary for these payments in its
final supplemental budget for fiscal 1996. Litigation with the other group
of plaintiffs, the Massachusetts Wholesalers of Malt Beverages, is still
pending. The remaining potential liability is approximately $50 million.
In The First National Bank of Boston v. Commissioner of Revenue, The First
National Bank of Boston challenges the constitutionality of the former
version of the Commonwealth's bank excise tax. In 1992, several pre-1992
petitions filed by the bank, which raised the same issues, were settled
prior to a board decision. The bank has now filed claims with respect to
1993 and 1994. The bank claims that the tax violated the Commerce Clause
of the United States Constitution by including its worldwide income without
apportionment. The Commonwealth's potential liability is $21 million.
In State Street Bank and Trust Company v. Commissioner of Revenue, State
Street Bank and Trust Company has raised the same claims as The First
National Bank of Boston, outlined above. State Street Bank also claims
that it is entitled to alternative apportionment under the bank excise tax.
The Commonwealth's potential liability is $82 million.
In addition, there are several tax cases pending which could result in
significant refunds if taxpayers prevail. It is the policy of the Attorney
General and the Commissioner of Revenue to defend such actions vigorously
on behalf of the Commonwealth, and the descriptions that follow are not
intended to imply that the Commissioner has conceded any liability
whatsoever.
On March 22, 1995, the Supreme Judicial Court issued its opinion in Perini
Corporation v. Commissioner of Revenue. The court held that certain
deductions from the net worth measure of the Massachusetts corporate excise
tax violate the Commerce Clause of the United States Constitution. The
court remanded the case for entry of a declaration and future proceedings,
if necessary, to determine other appropriate remedies. On October 2, 1995,
the United States Supreme Court denied the Commonwealth's petition for a
writ of certiorari. The Supreme Judicial Court, on April 30, 1996, entered
a partial final judgment implementing its decision for tax years ending
prior to January 1, 1995. The Department of Revenue estimates that tax
revenues in the amount of $40 million to $55 million may be abated as a
result of the partial final judgment. On May 13, 1996, the Court entered
an order for judgment and memorandum concerning relief for tax years ending
on or after January 1, 1996. A final judgment was entered on June 6, 1996.
The Department of Revenue is estimating the fiscal impact of that ruling.
Approximately $75 million in taxes and interest in the aggregate are at
issue in several other cases pending before the Appellate Tax Board or on
appeal to the Appeals Court or the Supreme Judicial Court.
In Spaulding Rehabilitation Hospital Corporation v. Massachusetts Highway
Department, et al., the Spaulding Rehabilitation Hospital 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 the
hospital is successful, it could recover the fair market value of its
property in addition to its relocation costs with respect to its personal
property. It is estimated that the Commonwealth's potential liability is
approximately $50 million. The hospital has signed interrogatories
indicating that it believes that the property is worth more than $60
million.
In The McCourt Co., Inc. v. Commonwealth, the Commonwealth faces an
additional potential liability of approximately $75 million to $135 million
in connection with a taking by the Massachusetts Highway Department related
to the relocation of Northern Avenue in South Boston.
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 Form of Trust Agreement for Fidelity Defined Trusts - Municipal Income
Trust, Series 1 among National Financial Services Corporation as Depositor
and Portfolio Supervisor, Muller Data Corporation as Evaluator and The
Chase Manhattan Bank as Trustee.
1.1.1 Form of Standard Terms and Conditions of Trust for Fidelity Defined
Trusts - Municipal Income Trust, Series 1 and certain subsequent series
among National Financial Services Corporation as Depositor and Portfolio
Supervisor, Muller Data Corporation as Evaluator and The Chase Manhattan
Bank as Trustee.
1.4 Copy of Articles of Incorporation of National Financial Services
Corporation, Depositor (incorporated by reference to Amendment No. 2 to the
Registration on Form S-6 (File No. 33-62243) filed on behalf of Fidelity
Defined Trusts, Series 1).
1.5 Copy of By-Laws of National Financial Services Corporation, Depositor
(incorporated by reference to Amendment No. 2 to the Registration on Form
S-6 (File No. 33-62243) filed on behalf of Fidelity Defined Trusts, Series
1).
2.1 Copy of Certificate of Ownership (included in Exhibit 1.1.1 filed
herewith on page 2 and incorporated herein by reference).
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal income tax status of securities being
registered.
3.3 Opinion of Counsel as to New York income tax status of securities being
registered.
3.4 Opinion of Counsel as to advancement of funds by Trustee.
3.5 Opinions of state counsel.
4.1 Consent of Rating Agency.
4.2 Consent of Independent Certified Public Accountants.
4.3 Consent of Evaluator
6.1 List of Directors and Officers of National Financial Services
Corporation, Depositor (incorporated by reference to Amendment No. 2 to the
Registration on Form S-6 (File No. 33-62243) filed on behalf of Fidelity
Defined Trusts, Series 1).
7.1 Powers of Attorney executed by the Directors and Officers of National
Financial Services Corporation, Sponsor, listed on page S-3 of this
Registration Statement (incorporated by reference to the initial
Registration Statement on Form S-6 [File No. 33-62243] filed on behalf of
Fidelity Defined Trusts, Series 1).
Ex-27 Financial Data Schedules.
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 Amendment No. 1 to the 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 5th day of March, 1997.
Fidelity Defined Trusts - Municipal Income Trust, Series 1
(Registrant)
By: National Financial Services Corporation
(Depositor)
/s/ David J. Pearlman
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
March 5, 1997.
Signature Title
James H. Messenger President and Director
Timothy M. McKenna Director
Robert P. Mazzarella Director
Sherif A. Nada Director
Shaugn Stanley Senior Vice President, Finance
and Chief Financial Officer
/s/ David J. Pearlman
(Attorney-in-fact)*
_______________________________
*An executed copy of the related powers of attorney were filed as Exhibit
7.1 to the initial Registration Statement 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.
Exhibit 1.1
Fidelity Defined Trusts - Municipal Income Trust, Series 1
Trust Agreement
Dated: March 5, 1997
This Trust Agreement among National Financial Services Corporation, as
Depositor and Portfolio Supervisor, Muller Data Corporation as Evaluator,
and The Chase Manhattan Bank, as Trustee, sets forth certain provisions in
full and incorporates other provisions by reference to the document
entitled "Standard Terms and Conditions of Trust for Fidelity Defined
Trusts - Municipal Income Trust Series 1 effective March 5, 1997" (herein
called the "Standard Terms and Conditions of Trust"), and such provisions
as are set forth in full and such provisions as are incorporated by
reference constitute a single instrument. All references herein to
Articles and Sections are to Articles and Sections of the Standard Terms
and Conditions of Trust.
Witnesseth That:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, the Trustee, the Evaluator and Portfolio
Supervisor agree as follows:
Part I
Standard Terms And Conditions Of Trust
Subject to the provisions of Part II hereof, all the provisions contained
in the Standard Terms and Conditions of Trust are herein incorporated by
reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had
been set forth in full in this instrument.
Part II
Special Terms And Conditions Of Trust
The following special terms and conditions are hereby agreed to:
(a) The Securities defined in Section 1.01(5) listed in Schedule A hereto
have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of the Trust Fund
represented by each Unit for a Trust is the amount set forth under the
caption "Essential Information - Fractional Undivided Interest per Unit" in
Part-A of the Prospectus for each Trust.
(c) The number of units in a Trust referred to in Section 2.03 is set
forth under the caption "Essential Information - Number of Units" in Part-A
of the Prospectus for each Trust.
(d) The "First Settlement Date" for each Trust is the date set forth under
"Essential Information-First Settlement Date" in Part-A of the Prospectus
for each Trust.
(e) The Trustee's compensation for each Trust shall be in such amount as
set forth under the caption "Special Trust Information" in Part-A of the
Prospectus for each Trust.
(f) The Trustee shall reimburse the Depositor from the Trustee's
commission the Depositor's cost of providing to its customers who are
Unitholders bookkeeping and administrative services with respect to such
Unitholders' Units of a kind customarily performed by the Trustee, not to
exceed that annual amount per $1,000 principal amount of Securities
specified in the prospectus (such maximum annual amount to be pro rated for
any calendar year in which the Depositor provides services during less than
the whole of such year). Such reimbursement shall be computed in the same
manner as the Trustee's compensation and shall be paid at or shortly after
the end of each calendar year against a statement submitted to Trustee,
which shall constitute the Depositor's certification that the amounts
claimed as due do not exceed the amount payable in accordance with this
paragraph, and the Trustee shall have no liability for payments made in
reliance upon such certification.
(g) The Depositor shall bear the cost of any audit directed pursuant to
Section 6.02 of the Standard Terms and Conditions of Trust.
In Witness Whereof, National Financial Services Corporation, Muller Data
Corporation and The Chase Manhattan Bank have each caused this Trust
Agreement to be executed and the respective corporate seal to be hereto
affixed and attested by authorized officers; all as of the day, month and
year first above written.
National Financial Services Corporation, Depositor
By ___________________
The Chase Manhattan Bank, Trustee
By __________________
Muller Data Corporation, Evaluator
By __________________
National Financial Services Corporation, Portfolio Supervisor
By __________________
Schedule A To The Trust Agreement
Securities Initially Deposited
In
Fidelity Defined Trusts - Municipal Income Trust, Series 1
(Note: Incorporated herein and made a part hereof is the "Portfolio" as set
forth for each Trust in the Prospectus.)
Standard Terms and Conditions of Trust
For
Fidelity Defined Trusts Municipal Income Trust Series 1
and certain subsequent Series
Effective: March 5, 1997
Among
National Financial Services Corporation
Depositor and Portfolio Supervisor
Muller Data Corporation
Evaluator
The Chase Manhattan Bank
Trustee
TABLE OF CONTENTS
Section Heading Page
Preamble 1
Form of Certificate 2
Article II Deposit of Securities; Acceptance of Trust; Form and Issuance of
Certificates; Portfolio Insurance for the Insured Trusts; Uncertificated
Form; Separate Trusts 6
Section 2.01. Deposit of Securities 6
Section 2.02. Acceptance of Trust 8
Section 2.03. Issue of Certificates 8
Section 2.04. Form of Certificates 9
Section 2.05. Uncertificated Form 9
Section 2.06. Portfolio Insurance for the Insured Trusts 9
Section 2.07. Separate Trusts 11
Article III Administration of Fund 11
Section 3.01. Initial Cost 11
Section 3.02. Interest Account 12
Section 3.03. Principal Account 12
Section 3.04. Reserve Account 13
Section 3.05. Distribution 13
Section 3.06. Distribution Statements 17
Section 3.07. Sale of Securities 19
Section 3.08. Refunding Securities 21
Section 3.09. Counsel 21
Section 3.10. Notice and Sale by Trustee 21
Section 3.11. Trustee Not Required to Amortize 21
Section 3.12. Liability of Depositor 21
Section 3.13. Notice to Depositor 22
Section 3.14. Limited Replacement of Special Securities; Replacement
Securities 22
Section 3.15. Portfolio Supervisor 24
Article IV Evaluation of Securities; Evaluator 25
Section 4.01. Evaluation of Securities 25
Section 4.02. Information for Unitholders 25
Section 4.03. Compensation of Evaluator 26
Section 4.04. Liability of Evaluator 26
Section 4.05. Resignation and Removal of Evaluator 26
Article V Evaluation, Redemption, Purchase, Transfer, Interchange,
Replacement of Certificates or Units Held in Uncertificated Form 27
Section 5.01. Evaluation 27
Section 5.02. Redemptions by Trustee 28
Section 5.03. Transfer or Interchange of Certificates or Units Held in
Uncertificated Form 31
Section 5.04. Certificates Mutilated, Destroyed, Stolen or Lost 32
Article VI Trustee 32
Section 6.01. General Definition of Trustee's Liabilities, Rights and
Duties 32
Section 6.02. Books, Records and Reports 35
Section 6.03. Indenture and List of Securities on File 36
Section 6.04. Compensation 36
Section 6.05. Removal and Resignation of Trustee; Successor 37
Section 6.06. Qualifications of Trustee 39
Article VII Rights of Unitholders 39
Section 7.01. Beneficiaries of Trust 39
Section 7.02. Rights, Terms and Conditions 39
Article VIII Additional Covenants; Miscellaneous Provisions 40
Section 8.01. Amendments 40
Section 8.02. Termination 40
Section 8.03. Construction 42
Section 8.04. Registration of Units 42
Section 8.05. Written Notice 42
Section 8.06. Severability 43
Section 8.07. Dissolution of Depositor Not to Terminate 43
Signature Page 44
STANDARD TERMS AND CONDITIONS OF TRUST
FOR
FIDELITY DEFINED TRUSTS MUNICIPAL INCOME TRUST SERIES 1
and certain subsequent Series
Effective: March 5, 1997
These Standard Terms and Conditions of Trust effective March 5, 1997 are
executed between National Financial Services Corporation, as Depositor and
Portfolio Supervisor, Muller Data Corporation, as Evaluator and The Chase
Manhattan Bank, as Trustee.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, the Trustee, the Evaluator and the Portfolio
Supervisor agree as follows:
INTRODUCTION
These Standard Terms and Conditions of Trust, effective March 5, 1997,
shall be applicable to Fidelity Defined Trusts Municipal Income Trust
Series 1 and certain subsequent Series established after the date of
effectiveness hereof, as provided in this paragraph. For Fidelity Defined
Trusts Municipal Income Trust Series 1 and certain subsequent Series
established after the date of effectiveness hereof to which these Standard
Terms and Conditions of Trust, effective March 5, 1997, are to be
applicable, the Depositor, the Trustee, the Evaluator and the Portfolio
Supervisor shall execute a Trust Agreement, incorporating by reference
these Standard Terms and Conditions of Trust, effective March 5, 1997, and
designating any exclusion from or exception to such incorporation by
reference for the purposes of that Series or variation of the terms hereof
for the purposes of that Series and specifying for that Series and for each
Trust in such Series (i) the Securities deposited in trust, (ii) the
fractional undivided interest represented by each Unit, (iii) the number of
Units of the Trust, (iv) the First Settlement Date and (v) the Trustee's
rate of compensation.
Whereas, the form of the Certificates shall be substantially as follows and
shall indicate the Series number and the name of the Trust, as set forth in
the Trust Agreement:
Certificate of Ownership Plan of Distribution:
Evidencing an Undivided
Interest In
FIDELITY DEFINED TRUSTS MUNICIPAL INCOME TRUST
See Reverse For
Certain Definitions
This is to certify that
is the owner and registered
holder of this Certificate evidencing
the ownership of
of fractional undivided interest in the above-named Trust created pursuant
to the Indenture, a copy of which is available at the office of the
Trustee. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Indenture to which the holder of this
Certificate by virtue of the acceptance hereof assents and is bound. This
Certificate is transferable and interchangeable by the registered owner in
person or by his duly authorized attorney at the Trustee's office upon
surrender of this Certificate properly endorsed or accompanied by a written
instrument of transfer and any other documents that the Trustee may require
for transfer, in form satisfactory to the Trustee, and payment of the fees
and expenses provided in the Indenture.
Witness the facsimile signature of the Depositor and the manual signature
of an authorized signatory of the Trustee.
Dated:
National Financial Services
Corporation, Depositor The Chase Manhattan Bank, Trustee
By:______________________________ By:____________________
Authorized Signatory
CONTROL NO.
FORM OF ASSIGNMENT
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT - ____ Custodian ______
TEN ENT -as tenants by the entireties
(Cust) (Minor)
JT TEN -as joint tenants with right Under Uniform Gifts
to Minors Act
of survivorship and not
as tenants in common ______________________________
State
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________________________ hereby sell, assign
and transfer ____________ Units represented by this Certificate unto
_____________________________
Social Security or Other Identifying Number of
Assignee must be provided
___________________________________________________________________________
and does hereby irrevocably constitute and appoint
_____________________________________________________, attorney, to
transfer said Units on the books of the Trustee, with full power and
substitution in the premises.
Dated: _____________________________________________
Notice: The signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature(s) Guaranteed by
_________________________________
Firm or Bank
_________________________________
Authorized Signature
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.
Now, Therefore, in consideration of the premises and of the mutual
agreements herein contained, the Depositor, the Trustee, the Evaluator and
the Portfolio Supervisor agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Whenever used in this Indenture the following words and
phrases, unless the context clearly indicates otherwise, shall have the
following meanings:
(1) "DEPOSITOR" shall mean National Financial Services Corporation and its
successors in interest, or any successor depositor appointed as hereinafter
provided.
(2) "TRUSTEE" shall mean The Chase Manhattan Bank, or any successor
trustee appointed as hereinafter provided.
(3) "EVALUATOR" shall mean Muller Data Corporation and its successors in
interest, or any successor evaluator appointed as hereinafter provided.
(4) "PORTFOLIO SUPERVISOR" shall mean National Financial Services
Corporation and its successors in interest, or any successor Portfolio
Supervisor appointed as hereinafter provided.
(5) "SECURITIES" shall mean such of the interest-bearing tax-exempt
obligations; including delivery statements relating to "when, as and if
issued" and/or "regular-way" contracts, if any, for the purchase of certain
securities and certified or bank check(s) or letter(s) of credit sufficient
in amount or availability required for such purchase, deposited in
irrevocable trust and listed in Schedule A of the Trust Agreement, and any
obligations received in exchange, substitution or replacement for such
obligations pursuant to Sections 3.08 and 3.14 hereof, as may from time to
time continue to be held as a part of the Trust Fund.
(6) "CERTIFICATE" shall mean any one of the certificates executed by the
Trustee and the Depositor evidencing ownership of an undivided fractional
interest in a Trust.
(7) "DATE OF DEPOSIT" shall mean the date upon which the Trust is created.
(8) "CONTRACT SECURITIES" shall mean Securities which are to be acquired
by the Fund pursuant to contracts, including (i) Securities listed in
Schedule A to the Trust Agreement and (ii) Securities which the Depositor
has contracted to purchase for the Fund pursuant to Section 3.14 hereof.
(9) "TRUST FUND" or "FUND" shall mean the collective Trusts created by the
Trust Agreement, which shall consist of the Securities held pursuant and
subject to the Indenture, together with all undistributed interest received
or accrued thereon, any undistributed cash realized from the sale,
redemption, liquidation or maturity thereof or the proceeds of insurance,
if any, received in respect thereof. Such amounts as may be on deposit in
the Reserve Account hereinafter established shall be excluded from the
Trust Fund.
(10) "TRUST" or "TRUSTS" shall mean the separate trust or trusts created
by the Trust Agreement, the Securities constituting the portfolio of which
are listed in Schedule A attached hereto. "INSURED TRUST" shall mean a
Trust in a Fund which has obtained Insurance, as such term is defined in
Section 1.01(12).
(11) "TRUST AGREEMENT" shall mean the Trust Agreement for the particular
series of the Fund into which the Indenture is incorporated.
(12) "INSURANCE" shall mean the contract or policy of insurance obtained
by certain Trusts of the Fund guaranteeing the payment when due of the
principal of and interest on the Securities held pursuant and subject to
this Indenture, together with the proceeds, if any, thereof payable to or
received by the Trustee for the benefit of such Trusts and the Unitholders
thereof except that Insurance shall not include the individual policies of
insurance on the Securities in certain trusts which policies have been
obtained by the issuers of such Securities or by the underwriters, the
Depositor or others prior to the deposit of such Securities in the Trust
(the "PRE-INSURED SECURITIES").
(13) "INSURER" shall mean any provider of insurance obtained by a Trust
and issuing the contract or policy of Insurance obtained by certain Trusts
of the Fund protecting such Trusts and the Unitholders thereof against
nonpayment when due of the principal of and interest on any Security held
by the Trustee as part of the Fund.
(14) "UNIT" in respect of any Trust shall mean the fractional undivided
interest in and ownership of the Trust equal initially to the fraction
specified in "Essential Information" in the Prospectus, the numerator of
which is one and the denominator of which shall be (1) increased by the
number of any additional Units issued pursuant to Section 2.03 hereof and
(2) decreased by the number of any such Units redeemed as provided in
Section 5.02.
(15) "INDENTURE" shall mean these Standard Terms and Conditions of Trust
as originally executed or, if amended as hereinafter provided, as so
amended, together with the Trust Agreement creating a particular series of
the Fund.
(16) "PROSPECTUS" shall mean the prospectus relating to the Trust Fund
filed with the Securities and Exchange Commission pursuant to Rule 497(b)
under the Securities Act of 1933, as amended, in the form first used to
confirm sales of Units.
(17) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or,
in the City of New York, a legal holiday or a day on which banking
institutions are authorized by law or executive order to close.
(18) Words importing singular number shall include the plural number in
each case and vice versa, and words importing persons shall include
corporations and associations, as well as natural persons.
(19) The words "herein", "hereby", "herewith", "hereof", "hereinafter",
"hereunder", "hereinabove", "hereafter", "heretofore" and similar words or
phrases of reference and association shall refer to this Indenture in its
entirety.
(20) "UNITHOLDER" shall mean the registered holder of any Units of a Trust
as recorded on the books of the Trustee, and represented in either
certificated or uncertificated form, his or her legal representatives and
heirs and the successors of any corporation, partnership or other legal
entity which is a registered holder of any Units and as such shall be
deemed a beneficiary of a trust created by this Trust Agreement to the
extent of his PRO RATA share thereof.
ARTICLE II
DEPOSIT OF SECURITIES; ACCEPTANCE OF TRUST;
FORM AND ISSUANCE OF CERTIFICATES;
PORTFOLIO INSURANCE FOR THE INSURED TRUSTS; UNCERTIFICATED FORM; SEPARATE
TRUSTS
SECTION 2.01. DEPOSIT OF SECURITIES. (a) The Depositor, on the date of
the Trust Agreement, has deposited with the Trustee in trust the Securities
listed in Schedule A to the Trust Agreement in bearer form or duly endorsed
in blank or accompanied by all necessary instruments of assignment and
transfer in proper form to be held, managed and applied by the Trustee as
herein provided. The Depositor agrees to pay the total purchase price of
all the Securities and shall deliver the Securities listed on said Schedule
A to the Trustee which were represented by delivery statements at the time
of the execution and delivery of the Trust Agreement within 90 days after
said execution and delivery, or if the contract to buy such Securities
between the Depositor and seller is terminated by the seller thereof for
any reason beyond the control of the Depositor, the Depositor shall
forthwith take the remedial action specified in Section 3.14.
(b) From time to time following the Initial Date of Deposit, the Depositor
is hereby authorized, in its discretion, to assign, convey to and deposit
with the Trustee additional Securities, in bearer form or duly endorsed in
blank or accompanied by all necessary instruments of assignment and
transfer in proper form (or Contract Obligations relating to such
Securities), to be held, managed and applied by the Trustee as herein
provided. In lieu of additional Securities or Contract Obligations
representing additional Securities, the Depositor may deposit with the
Trustee cash (or a letter of credit) in an amount equal to the valuation
made in accordance with Section 4.01 for the date of such deposit of the
additional Securities not delivered or represented by Contract Obligations
together with instructions to purchase such additional Securities. Each
deposit of additional Securities shall be made pursuant to a Notice of
Deposit of Additional Securities from the Depositor to the Trustee. The
Depositor, in each case, shall ensure that each deposit of additional
Securities pursuant to this Section shall be, as nearly as is practicable,
in the identical ratio as the Percentage Ratio for such Securities as is
specified in the Prospectus for the Trust and the Depositor shall ensure
that such Securities are identical to those deposited on the Initial Date
of Deposit. The Depositor shall obtain an opinion of counsel satisfactory
to the Depositor as to the validity of each deposit of additional
Securities. The Depositor shall deliver the additional Securities which
were not delivered concurrently with the deposit of additional Securities
and which were represented by Contract Obligations within 10 calendar days
after such deposit of additional Securities (the "ADDITIONAL SECURITIES
DELIVERY PERIOD"). If a contract to buy such Securities between the
Depositor and seller is terminated by the seller thereof for any reason
beyond the control of the Depositor or if for any other reason such
Securities are not delivered to the Trust by the end of the Additional
Securities Delivery Period for such deposit, the Trustee shall immediately
draw on the Letter of Credit, if any, in its entirety, apply the monies in
accordance with Section 2.01(d), and the Depositor shall forthwith take the
remedial action specified in Section 3.14. If the Depositor does not take
the action specified in Section 3.14 within 10 calendar days of the end of
the Additional Securities Delivery Period, the Trustee shall forthwith take
the action specified in Section 3.14. If the Depositor determines that
Securities for whose purchase cash was deposited with the Trustee cannot be
acquired, the Depositor may proceed pursuant to Section 3.14 in the same
manner as if such Securities were Special Securities. Instructions to
purchase additional Securities shall be in writing and shall specify the
name, CUSIP number, if any, aggregate amount of the Security to be
purchased and price. The Trustee shall have no responsibility or liability
for any loss or depreciation resulting from any purchase made pursuant to
the Depositor's instructions and in the absence thereof shall have no duty
to purchase any Securities. The Trustee shall have no responsibility for
maintaining the composition of the Trust portfolio. Cash delivered to the
Trustee for purchase of additional Securities pursuant to instructions of
the Depositor shall be on deposit with the Trustee and shall bear interest
for the benefit of the Trust at the Federal funds rate adjusted daily as
reported in the New York Times under the caption "Key Rates" less the cost
to the Trustee of protecting such cash in accordance with 12 C.F.R. Section
9.10 (or successor regulations), if the Trustee is then required to so
protect such cash.
(c) In connection with the deposits described in Section 2.01 (a) and (b),
the Depositor has, in the case of Section 2.01(a) deposits, and, prior to
the Trustee accepting a Section 2.01(b) deposit will, deposit cash and/or
Letter(s) of Credit in an amount sufficient to purchase the Contract
Obligations (the "PURCHASE AMOUNT") relating to Securities which are not
actually delivered to the Trustee at the time of such deposit, the terms of
which unconditionally allow the Trustee to draw on the full amount of the
available Letter of Credit. The Trustee may deposit such cash or cash
drawn on the Letter of Credit in a non-interest bearing account for the
Trust.
(d) In the event that the purchase of Contract Obligations pursuant to any
contract shall not be consummated in accordance with said contract or if
the Securities represented by a Contract Obligation are not delivered to
the Trust in accordance with Section 2.01(a) or 2.01(b) and the monies, or,
if applicable, the monies drawn on the Letter of Credit, deposited by the
Depositor are not utilized for Section 3.14 purchases of New Securities,
such funds, to the extent of the purchase price of Failed Contract
Obligations for which no Replacement Security was acquired pursuant to
Section 3.14, plus all amounts described in the next succeeding two
sentences, shall be credited to the Principal Account and distributed
pursuant to Section 3.05 to Unitholders of record as of the Record Date
next following the failure of consummation of such purchase. The Depositor
shall cause to be refunded to each Unitholder his PRO RATA portion of the
sales charge levied on the sale of Units to such Unitholder attributable to
such Failed Contract Obligation. The Depositor shall also pay to the
Trustee, for distribution to the Unitholders, an amount equal to the
accrued interest (at the coupon rate of the Failed Securities) to the date
the Depositor notifies the Trustee that no Replacement Security will be
purchased or, in the absence of such notification, to the expiration date
for purchase of a Replacement Security specified in Section 3.14. Any
amounts remaining from monies drawn on the Letter of Credit which are not
used to purchase New Securities or are not used to provide refunds to
Unitholders shall be paid to the Depositor.
(e) The Trustee is hereby irrevocably authorized to effect registration or
transfer of the Securities in fully registered form to the name of the
Trustee or to the name of its nominee.
(f) In connection with and at the time of any deposit of additional
Securities pursuant to Section 2.01(b), the Depositor shall exactly
replicate Cash (as defined below) received or receivable by the Trust as of
the date of such deposit. For purposes of this paragraph, "Cash" means, as
to the Principal Account, cash or other property (other than Securities) on
hand in the Principal Account or receivable and to be credited to the
Principal Account as of the date of the deposit (other than amounts to be
distributed solely to persons other than holders of Units created by the
deposit) and, as to the Income Account, cash or other property (other than
Securities) received by the Trust as of the date of the deposit or
receivable by the Trust in respect of matured interest payments not
received as of the date of the deposit, reduced by the amount of any cash
or other property received or receivable on any Security allocable (in
accordance with the Trustee's calculation of the monthly distribution from
the Income Account pursuant to Section 3.05) to a distribution made or to
be made in respect of a Record Date occurring prior to the deposit. Such
replication will be made on the basis of a fraction, the numerator of which
is the number of Units created by the deposit and the denominator of which
is the number of Units which are outstanding immediately prior to the
deposit.
SECTION 2.02. ACCEPTANCE OF TRUST. The Trustee hereby declares it holds
and will hold each Trust as Trustee in trust upon the trusts herein created
for the use and benefit of the Unitholders, subject to the terms and
conditions of this Indenture.
SECTION 2.03. ISSUE OF CERTIFICATES. The Trustee hereby acknowledges
receipt of the deposit referred to in Section 2.01 and simultaneously with
the receipt of said deposit has executed and delivered to or on the order
of the Depositor Certificates substantially in the form above recited or
has recorded on the books of each Trust for the account of the Depositor
the ownership of Units representing the ownership of the number of Units of
each Trust Fund specified in Part II of the Trust Agreement. The Trustee
hereby agrees that on the date of any Notice of Deposit of Additional
Securities pursuant to Section 2.01 of the Indenture, it shall acknowledge
that the additional Securities identified therein have been deposited with
it by recording on its books the ownership, by the Depositor or such other
person or persons as may be indicated by the Depositor, of the aggregate
number of Units to be issued in respect of such additional Securities so
deposited, and shall, if so requested, execute documentation substantially
in the form above recited representing the ownership of an aggregate number
of those Units.
SECTION 2.04. FORM OF CERTIFICATES. Each Certificate referred to in
Section 2.03 is, and each Certificate hereafter issued shall be, in
substantially the form hereinabove recited, numbered serially for
identification, in fully registered form, transferable only on the books of
the Trustee as herein provided, executed either manually or in facsimile by
an authorized signatory of the Trustee and in facsimile by the President or
one of the Vice Presidents of the Depositor and dated the date of execution
and delivery by the Trustee.
SECTION 2.05. UNCERTIFICATED FORM. Units may also be held in
uncertificated form. Upon the issuance of Units in uncertificated form,
the Trustee shall provide to the registered owner within two business days
after the issuance, an initial transaction statement which sets forth a
description of the Fund, the number of Units issued, the name, address and
taxpayer identification number, if any, of the Unitholders and the date the
issuance was registered or setting forth those items as are required by
Article 8 of the Uniform Commercial Code currently in effect in the State
of New York. Unitholders evidenced by Certificates may at any time elect
to have their Units held in uncertificated form by surrendering their
Certificates to the Trustee for cancellation. At such time, an appropriate
notation will be made in the registration books of the Trust to indicate
that the Units formerly evidenced by such cancelled Certificates are Units
held in uncertificated form. The Trustee shall, at the request of the
holder of any Units held in uncertificated form, issue a new Certificate to
evidence such Units and at such time make appropriate notation in the
registration books of the Trust. If the Prospectus so provides, Units will
be held (i) solely in uncertificated form or (ii) held in uncertificated
form unless the Unitholder submits a written request to the Trustee for the
issuance of a Certificate.
SECTION 2.06. PORTFOLIO INSURANCE FOR THE INSURED TRUSTS. Concurrently
with the delivery to the Trustee of the Securities in each Insured Trust
listed in Schedule A to the Trust Agreement, the Insurer has delivered to
and deposited with the Trustee a unit investment trust insurance portfolio
policy to protect each Insured Trust and the Unitholders thereof against
nonpayment of principal and interest when due on any Security or Securities
(except for Pre-Insured Securities) while held by the Trustee in the
portfolio of such Trust.
The Trustee shall take all action deemed necessary or advisable in
connection with the Insurance to continue such Insurance in full force and
effect and shall pay all premiums due thereon, including the initial
premium, all in such manner as in its sole discretion shall appear to
result in the most protection and least expense to such Trust.
Under the terms of the policy, the Insurance may not be cancelled by the
Insurer. The Trustee shall make the deduction and payment of premiums at
the time and in the manner prescribed in Section 3.05 of this Indenture in
order to continue in force the coverage thus provided. The Insurer's right
to the payment of premiums from Trust funds held by the Trustee in
accordance with the terms of the policy is absolute (except when payment is
withheld in good faith by the Trustee in the event of dispute over the
amount thereof), but no failure on the part of the Trustee to make such
payment of principal or installment thereof to the Insurer shall result in
a cancellation of the Insurance or otherwise affect the right of any
Unitholder under the policy to have any amounts of principal and interest
paid by the Insurer to the Trustee to be held as part of an Insured Trust
when the same are not paid when due by the issuer of a Security or
Securities held by the Trustee as part of such Insured Trust.
With each payment of premium or installment thereof, the Trustee shall
notify the Insurer of all Securities (except for Pre-Insured Securities)
which during the expiring premium period were redeemed from or sold by each
Insured Trust.
At all times during the existence of an Insured Trust, the insurance policy
shall provide for payment by the Insurer to the Trustee of any amounts of
principal and interest due, but not paid, by the issuer of a Security
(except for Pre-Insured Securities which are not covered by Insurance).
The Trustee shall promptly notify the Insurer of any nonpayment or of any
written notice directed to and received by the Trustee of threatened
nonpayment of principal or interest and the Insurer shall within 30 days
after receipt of such notice make payment to the Trustee of all amounts of
principal and interest at that time due, but not paid.
Payments of principal and interest assumed by the Insurer under the policy
shall be made as required by the related Security or Securities, except in
the event of a sale of any such Security or Securities by the Trustee under
Section 3.07, 5.02 or 6.04, or a termination of this Indenture and the
respective Insured Trust created hereby under Section 8.02, prior to the
final maturity of such Security or Securities, in each of which events,
upon notice from the Trustee, the Insurer shall promptly make payment of
the accrued interest on such Security or Securities to the Trustee and
shall be relieved of further obligation to the Trustee thereon.
Upon the making of any payment referred to in the preceding paragraphs, the
Insurer shall succeed to the rights of the Trustee under the Security or
Securities involved to the extent of the payments made at that time, or any
time subsequent thereto, and shall continue to make all payments required
by the terms of such Security or Securities to the extent that funds are
not provided therefor by the issuer thereof. Upon the payment of any
amounts by the Insurer, occasioned by the nonpayment thereof by the issuer,
the Trustee shall execute and deliver to the Insurer any receipt,
instrument or document required to evidence the right of the Insurer in the
Security or Securities involved to payment of principal and/or interest
thereon to the extent of the payments made by the Insurer to the Trustee.
With respect to Pre-Insured Securities in the respective Trusts of the
Fund, the Trustee shall promptly notify the respective insurance company of
any nonpayment of principal or interest on such Pre-Insured Securities and
if the respective insurance company should fail to make payment to the
Trustee within 30 days after receipt of such notice, the Trustee shall take
all action against the respective insurance company and/or issuer as
instructed by the Depositor to collect all amounts of principal and
interest at that time due, but not collected.
The Trustee shall also take such action required under Section 5.02 hereof
with respect to the acquisition of Permanent Insurance, as defined in such
Section 5.02, in connection with the sale of Securities from an Insured
Trust.
SECTION 2.07. SEPARATE TRUSTS. The Trusts created by this Indenture are
separate and distinct trusts for all purposes and the assets of one Trust
may not be commingled with the assets of any other nor shall the expenses
of any Trust be charged against the other. The Certificates representing
the ownership of an undivided fractional interest in one Trust shall not be
exchangeable for certificates representing the ownership of an undivided
fractional interest in any other.
ARTICLE III
ADMINISTRATION OF FUND
SECTION 3.01. INITIAL COST. The expenses incurred in establishing a
Trust, including the cost of the initial preparation and typesetting of the
registration statement, prospectuses (including preliminary prospectuses),
the indenture, and other documents relating to a Trust, printing of
Certificates, Securities and Exchange Commission and state blue sky
registration fees, the costs of the initial valuation of the portfolio and
audit of a Trust, the initial fees and expenses of the Trustee, and legal
and other non-material out-of-pocket expenses related thereto, but not
including the expenses incurred in the printing of preliminary prospectuses
and final prospectuses, expenses incurred in the preparation and printing
of brochures and other advertising materials and any other selling expenses
shall be borne by the Trust. To the extent the funds in the Interest and
Principal Accounts of the Trust shall be insufficient to pay the expenses
borne by the Trust specified in this Section 3.01, the Trustee shall
advance out of its own funds and cause to be deposited and credited to the
Interest Account such amount as may be required to permit payment of such
expenses. The Trustee shall be reimbursed for such advance on each Record
Date from funds on hand in the Income Account or, to the extent funds are
not available in such Account, from the Principal Account, in the amount
deemed to have accrued as of such Record Date as provided in the following
sentence (less prior payments on account of such advances, if any), and the
provisions of Section 6.04 with respect to the reimbursement of
disbursements for Trust expenses, including, without limitation, the lien
in favor of the Trustee therefor, shall apply to the payment of expenses
made pursuant to this Section. For purposes of the preceding sentence, the
calculations of distributions under Section 3.05 and the addition provided
in clause (d) of the second sentence of Section 5.01, the expenses borne by
the Trust pursuant to this Section shall be deemed to have been paid upon
the date of the Trust Agreement and to accrue at a daily rate over the time
period specified for their amortization by the Depositor pursuant to
Section 5.01; PROVIDED, HOWEVER, that nothing herein shall be deemed to
prevent, and the Trustee shall be entitled to full reimbursement for, any
advances made pursuant to this Section no later than the termination of the
Trust. For purposes of calculating the accrual of organizational expenses
under this Section 3.01, the Trustee shall rely on the written estimates
provided by the Depositor pursuant to Section 5.01.
SECTION 3.02. INTEREST ACCOUNT. The Trustee shall collect the interest on
the Securities in each Trust as such becomes payable (including all
interest accrued but unpaid prior to the date of deposit of the Securities
in trust and including that part of the proceeds of the sale, liquidation,
redemption or maturity of any Securities or insurance thereon, if any,
which represents accrued interest thereon, monies representing penalties
for failure to make timely payments on Securities or liquidated damages for
default or breach of any condition or term of the Securities) and credit
such interest to a separate account for each Trust to be known as the
"INTEREST ACCOUNT".
SECTION 3.03. PRINCIPAL ACCOUNT. (a) The Securities in each Trust and all
moneys (except moneys held by the Trustee pursuant to subsection (b)
hereof) other than amounts credited to the Interest Account, received by
the Trustee in respect of the Securities in each Trust, including insurance
thereon, if any, shall be credited to a separate account for each Trust to
be known as the "PRINCIPAL ACCOUNT".
(b) Moneys and/or irrevocable letters of credit required to purchase
Contract Securities or to purchase Securities pursuant to the Depositor's
written instructions, or deposited to secure such purchases, are hereby
declared to be held specially by the Trustee for such purchases and shall
not be deemed to be part of the Principal Account until (i) the Depositor
fails to timely purchase a Contract Security and has not given the Failed
Contract Notice (as defined in Section 3.14) at which time the moneys
and/or letters of credit attributable to the Contract Security not
purchased by the Depositor shall be credited to the Principal Account; or
(ii) the Depositor has given the Trustee the Failed Contract Notice at
which time the moneys and/or letters of credit attributable to failed
contracts referred to in such Notice shall be credited to the Principal
Account; PROVIDED, HOWEVER, that if the Depositor also notifies the Trustee
in the Failed Contract Notice that it has purchased or entered into a
contract to purchase a New Security (as defined in Section 3.14), the
Trustee shall not credit such moneys and/or letters of credit to the
Principal Account unless the New Security shall also have failed or is not
delivered by the Depositor within two business days after the settlement
date of such New Security, in which event the Trustee shall forthwith
credit such moneys and/or letters of credit to the Principal Account. The
Trustee shall in any case forthwith credit to the Principal Account, to the
extent of moneys, or moneys then available under any letter of credit,
deposited by the Depositor, and/or cause the Depositor to deposit in the
Principal Account, the difference, if any, between the purchase price of
the failed Contract Security and the purchase price of the New Security,
together with any sales charge and accrued interest applicable to such
difference (or applicable to the failed Contract Security if no New
Security is deposited) and distribute such moneys to Unitholders pursuant
to Section 3.05.
The Trustee shall give prompt written notice to the Depositor and the
Evaluator of all amounts credited to or withdrawn from the Principal
Account and the balance in such Account after giving effect to such credit
or withdrawal.
SECTION 3.04. RESERVE ACCOUNT. From time to time, the Trustee shall
withdraw from the cash on deposit in the Interest Account or the Principal
Account of the appropriate Trust such amounts as it, in its sole
discretion, shall deem requisite to establish a reserve for any applicable
taxes or other governmental charges that may be payable out of the Trust.
Such amounts so withdrawn shall be credited to a separate account for each
Trust which shall be known as the "RESERVE ACCOUNT". The Trustee shall not
be required to distribute to the Unitholders any of the amounts in the
Reserve Account; PROVIDED, HOWEVER, that if it shall, in its sole
discretion, determine that such amounts are no longer necessary for the
payment of any applicable taxes or other governmental charges, then it
shall promptly deposit such amounts in the account from which withdrawn, or
if the Trust Fund shall have terminated or shall be in the process of
termination, the Trustee shall distribute same in accordance with Section
8.02(d) and (e) to each Unitholder such holder's interest in the Reserve
Account.
SECTION 3.05. DISTRIBUTION. The Trustee, as of the "FIRST SETTLEMENT
DATE", as defined in Part II of the Trust Agreement, shall advance from its
own funds and shall pay to the Unitholders of the respective Trusts then of
record the amount of interest received or accrued to such date on the
Securities deposited in the respective Trusts, net of a proportionate
amount of Trust expenses attributable to the period between the date of the
Trust Agreement and the First Settlement Date. The Trustee shall also
advance from its own funds and pay the Depositor the amount specified in
Part II of the Trust Agreement, which is all or a portion of the interest
which accrues on any "when-issued" Securities deposited in the Trusts and
Securities delivered to the Trust after the First Settlement Date from the
First Settlement Date to the respective dates of delivery to the respective
Trust of any of such Securities. Subsequent distributions shall be made as
hereinafter provided.
As of the tenth day of each month of each year commencing with the first
such day after the date of the Trust Agreement, the Trustee shall with
respect to each Trust:
(a) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account and pay to itself
individually the amounts that it is at the time entitled to receive
pursuant to Sections 3.01 and 6.04;
(b) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account and pay to the
Evaluator the amount that it is at the time entitled to receive pursuant to
Section 4.03;
(c) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account and pay to counsel,
as hereinafter provided for, an amount equal to unpaid fees and expenses,
if any, of such counsel pursuant to Section 3.09, as certified to by the
Depositor; and
(d) deduct from the Interest Account or to the extent funds are not
available in such Account, from the Principal Account and pay to the
Portfolio Supervisor the amount that it is entitled to receive pursuant to
Section 3.15.
As of the tenth day of each month of each year commencing with the first
such day after the date of the Trust Agreement, the Trustee with respect to
each Insured Trust shall deduct from the Interest Account or, to the extent
funds are not available in such Account, from the Principal Account and pay
to the Insurer the amount of any premium to which it is at the time
entitled to receive pursuant to Section 2.06.
The second distribution of funds from the Interest Account shall be in the
amount for each Trust set forth in the Prospectus and shall be made on the
date indicated in the Prospectus to all Unitholders of record on the date
indicated in the Prospectus (sometimes referred to herein as the General
Record Date), regardless of the plan of distribution elected by the
Unitholder. Subsequent distributions from the Interest Account shall be
made monthly or, if specified in the applicable prospectus and elected by
the Unitholder, semi-annually as hereinafter provided.
For monthly distributions, the share of the balance in the Interest Account
to be distributed to a Unitholder who has not elected to receive
semi-annual distributions shall be computed as of the tenth day of each
month, commencing with the first such day after the General Record Date
(the "MONTHLY RECORD DATE"). The Trustee shall distribute by mail to each
Unitholder of record as of the close of business on such Monthly Record
Date at the post office address appearing on the registration books of the
Trustee such Unitholder's PRO RATA share of the balance of the Interest
Account as computed herein on or shortly after the twentieth day of the
month of computation (the "MONTHLY DISTRIBUTION DATE").
The computation of the pro rata share of the Interest Account for monthly
distributions shall be made as follows:
Such amount shall be equal to the estimated amount of interest accrued on
the Securities from and including the immediately preceding Monthly Record
Date (or General Record Date, as appropriate) through but not including the
Monthly Record Date on which the computation is made, less (i) the
estimated annual costs and expenses allocable (on a per diem basis) to such
period, (ii) interest attributable to such period paid or payable in
connection with redemption of Units and (iii) amounts previously advanced
by the Trustee pursuant to this Section 3.05 which are now deemed to be
uncollectible, divided by the number of Units outstanding on such Monthly
Record Date.
In the event the amount on deposit in the Interest Account on a Monthly
Distribution Date is not sufficient for the payment of the amount of
interest to be distributed on the basis of the aforesaid computation, the
Trustee shall advance out of its own funds and cause to be deposited in and
credited to the Interest Account such amount as may be required to permit
payment of the monthly interest distribution to be made on such Monthly
Distribution Date and shall be entitled to be reimbursed, without interest,
out of interest received by the Fund on the first Monthly Record Date
following the date of such advance on which such reimbursement may be made
without reducing the amount in the Interest Account to an amount less than
that required for the next ensuing monthly interest distribution except
where advances were made by the Trustee on Securities which have defaulted
or on which any payment has been recovered from the Trustee by a trustee in
bankruptcy and the interest on which cannot currently be collected (either
from the issuer of the Securities or the Insurer), in which case the
Trustee may reimburse itself for such advances and reduce, if necessary,
the amount of the interest distribution.
In lieu of the monthly distributions of interest provided above, a
Unitholder may elect to receive payments semi-annually from the Interest
Account if such a semi-annual plan of distribution is provided for in the
applicable Prospectus. Unitholders desiring to receive semi-annual
distributions and who purchase their Units prior to the Monthly Record Date
following the General Record Date may elect at the time of purchase to
receive distributions on a semi-annual basis by notice to the Trustee.
Such notice shall be effective with respect to subsequent distributions
until changed by further notice to the Trustee. Any such further notice,
in order to be effective, shall be transmitted to the Trustee (on a form
provided by the Trustee) not more than 45 days prior to, nor later than,
the Semi-annual Record Date in any calendar year, which notice shall be
accompanied by surrender of the Certificate to which it relates (if
issued). Changes may be made only as herein provided and will become
effective as of the semi-annual distribution following the subsequent
Semi-annual Record Date, to continue until further notice.
For semi-annual distributions, the share balance in the Interest Account to
be distributed to a Unitholder who has elected to receive semi-annual
distributions after the first distribution shall be computed as of the
tenth day of each May and November (the "SEMI-ANNUAL RECORD DATES"). The
Trustee shall distribute by mail to each Unitholder of record as of the
close of business on such Semi-annual Record Date at the post office
address appearing on the registration books of the Trustee such
Unitholder's PRO RATA share of the balance of the Interest Account as
computed herein on or shortly after the twentieth day of the month of
computation (the "SEMI-ANNUAL DISTRIBUTION DATE").
The computation of the pro rata share of the Interest Account for
semi-annual distributions shall be made as follows:
Such amount shall be equal to the estimated amount of interest accrued on
the Securities from and including the immediately preceding Semi-annual
Record Date (or General Record Date, as appropriate) through but not
including the Semi-annual Record Date on which the computation is made,
less (i) the estimated annual costs and expenses allocable (on a per diem
basis) to such period, (ii) interest attributable to such period paid or
payable in connection with redemption of Units and (iii) amounts previously
advanced by the Trustee pursuant to this Section 3.05 which are now deemed
to be uncollectible, divided by the number of Units outstanding on such
Semi-annual Record Date.
To the extent practicable, the Trustee shall allocate the expenses of each
Trust among Units of such Trust, giving effect to differences in
administrative and operational cost among those who have chosen to receive
distributions monthly or semi-annually.
In the event the amount of deposit in the Interest Account on a Semi-annual
Distribution Date is not sufficient for the payment of the amount of
interest to be distributed on the basis of the aforesaid computation, the
Trustee shall advance out of its own funds and cause to be deposited in and
credited to the Interest Account such amount as may be required to permit
payment of the semi-annual interest distribution to be made on such
Semi-annual Distribution Date and shall be entitled to be reimbursed,
without interest, out of interest received by the Trust on the first
Monthly Record Date following the date of such advance on which such
reimbursement may be made without reducing the amount in the Interest
Account to an amount less than that required for the next ensuing
semi-annual interest distribution except where advances were made by the
Trustee on Securities which have defaulted or on which any payment has been
recovered from the Trustee by a trustee in bankruptcy and the interest on
which cannot be currently collected (either from the issuer of the
Securities or the Insurer), in which case the Trustee may reimburse itself
for such advances and reduce, if necessary, the amount of the interest
distribution. Distributions to Unitholders who are participating in one
optional plan for distribution of interest shall not be affected because of
advancements by the Trustee for the purpose of equalizing distributions to
Unitholders participating in a different plan.
Distributions of amounts represented by the cash balance in the Principal
Account for each Trust shall be computed as of each Monthly Record Date
commencing with the first such day after the date of the Trust Agreement.
On the next following Monthly Distribution Date, or within a reasonable
period of time thereafter, the Trustee shall distribute by mail to each
Unitholder of record at the close of business on the Monthly Record Date at
his post office address such holder's PRO RATA share of the cash balance of
the Principal Account as thus computed. The Trustee shall not be required
to make a distribution from the Principal Account unless the cash balance
on deposit therein available for distribution shall be sufficient to
distribute at least that amount set forth in the related Prospectus.
If the Depositor (i) fails to replace any failed Special Security (as
defined in Section 3.14), or (ii) is unable or fails to enter into any
contract for the purchase of any New Security in accordance with Section
3.14, the Depositor shall pay to the Trustee and the Trustee shall
distribute, to the extent of the monies credited to the Principal Account
pursuant to Section 3.03(b) or supplied by the Depositor pursuant to this
Section, to all Unitholders of Units in the respective Trust the principal
and accrued interest (at the coupon rate of the relevant Security to the
date the Depositor is notified of the failure) and sales charge
attributable to such Special Securities at the next Monthly Distribution
Date which is more than thirty days after the expiration of the Purchase
Period (as defined in Section 3.14) or at such earlier time or in such
manner as the Trustee in its sole discretion deems to be in the best
interest of the Unitholders.
If any contract for a New Security in replacement of a Special Security
shall fail, the Depositor shall pay to the Trustee and the Trustee shall
distribute to the extent of the monies credited to the Principal Account
pursuant to Section 3.03(b) or supplied by the Depositor pursuant to this
Section, the principal and accrued interest (at the coupon rate of the
relevant Special Security to the date the Depositor is notified of the
failure) and sales charge attributable to the Special Security to the
Unitholders of Units in the respective Trust at the next Monthly
Distribution Date which is more than thirty days after the date on which
the contract in respect of such New Security failed or at such earlier time
or in such earlier manner as the Trustee in its sole discretion determines
to be in the best interest of the Unitholders.
If, at the end of the Purchase Period, less than all moneys attributable to
a failed Special Security have been applied or allocated by the Trustee
pursuant to a contract to purchase New Securities, the Trustee shall
distribute the remaining moneys to Unitholders of Units in the respective
Trust at the next Monthly Distribution Date which is more than thirty days
after the end of the Purchase Period or at such earlier time thereafter as
the Trustee in its sole discretion deems to be in the best interest of the
Unitholders.
The amounts to be so distributed to each Unitholder of a Trust shall be
that PRO RATA share of the balance of the Interest and Principal Accounts
of such Trust, computed as set forth above, as shall be represented by the
Units registered on the books of the Trustee in the name of such
Unitholder.
In the computation of each such share, fractions of less than one cent
shall be omitted. After any such distribution provided for above, any cash
balance remaining in the Interest Account or the Principal Account of a
Trust shall be held in the same manner as other amounts subsequently
deposited in each of such Accounts, respectively.
For the purpose of distribution as herein provided, the holders of record
on the registration books of the Trustee at the close of business on each
Record Date shall be conclusively entitled to such distribution, and no
liability shall attach to the Trustee by reason of payment to any such
registered Unitholder of record. Nothing herein shall be construed to
prevent the payment of amounts from the Interest Account and the Principal
Account of a Trust to individual Unitholders by means of one check, draft
or other proper instrument, PROVIDED that the appropriate statement of such
distribution shall be furnished therewith as provided in Section 3.06
hereof.
SECTION 3.06. DISTRIBUTION STATEMENTS. With each distribution from the
Interest or Principal Accounts of a Trust, the Trustee shall set forth,
either in the instrument by means of which payment of such distribution is
made or in an accompanying statement, the amount being distributed from
each such account expressed as a dollar amount per Unit of such Trust.
Within a reasonable period of time after the last business day of each
calendar year, the Trustee shall furnish to each person who at any time
during such calendar year was a Unitholder of a Trust a statement setting
forth, with respect to such calendar year and with respect to such Trust:
(A) as to the Interest Account:
(1) the amount of interest received on the Securities (including amounts
representing interest received upon any disposition of Securities,
penalties for failure to make timely payments on Securities or liquidated
damages for default on breach of any condition or term of the Securities),
(2) the amounts paid for purchases of New Securities pursuant to Section
3.14 and for redemptions pursuant to Section 5.02,
(3) the deductions for applicable taxes and fees and expenses of the
Trustee, the Evaluator, the Portfolio Supervisor, and counsel, and
(4) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount per Unit
outstanding on the last Business Day of such calendar year;
(B) as to the Principal Account:
(1) payments of principal on Securities, if any,
(2) the dates of the sale, maturity, liquidation or redemption of any of
the Securities and the net proceeds received therefrom, excluding any
portion thereof credited to the Interest Account,
(3) the amount paid for purchases of New Securities or Replacement
Securities pursuant to Section 3.14 and for redemptions pursuant to Section
5.02,
(4) the deductions for payment of applicable taxes and fees and expenses
of the Trustee and counsel, and
(5) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount per Unit
outstanding on the last Business Day of such calendar year; and
(C) the following information:
(1) a list of the Securities as of the last Business Day of such calendar
year,
(2) the number of Units outstanding on the last Business Day of such
calendar year,
(3) the Unit Value based on the last Trust Fund evaluation made during
such calendar year,
(4) the amounts actually distributed during such calendar year from the
Interest and Principal Accounts, separately stated, expressed both as total
dollar amounts and as dollar amounts per Unit outstanding on the Record
Dates for such distributions, and
(5) such other information as the Trustee may deem appropriate.
The registered owner of Units held in uncertificated form shall be sent by
the Trustee at periodic intervals no less frequent than once each year and
at any time upon the reasonable written request of the registered owner a
dated written statement containing the following information:
(1) a description of the Fund of which the uncertificated Unit is a part,
(2) the name, address and taxpayer identification number, if any, of the
registered owner, and
(3) the number of Units registered in the name of the registered owner on
the date of the statement.
SECTION 3.07. SALE OF SECURITIES. If necessary, in order to maintain the
sound investment character of a Trust, the Depositor, which may rely on the
recommendation of the Portfolio Supervisor, may direct the Trustee to sell
or liquidate Securities in such Trust at such price and time and in such
manner as shall be determined by the Depositor, PROVIDED that the Depositor
or Portfolio Supervisor has determined that any one or more of the
following conditions exist:
(a) that there has been a default on such Securities in the payment of
principal or interest, or both, when due and payable;
(b) that any action or proceeding has been instituted at law or equity
seeking to restrain or enjoin the payment of principal or interest on any
such Securities, or that there exists any other legal question or
impediment affecting such Securities or the payment of debt service on the
same;
(c) that there has occurred any breach of covenant or warranty in any
resolution, ordinance, trust indenture or other document, which would
adversely affect either immediately or contingently the payment of debt
service on such Securities, or their general credit standing, or otherwise
impair the sound investment character of such Securities;
(d) that there has been a default in the payment of principal of or
interest on any other outstanding obligations of an issuer of such
Securities;
(e) that the price of any such Securities has declined as a result of
credit factors, so that in the opinion of the Depositor, as evidenced in
writing to the Trustee, the retention of such Securities would be
detrimental to the Trust Fund and to the interest of the Unitholders;
(f) that in the case of revenue Securities, the revenues and income of the
facility or project or other special funds expressly charged and pledged
for debt service on any such Securities shall fall substantially below the
estimated revenues or income calculated by the engineers or other proper
officials charged with the acquisition, construction or operation of such
facility or project, so that, in the opinion of the Depositor as evidenced
in writing to the Trustee, the retention of such Securities would be
detrimental to the sound investment character of the Trust and to the
interest of the Unitholders;
(g) that such Securities are the subject of an advanced refunding (for the
purposes of this Section 3.07(g), "an advanced refunding" shall mean when
refunding securities are issued and the proceeds thereof are deposited in
an irrevocable trust to retire the Securities on or before their redemption
date);
(h) that as of any Record Date any of the Securities are scheduled to be
redeemed and paid prior to the next succeeding Monthly Distribution Date;
or
(i) that the Federal tax exemption on such Securities has been lost.
If the Trust is an Insured Trust, the Depositor shall also consider whether
any insurance that may be applicable to the Securities cannot be relied
upon to provide the principal and interest protections intended to be
afforded by such insurance.
In the event the Depositor has directed the Trustee to sell a Security from
an Insured Trust, the Trustee shall exercise its right (if applicable) to
purchase a policy providing for permanent insurance (a "PERMANENT INSURANCE
POLICY") if the Depositor determines that such purchase and payment of
related premium will result in a net realization for the Insured Trust
greater than would the sale of the Security without the purchase of a
Permanent Insurance Policy with respect to such Security and shall pay an
amount equal to the premium payable for such Permanent Insurance Policy to
the Insurer at the time and in the manner required by such Permanent
Insurance Policy. Such premium shall be payable only from the proceeds of
the sale of such Securities.
Upon receipt of such direction from the Depositor, upon which the Trustee
shall rely, the Trustee shall proceed to sell or liquidate the specified
Securities in accordance with such direction; PROVIDED, HOWEVER, that the
Trustee shall not sell or liquidate any Securities upon receipt of a
direction from the Depositor that it has determined that the conditions in
subdivision (h) above exist, unless the Trustee shall receive on account of
such sale or liquidation the full principal amount of such Securities, plus
the premium, if any, and the interest accrued and to accrue thereon to the
date of the redemption of such Securities.
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of any sale made pursuant to any such direction
or by reason of the failure of the Depositor to give any such direction,
and in the absence of such direction the Trustee shall have no duty to sell
or liquidate any Securities under this Section 3.07 except to the extent
otherwise required by Section 3.10 of this Indenture.
SECTION 3.08. REFUNDING SECURITIES. In the event that an offer shall be
made by an obligor of any of the Securities in a Trust to issue new
obligations in exchange and substitution for any issue of Securities
pursuant to a plan for the refunding or refinancing of such Securities, the
Depositor shall instruct the Trustee in writing to reject such offer and
either to hold or sell such Securities, except that if (i) the issuer is in
default with respect to such Securities, or (ii) in the opinion of the
Depositor, given in writing to the Trustee, the issuer will probably
default with respect to such Securities in the reasonably foreseeable
future, the Depositor shall instruct the Trustee in writing to accept or
reject such offer or take any other action with respect thereto as the
Depositor may deem proper. Nevertheless, if such an obligation is received
by a Trust, it shall either be sold by the Trustee or held in such Trust
pursuant to the direction of the Depositor (who may rely on the advice of
the Portfolio Supervisor). Any obligation so received in exchange shall be
deposited hereunder and shall be subject to the terms and conditions of
this Indenture to the same extent as the Securities originally deposited
hereunder. Within five days after such deposit, notice of such exchange
and deposit shall be given by the Trustee to each Unitholder of such Trust,
including an identification of the Securities eliminated and the securities
substituted therefor.
SECTION 3.09. COUNSEL. The Depositor may employ from time to time as it
may deem necessary a firm of attorneys for any legal services that may be
required in connection with the disposition of underlying securities
pursuant to Section 3.07 or the substitution of any securities for
underlying securities as the result of any refunding permitted under
Section 3.08. The fees and expenses of such counsel shall be paid by the
Trustee from the Interest and Principal Accounts of the applicable Trust as
provided for in Section 3.05(d) hereof.
SECTION 3.10. NOTICE AND SALE BY TRUSTEE. If at any time the principal of
or interest on any of the Securities shall be in default and not paid or
provision for payment thereof shall not have been duly made within 30 days,
either pursuant to the Insurance, if any, or otherwise, the Trustee shall
notify the Depositor thereof. If within 30 days after such notification
the Depositor has not given any instruction to sell or hold or has not
taken any other action in connection with such Securities, the Trustee
shall sell such Securities forthwith, and the Trustee shall not be liable
or responsible in any way for depreciation or loss incurred by reason of
such sale.
SECTION 3.11. TRUSTEE NOT REQUIRED TO AMORTIZE. Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make
any adjustments between the Interest and Principal Accounts by reason of
any premium or discount in respect of any of the Securities.
SECTION 3.12. LIABILITY OF DEPOSITOR. The Depositor shall be under no
liability to the Unitholders for any action taken or for refraining from
the taking of any action in good faith pursuant to this Indenture or for
errors in judgment, but shall be liable only for its own willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties
hereunder. The Depositor may rely in good faith on any paper, order,
notice, list, affidavit, receipt, opinion, endorsement, assignment, draft
or any other document of any kind PRIMA FACIE properly executed and
submitted to it by the Trustee, counsel or any other persons pursuant to
this Indenture and in furtherance of its duties.
SECTION 3.13. NOTICE TO DEPOSITOR. In the event that the Trustee shall
have been notified at any time of any action to be taken or proposed to be
taken by holders of the Securities (including but not limited to the making
of any demand, direction, request, giving of any notice, consent or waiver
or the voting with respect to any amendment or supplement to any indenture,
resolution, agreement or other instrument under or pursuant to which the
Securities have been issued) the Trustee shall promptly notify the
Depositor and shall thereupon take such action or refrain from taking any
action as the Depositor shall in writing direct; PROVIDED, HOWEVER, that if
the Depositor shall not within five Business Days of the giving of such
notice to the Depositor direct the Trustee to take or refrain from taking
any action, the Trustee shall take such action as it, in its sole
discretion, shall deem advisable. Neither the Depositor nor the Trustee
shall be liable to any person for any action or failure to take action with
respect to this Section 3.13.
SECTION 3.14. LIMITED REPLACEMENT OF SPECIAL SECURITIES; REPLACEMENT
SECURITIES. (a) If any contract in respect of Contract Securities in a
Trust other than a contract to purchase a New Security (as defined below),
including those purchased on a "when, as and if issued" basis, shall have
failed due to any occurrence, act or event beyond the control of the
Depositor or the Trustee (such failed Contract Securities being herein
called the "SPECIAL SECURITIES"), the Depositor shall notify the Trustee
(such notice being herein called the "FAILED CONTRACT NOTICE") of its
inability to deliver the failed Special Security to the Trustee after it is
notified that the Special Security will not be delivered by the seller
thereof to the Depositor. Prior to, or simultaneously with, giving the
Trustee the Failed Contract Notice, or within a maximum of twenty days
after giving such Notice (such twenty-day period being herein called the
"PURCHASE PERIOD"), the Depositor shall, if possible, purchase or enter
into the contract, if any, to purchase an obligation to be held as a
Security hereunder (herein called the "NEW SECURITY") as part of the Fund
in replacement of the failed Special Security, subject to the satisfaction
of all of the following conditions in the case of each purchase or contract
to purchase:
(1) The New Securities (i) shall be tax-exempt bonds issued by states,
counties, territories or municipalities of the United States or authorities
or political subdivisions thereof, (ii) shall have a fixed maturity date
(whether or not entitled to the benefits of any sinking, redemption,
purchase of similar fund) substantially similar to, but not exceeding the
date of maturity of the Special Securities they replace, (iii) must be
purchased at a price that results in a current return as of the Date of
Deposit at least equal to that of the Special Securities they replace, (iv)
must be purchased at a price that results in a yield to maturity as of the
Date of Deposit of the Trust at least equal to that of the Special
Securities they replace, (v) shall be payable as to principal and interest
in United States currency, (vi) shall not be "when, as and if issued"
Securities, and (vii) shall have the benefit of exemption from state
taxation on interest to an equal or greater extent than the Special
Securities they replace.
(2) Each New Security shall be rated at least "BBB" or better in the case
of the Insured Trusts and "A" or better in the case of other Trusts by
Standard & Poor's Ratings Services or "Baa" or better in the case of the
Insured Trusts and "A" or better in the case of other Trusts by Moody's
Investors Service, Inc., or comparably rated by any other nationally
recognized credit rating service rating debt obligations which shall be
designated by the Depositor and shall be satisfactory to the Trustee.
(3) With respect to the Insured Trusts, each New Security shall be
acceptable to the Insurer to be included under the respective Trust's
Insurance and will be so included upon acquisition by the Trust or, in the
case of a Trust in which all Securities are not insured by a portfolio
insurance policy but are Pre-Insured Securities, shall be a Pre-Insured
Security.
(4) The Depositor shall promptly furnish a notice to the Trustee (which
may be part of the Failed Contract Notice) in respect of the New Securities
purchased or to be purchased that shall (i) identify the New Securities,
(ii) state that the contract to purchase, if any, entered into by the
Depositor is satisfactory in form and substance, and (iii) state that the
foregoing conditions of clauses (1) through (4) have been satisfied with
respect to the New Securities.
Upon satisfaction of the foregoing conditions with respect to any New
Security, the Depositor shall pay the purchase price for the New Security
from its own resources or, if the Trustee has credited any moneys and/or
letters of credit attributable to the failed Special Security to the
Principal Account of such Trust, the Trustee shall pay the purchase price
of the New Security upon directions from the Depositor from the moneys
and/or letters of credit so credited to the Principal Account. If the
Depositor has paid the purchase price and, in addition, the Trustee has
credited moneys of the Depositor to the Principal Account of such Trust,
the Trustee shall forthwith return to the Depositor the portion of such
moneys that is not properly distributable to Unitholders pursuant to
Section 3.05.
Whenever a New Security is acquired by the Depositor pursuant to the
provisions of this Section 3.14, the Trustee shall, within five days
thereafter, mail to all holders of Units of the respective Trust notice of
such acquisition, including an identification of the failed Special
Security and the New Security acquired. The Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of any
purchase made pursuant to any direction of the Depositor provided in this
Section 3.14, and in the absence of such direction the Trustee shall have
no duty to make any purchase. The Depositor shall not be liable for errors
of judgment in respect of this Section 3.14; PROVIDED, HOWEVER, that this
provision shall not protect the Depositor against any liability to which it
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties hereunder.
Notwithstanding anything to the contrary in this Section 3.14, no
substitution of New Securities will be made unless the Depositor has
received an opinion of counsel that such substitution will not adversely
affect the federal, state or local income tax status of the Trust, if the
principal amount of such New Securities when added to all previously
purchased New Securities in the Trust exceeds 15% of the principal amount
of Securities initially deposited in the Trust.
SECTION 3.15. PORTFOLIO SUPERVISOR. As compensation for providing
portfolio supervisory services under this Indenture, the Portfolio
Supervisor shall receive against a statement or statements therefor
submitted to the Trustee on or before each Monthly Distribution Date an
aggregate annual fee in an amount which shall not exceed that amount set
forth in the Prospectus, times the number of Units outstanding as of the
December Record Date of the immediately preceding year except during the
year or years in which an initial offering period as determined in Section
4.01 of this Indenture occurs, in which case the fee for a month is based
on the number of Units outstanding as of each Record Date with respect to
the monthly period ending thereon (such annual fee to be pro rated for any
calendar year in which the Portfolio Supervisor provides services during
less than the whole of such year), but in no event shall such compensation
when combined with all compensation received from other series of the Fund
and other unit investment trusts sponsored by the Depositor for providing
such supervisory services in any calendar year exceed the aggregate cost to
the Portfolio Supervisor for providing such services. The statement or
statements submitted to the Trustee as hereinabove provided shall
constitute the Portfolio Supervisor's certification that the amounts
claimed as due do not exceed the amount payable in accordance with this
Section, and the Trustee shall have no liability for payments made in
reliance thereon. Such compensation may, from time to time, be adjusted
PROVIDED that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the Date of
Deposit of the Trust, in consumer prices for services as measured by the
United States Department of Labor Consumer Price Index entitled "ALL
SERVICES LESS RENT OF SHELTER" or similar index, if such index should no
longer be published. The consent or concurrence of the Trustee or any
Unitholder hereunder shall not be required for any such adjustment or
increase. Such compensation shall be charged by the Trustee, upon receipt
of invoice therefor from the Portfolio Supervisor, against the Interest and
Principal Accounts on or before the Distribution Date following the Monthly
Record Date on which such period terminates.
If the cash balance in the Interest and Principal Accounts shall be
insufficient to provide for amounts payable pursuant to this Section 3.15,
the Trustee shall have the power to sell (i) Securities from the current
list of Securities designated to be sold pursuant to Section 5.02 hereof,
or (ii) if no such Securities have been so designated, such Securities as
the Trustee may see fit to sell in its own discretion, and to apply the
proceeds of any such sale in payment of the amounts payable pursuant to
this Section 3.15.
Any moneys payable to the Portfolio Supervisor pursuant to this Section
3.15 shall be secured by a prior lien on the Trust Fund except that no such
lien shall be prior to any lien in favor of the Trustee under the
provisions of Section 6.04 herein.
Except as the context otherwise requires, the Portfolio Supervisor shall be
subject to the provisions of Section 4.05 herein in the same manner as it
would if it were the Evaluator.
ARTICLE IV
EVALUATION OF SECURITIES; EVALUATOR
SECTION 4.01. EVALUATION OF SECURITIES. The Evaluator shall determine
separately and promptly furnish to the Trustee and the Depositor upon
request the value of each issue of Securities of each Trust (treating
separate maturities of Securities as separate issues) as of the close of
trading on the New York Stock Exchange on the offering side of the market
on each Business Day on which such exchange is open for trading until such
time as the Evaluator and the Trustee have been informed by the Depositor
that the initial public offering of the Units of the respective Trusts has
been completed. After the initial public offering of the Units has been
completed (and on any day during the initial public offering on which the
Trustee has notified the Evaluator that a Unit has been tendered for
redemption), the Evaluator shall determine separately and promptly furnish
to the Trustee and the Depositor upon request the value of each issue of
Securities of a Trust (treating separate maturities of Securities as
separate issues) as of the close of trading on the New York Stock Exchange
on the bid side of the market on the days on which an evaluation of the
Trust is required by Section 5.01. Such evaluations shall be made (i) on
the basis of current bid or offering prices for the Securities of a Trust,
(ii) if bid or offering prices are not available for any Securities of a
Trust, on the basis of current bid or offering prices for comparable
securities, (iii) by determining the value of the Securities of a Trust on
the bid or offering side of the market by appraisal, or (iv) by any
combination of the above. Any evaluation of Securities which includes
amounts attributable to Permanent Insurance, as defined in Section 5.02
hereof, shall, to the extent necessary, include a deduction for amounts
which would be payable as premiums to obtain Permanent Insurance if the
Trustee had exercised the right to obtain Permanent Insurance. For each
evaluation, the Evaluator shall also determine and furnish to the Trustee
and the Depositor the aggregate of (a) the value of all Securities of a
Trust on the basis of such evaluation, and (b) on the basis of the
information furnished to the Evaluator by the Trustee pursuant to Section
3.03, the amount of cash then held in the Principal Account of the
respective Trust which was received by the Trustee after the Record Date
preceding such determination less amounts required for payment of Units
tendered for redemption and payment of Trust expenses, and less any amounts
held in the Principal Account of the respective Trust for distribution to
Unitholders on a subsequent Distribution Date when a Record Date occurs
four Business Days or less after such determination. For the purposes of
the foregoing, the Evaluator may obtain current bid or offering prices for
the Securities from investment dealers or brokers (including the Depositor)
that customarily deal in the Securities and may value the Insurance on the
Securities in such a manner as the Evaluator deems necessary for such
valuation.
The Evaluator shall also make an evaluation of the Securities deposited in
each Trust as of the time said Securities are deposited under this
Indenture. Such evaluation shall be made on the same basis as set forth in
this Section 4.01, and shall be based upon the offering prices of said
Securities. Such determination of the offering price of the Securities of
each Trust on the Date of Deposit determined as herein provided shall be
included in Schedule A attached to the Trust Agreement.
SECTION 4.02. INFORMATION FOR UNITHOLDERS. For the purpose of permitting
Unitholders to satisfy any reporting requirements of applicable federal or
state tax law, the Evaluator shall make available to the Trustee and the
Trustee shall transmit to any Unitholder upon request any determinations
made by it pursuant to Section 4.01.
SECTION 4.03. COMPENSATION OF EVALUATOR. As compensation for its services
hereunder, the Evaluator shall receive against a statement therefor
submitted to the Trustee monthly on or before each Monthly Distribution
Date a fee as specified in the Prospectus for each evaluation of the
Securities; PROVIDED, HOWEVER that such fee may be increased without
approval of the Trustee or the Unitholders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of
Shelter" in the Consumer Price Index published by the United States
Department of Labor. In no event, however, for Trusts in which the
Depositor or an affiliate of the Depositor acts as Evaluator shall such
compensation when combined with all compensation received from other series
of the Fund and other unit investment trusts sponsored by the Depositor for
providing such evaluation services in any calendar year exceed the
aggregate cost to the Evaluator for providing such services. The statement
submitted to the Trustee as hereinabove provided shall constitute the
Evaluator's certification that the amounts claimed as due do not exceed the
amount payable in accordance with this Section, and the Trustee shall have
no liability for payments made in reliance thereon.
SECTION 4.04. LIABILITY OF EVALUATOR. The Trustee, the Depositor and the
Unitholders may rely on any evaluation furnished by the Evaluator and shall
have no responsibility for the accuracy thereof. The determinations made
by the Evaluator hereunder shall be made in good faith upon the basis of
the best information available to it. The Evaluator shall be under no
liability to the Trustee, the Depositor or the Unitholders for errors in
judgment; PROVIDED, HOWEVER, that this provision shall not protect the
Evaluator against any liability to which it would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
SECTION 4.05. RESIGNATION AND REMOVAL OF EVALUATOR; SUCCESSOR. (a) The
Evaluator may resign and be discharged hereunder, by executing an
instrument in writing resigning as Evaluator and filing the same with the
Depositor and the Trustee, not less than 60 days before the date specified
in such instrument when, subject to Section 4.05(e), such resignation is to
take effect. Upon receiving such notice of resignation, the Depositor and
the Trustee shall use their best efforts to appoint a successor evaluator
having qualifications and at a rate of compensation satisfactory to the
Depositor and the Trustee. Such appointment shall be made by written
instrument executed by the Depositor and the Trustee, in duplicate, one
copy of which shall be delivered to the resigning Evaluator and one copy to
the successor evaluator. The Depositor or the Trustee may remove the
Evaluator at any time upon 30 days' written notice and appoint a successor
evaluator having qualifications and at a rate of compensation satisfactory
to the Depositor and the Trustee. Such appointment shall be made by
written instrument executed by the Depositor and the Trustee, in duplicate,
one copy of which shall be delivered to the Evaluator so removed and one
copy to the successor evaluator. Notice of such resignation or removal and
appointment of a successor evaluator shall be mailed by the Trustee to each
Unitholder then of record.
(b) Any successor evaluator appointed hereunder shall execute, acknowledge
and deliver to the Depositor and the Trustee an instrument accepting such
appointment hereunder, and such successor evaluator without any further
act, deed or conveyance shall become vested with all the rights, powers,
duties and obligations of its predecessor hereunder with like effect as if
originally named Evaluator herein and shall be bound by all the terms and
conditions of this Indenture.
(c) In case at any time the Evaluator shall resign and no successor
evaluator shall have been appointed and have accepted appointment within 30
days after notice of resignation has been received by the Depositor and the
Trustee, the Evaluator may forthwith apply to a court of competent
jurisdiction for the appointment of a successor evaluator. Such court may
thereupon after such notice, if any, as it may deem proper and prescribe,
appoint a successor evaluator.
(d) Any corporation into which the Evaluator hereunder may be merged or
with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Evaluator hereunder shall be a party,
shall be the successor evaluator under this Indenture without the execution
or filing of any paper, instrument or further act to be done on the part of
the parties hereto, anything herein, or in any agreement relating to such
merger or consolidation, by which the Evaluator may seek to retain certain
powers, rights and privileges theretofore obtaining for any period of time
following such merger or consolidation, to the contrary notwithstanding.
(e) Any resignation or removal of the Evaluator and appointment of a
successor evaluator pursuant to this Section shall become effective upon
acceptance of appointment by the successor evaluator as provided in
subsection (b) hereof.
ARTICLE V
EVALUATION, REDEMPTION, PURCHASE, TRANSFER, INTERCHANGE,
REPLACEMENT OF CERTIFICATES OR UNITS HELD IN UNCERTIFICATED FORM
SECTION 5.01. EVALUATION. The Trustee shall make an evaluation of each
Trust as of the time and dates set forth in the Prospectus for the related
Trust. Such evaluations shall take into account and itemize separately (a)
the cash on hand in each Trust (other than cash declared held in trust to
cover contracts to purchase securities) or moneys in the process of being
collected from matured interest coupons or securities matured or called for
redemption prior to maturity, (b) the value of each issue of the Securities
in the respective Trust as last determined by the Evaluator pursuant to
Section 4.01, (c) interest accrued thereon not subject to collection and
distribution, (d) amounts representing organizational expenses paid from a
Trust less amounts representing accrued organizational expenses of such
Trust, and (e) all other assets of the respective Trust. For each such
evaluation there shall be deducted from the sum of the above (i) amounts
representing any applicable taxes or governmental charges payable out of
the respective Trust and for which no deductions shall have previously been
made for the purpose of addition to the Reserve Account, (ii) amounts
representing accrued expenses of such Trust including but not limited to
unpaid fees and expenses of the Trustee, the Evaluator, the Portfolio
Supervisor, the Depositor and counsel, in each case as reported by the
Trustee to the Depositor on or prior to the date of evaluation, and (iii)
cash held for distribution to Unitholders of record of the respective
Trust, or required for redemption of Units tendered, as of a date prior to
the evaluation then being made. The value of the PRO RATA share of each
Unit of the respective Trust determined on the basis of any such evaluation
shall be referred to herein as the "UNIT VALUE." Until the Depositor has
informed the Trustee that there will be no further deposits of Additional
Securities pursuant to Section 2.01(b), the Depositor shall provide the
Trustee with written estimates of (i) the total organizational expenses to
be borne by the Trust pursuant to Section 3.01, (ii) the total number of
Units to be issued in connection with the initial deposit and all
anticipated deposits of additional Securities and (iii) the period or
periods over which such expenses are to be amortized and the aggregate
amount of expense to be amortized during each such period. For purposes of
calculating the Trust Evaluation and Unit Value, the Trustee shall treat
all such anticipated expenses as having been paid and all liabilities
therefor as having been incurred, and all Units as having been issued, in
each case on the date of the Trust Agreement, and, in connection with each
such calculation, shall take into account a pro rata portion of such
expense and liability based on the actual number of Units issued as of the
date of such calculation. In the event the Trustee is informed by the
Depositor of a revision in its estimate of total expenses or total Units or
period of amortization and upon the conclusion of the deposit of additional
Securities, the Trustee shall base calculations made thereafter on such
revised estimates or actual expenses or period of amortization,
respectively, but such adjustment shall not affect calculations made prior
thereto and no adjustment shall be made in respect thereof.
SECTION 5.02. REDEMPTIONS BY TRUSTEE; PURCHASES BY DEPOSITOR. Any Units
tendered for redemption by a Unitholder or his duly authorized attorney to
the Trustee at its unit investment trust office in the City of New York,
duly endorsed or accompanied by proper instruments of transfer with
signatures guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signatures guarantee program in
addition to, or in substitution for, STAMP, as may be accepted by the
Trustee, shall be redeemed by the Trustee on the third business day
following the day on which tender for redemption is made (being herein
called the "REDEMPTION DATE"). Subject to payment by such Unitholder of
any tax or other governmental charges which may be imposed thereon, such
redemption is to be made by payment on the Redemption Date of cash
equivalent to the Unit Value, determined by the Trustee as of the close of
trading on the New York Stock Exchange, on the date of tender; PROVIDED
that accrued interest is paid to the Redemption Date, multiplied by the
number of Units tendered for redemption (herein called the "REDEMPTION
PRICE"). Units received for redemption by the Trustee on any day after the
evaluation time set forth in the related Prospectus will be held by the
Trustee until the next day on which the New York Stock Exchange is open for
trading and will be deemed to have been tendered on such day for redemption
at the Redemption Price computed on that day.
The Trustee may in its discretion, and shall when so directed by the
Depositor in writing, suspend the right of redemption for Units of a Trust
or postpone the date of payment of the Redemption Price for more than three
business days following the day on which tender for redemption is made (i)
for any period during which the New York Stock Exchange is closed other
than customary weekend and holiday closings or during which trading on the
New York Stock Exchange is restricted; (ii) for any period during which an
emergency exists as a result of which disposal by such Trust of the
Securities is not reasonably practicable or it is not reasonably
practicable fairly to determine in accordance herewith the value of the
Securities; or (iii) for such other period as the Securities and Exchange
Commission may by order permit, and shall not be liable to any person or in
any way for any loss of damage which may result from any such suspension or
postponement.
Not later than the close of business on the day of tender of Units for
redemption by a Unitholder other than the Depositor, the Trustee shall
notify the Depositor of such tender. The Depositor shall have the right to
purchase such Units by notifying the Trustee of its election to make such
purchase as soon as practicable thereafter but in no event subsequent to
12:00 p.m. Eastern time on the next Business Day after the day on which
such Units were tendered for redemption. Such purchase shall be made by
payment for such Units by the Depositor on the Redemption Date of an amount
equal to the Redemption Price which would otherwise be payable by the
Trustee to such Unitholder.
Any Units so purchased by the Depositor may at the option of the Depositor
be tendered to the Trustee for redemption at the unit investment trust
office of the Trustee in the manner provided in the first paragraph of this
Section 5.02.
If the Depositor does not elect to purchase any Units of a Trust tendered
to the Trustee for redemption, or if Units are being tendered by the
Depositor for redemption, that portion of the Redemption Price which
represents interest shall be withdrawn from the Interest Account of such
Trust to the extent available. The balance paid on any redemption,
including accrued interest, if any, shall be withdrawn from the Principal
Account of such Trust to the extent that funds are available for such
purpose. If such available balance shall be insufficient, the Trustee
shall sell such of the Securities held in such Trust currently designated
for such purposes by the Depositor as the Trustee in its sole discretion
shall deem necessary. Given the minimum principal amount in which certain
Securities may be required to be sold, the proceeds of such sales may
exceed the amount necessary for payment of Units redeemed. Such excess
proceeds shall be distributed PRO RATA to all remaining Unitholders of
record of such Trust Fund; however, the Trustee shall not be required to
make a distribution from the Principal Account of the Trust Fund unless the
cash balance on deposit therein available for distribution shall be
sufficient to distribute at least the amount set forth in the related
Prospectus. In the event that funds are withdrawn from the Principal
Account for payment of accrued interest, the Principal Account shall be
reimbursed for such funds so withdrawn when sufficient funds are next
available in the Interest Account.
The Depositor shall maintain with the Trustee a current list of Securities
held in each Trust designated to be sold and the minimum par amount thereof
for the purpose of redemption of Units of each Trust tendered for
redemption and not purchased by the Depositor, and for payment of expenses
hereunder, PROVIDED that if the Depositor shall for any reason fail to
maintain such a list, the Trustee, in its sole discretion, may designate a
current list of Securities for such purposes. The net proceeds of any
sales of Securities from such list representing principal shall be credited
to the Principal Account of such Trust and the proceeds of such sales
representing accrued interest shall be credited to the Interest Account of
such Trust. With respect to Trusts in which all of the underlying
Securities have Insurance (the "INSURED TRUSTS"), the Depositor shall also
designate on such list of Securities designated to be sold, the Securities
upon the sale of which the Trustee shall obtain permanent insurance (the
"PERMANENT INSURANCE") from an Insurer, PROVIDED that if the Depositor
shall for any reason fail to make such designation, the Trustee in its sole
discretion shall make such designation if it deems such designation to be
in the best interests of Unitholders. The Trustee is hereby authorized to
pay and shall pay out of the proceeds of the sale of the Securities which
are covered by Permanent Insurance any premium for such Permanent Insurance
and the net proceeds after such deduction shall be credited to the
Principal Account and the net proceeds representing accrued interest shall
be credited to the Interest Account.
Sales of Securities shall be made in such manner as the Trustee shall
determine will bring the best price obtainable for the Trust Fund,
provided, however, that sales shall be made in such manner, as the Trustee
shall determine, as will provide the Trustee with funds in an amount
sufficient and at the time necessary in order for it to pay the Redemption
Price of Units tendered for redemption, regardless of whether or not a
better price could be obtained if the Securities were sold without regard
for the day on which the proceeds of such sale would be received. The
Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of any sale of Securities made pursuant to this
Section 5.02.
Certificates evidencing Units and the amount recorded in the registration
books of the Trust representing Units held in uncertificated form redeemed
pursuant to this Section 5.02 shall be cancelled by the Trustee and the
Unit or Units evidenced by such Certificates or evidenced by such records
in the registration books of the Trust for Units held in uncertificated
form shall be terminated by such redemptions.
When directed by the Depositor, the Trustee shall employ the Depositor as
its agent for the purpose of executing sales of Securities. The Depositor
will verify the Trustee's ownership of any Security prior to entering into
a contract for its sale. The Trustee shall have no liability for loss or
depreciation resulting from the Depositor's negligence or misconduct as
such agent.
Notwithstanding the foregoing, the Trustee is hereby authorized in its
discretion, but without obligation, in the event that the Depositor does
not elect to purchase any Unit tendered to the Trustee for redemption, or
in the event that a Unit is being tendered by the Depositor for redemption,
in lieu of redeeming such Unit, to sell such Unit in the
over-the-counter-market for the account of the tendering Unitholder at a
price which will return to the Unitholder an amount in cash, net after
deducting brokerage commissions, transfer taxes and other charges, equal to
or in excess of the Redemption Price which such Unitholder would otherwise
be entitled to receive on redemption pursuant to this Section 5.02. The
Trustee shall pay to the Unitholder the net proceeds of any such sale no
later than the day the Unitholder would otherwise be entitled to receive
payment of the Redemption Price hereunder.
SECTION 5.03. TRANSFER OR INTERCHANGE OF CERTIFICATES OR UNITS HELD IN
UNCERTIFICATED FORM. A Unit may be transferred by the registered holder
thereof by presentation and surrender of the Certificate or in the case of
Units held in uncertificated form, written transfer instructions in a form
satisfactory to the Trustee at the unit investment trust office of the
Trustee, properly endorsed or accompanied by a written instrument or
instruments of transfer in form satisfactory to the Trustee and executed by
the Unitholder or his authorized attorney, whereupon a new registered
Certificate or Certificates or a new notation in the registration books of
the Trust for Units to be held in uncertificated form for the same number
of Units of the same Trust Fund executed by the Trustee and the Depositor
will be issued in exchange and substitution therefor. Certificates issued
pursuant to this Indenture are interchangeable for one or more other
Certificates in an equal aggregate number of Units of the same Trust and
all Certificates issued shall be issued in denominations of one Unit or any
multiple thereof as may be requested by the Unitholder. Unitholders may
exchange their Certificates for the same number of Units to be held in
uncertificated form as recorded in the registration books of the Trust.
The Trustee may deem and treat the person in whose name any Unit shall be
registered upon the books of the Trustee as the owner of such Unit for all
purposes hereunder and the Trustee shall not be affected by any notice to
the contrary, nor be liable to any person or in any way for so deeming and
treating the person in whose name any Unit shall be so registered.
Unitholders holding their Units in uncertificated form may at any time
request the Trustee to issue Certificates representing such Units. The
Trustee shall, upon receipt of such a request in a form satisfactory to it,
issue Certificates in denominations of one Unit or any multiple thereof as
may be requested by the Unitholders.
A sum sufficient to pay any tax or other governmental charge that may be
imposed in connection with any such transfer or interchange shall be paid
by the Unitholder to the Trustee. The Trustee may require a Unitholder to
pay a reasonable fee to be determined by the Trustee for each new
Certificate issued on any such transfer or interchange.
All Certificates cancelled pursuant to this Indenture shall be disposed of
by the Trustee without liability on its part.
SECTION 5.04. CERTIFICATES MUTILATED, DESTROYED, STOLEN OR LOST. In case
any Certificate shall become mutilated, destroyed, stolen or lost, the
Trustee shall execute and deliver a new Certificate in exchange and
substitution therefor upon the holder's furnishing the Trustee with proper
identification and satisfactory indemnity, complying with such other
reasonable regulations and conditions as the Trustee may prescribe and
paying such expenses as the Trustee may incur. Any mutilated Certificate
shall be duly surrendered and cancelled before any new Certificate shall be
issued in exchange and substitution therefor. Upon the issuance of any new
Certificate, a sum sufficient to pay any tax or other governmental charge
and the fees and expenses of the Trustee may be imposed. Any such new
Certificate issued pursuant to this Section shall constitute complete and
indefeasible evidence of ownership in the related Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be
found at any time.
In the event the related Trust has terminated or is in the process of
termination, the Trustee may, instead of issuing a new Certificate in
exchange and substitution for any Certificate which shall have become
mutilated or shall have been destroyed, stolen or lost, make the
distributions in respect of such mutilated, destroyed, stolen or lost
Certificate (without surrender thereof except in the case of a mutilated
Certificate) as provided in Section 8.02 hereof if the Trustee is furnished
with such security or indemnity as it may require to save it harmless, and
in the case of destruction, loss or theft of a Certificate, evidence to the
satisfaction of the Trustee of the destruction, loss or theft of such
Certificate and of the ownership thereof.
ARTICLE VI
TRUSTEE
SECTION 6.01. GENERAL DEFINITION OF TRUSTEE'S LIABILITIES, RIGHTS AND
DUTIES. The Trustee shall in its discretion undertake such action as it
may deem necessary at any and all times to protect each Trust and the
rights and interests of the Unitholders pursuant to the terms of this
Indenture; PROVIDED, HOWEVER, that the expenses and costs of such actions,
undertakings or proceedings shall be reimbursable to the Trustee from the
Interest and Principal Accounts of such Trust, and the payment of such
costs and expenses shall be secured by a prior lien on such Trust.
In addition to and notwithstanding the other duties, rights, privileges and
liabilities of the Trustee as otherwise set forth, the liabilities of the
Trustee are further defined as follows:
(a) All moneys deposited with or received by the Trustee hereunder related
to a Trust shall be held by it without interest in trust within the meaning
of the Investment Company Act of 1940, as part of the Trust Fund or the
Reserve Account of such Trust until required to be disbursed in accordance
with the provisions of this Indenture, and such moneys will be segregated
by separate recordation on the trust ledger of the Trustee so long as such
practice preserves a valid preference under applicable law, or if such
preference is not so preserved the Trustee shall handle such moneys in such
other manner as shall constitute the segregation and holding thereof in
trust within the meaning of the Investment Company Act of 1940.
(b) The Trustee shall be under no liability for any action taken in good
faith on any appraisal, paper, order list, demand, request, consent,
affidavit, notice, opinion, direction, evaluation, endorsement, assignment,
resolution, draft or other document whether or not of the same kind prima
facie properly executed, or for the disposition of moneys, Securities or
Units pursuant to this Indenture, or in respect of any evaluation which it
is required to make or is required or permitted to have made by others
under this Indenture or otherwise, except by reason of its own negligence,
lack of good faith or willful misconduct, PROVIDED that the Trustee shall
not in any event be liable or responsible for any evaluation made by the
Evaluator. The Trustee may construe any of the provisions of this
Indenture, insofar as the same may appear to be ambiguous or inconsistent
with any other provisions hereof, and any construction of any such
provisions hereof by the Trustee in good faith shall be binding upon the
parties hereto and the Unitholders.
(c) The Trustee shall not be responsible for or in respect of the recitals
herein, the validity or sufficiency of this Indenture or for the due
execution hereof by the Depositor, the Portfolio Supervisor, or the
Evaluator, or for the form, character, genuineness, sufficiency, value or
validity of any Securities (except that the Trustee shall be responsible
for the exercise of due care in determining the genuineness of Securities
delivered to it pursuant to contracts for the purchase of such Securities)
or for or in respect of the validity or sufficiency of the Certificates or
the due execution thereof by the Depositor or for the policy of insurance,
including (without limiting the foregoing) the terms thereof, its due
execution and delivery or the payment by the Insurer of amounts due under,
or the performance by the Insurer of its obligations in accordance with,
the Insurance, if any, and the Trustee shall in no event assume or incur
any liability, duty or obligation to any Unitholder or the Depositor other
than as expressly provided for herein. The Trustee shall not be
responsible for or in respect of the validity of any signature by or on
behalf of the Depositor, the Portfolio Supervisor, the Evaluator or the
Insurer.
(d) The Trustee shall be under no obligation to appear in, prosecute or
defend any action which in its opinion may involve it in expense or
liability, unless as often as required by the Trustee it shall be furnished
with reasonable security and indemnity against such expense or liability,
and any pecuniary cost of the Trustee from such actions shall be deductible
from and a charge against the Interest and Principal Accounts of the
affected Trust or Trusts. The Trustee shall in its discretion undertake
such action as it may deem necessary at any and all times to protect the
Trust and the rights and interests of the Unitholders pursuant to the terms
of this Indenture; PROVIDED, HOWEVER, that the expenses and costs of such
actions, undertakings or proceedings shall be reimbursable to the Trustee
from the Interest and Principal Accounts, and the payment of such costs and
expenses shall be secured by a lien on the Trust prior to the interests of
Unitholders.
(e) The Trustee may employ agents, attorneys, accountants and auditors and
shall not be answerable for the default or misconduct of any such agents,
attorneys, accountants or auditors if such agents, attorneys, accountants
or auditors shall have been selected with reasonable care. The Trustee
shall be fully protected in respect of any action under this Indenture
taken or suffered in good faith by the Trustee, in accordance with the
opinion of counsel which may be counsel to the Depositor acceptable to the
Trustee. The fees and expenses charged by such agents, attorneys,
accountants and auditors shall constitute an expense of the Trustee,
reimbursable from the Interest and Principal Accounts of the affected Trust
as set forth in Section 6.04 hereof.
(f) If at any time the Depositor shall fail to undertake or perform any of
the duties which by the terms of this Indenture are required by it to be
undertaken or performed, or such Depositor shall become incapable of acting
or shall be adjudged a bankrupt or insolvent, or a receiver of such
Depositor or of its property shall be appointed, or any public officer
shall take charge or control of such Depositor or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then in any such case, the Trustee may, in its sole discretion: (1)
appoint a successor depositor who shall act hereunder in all respects in
place of such Depositor, which successor shall be satisfactory to the
Trustee, and which may be compensated at rates deemed by the Trustee to be
reasonable under the circumstances, by deduction ratably from the Interest
Accounts of the affected Trusts or, to the extent funds are not available
in such Account, from the Principal Accounts of the affected Trusts, but no
such deduction shall be made exceeding such reasonable amount as the
Securities and Exchange Commission may prescribe in accordance with Section
26(a)(2)(C) of the Investment Company Act of 1940, (2) terminate this
Indenture and the trust created hereby and liquidate the Trust Fund in the
manner provided in Section 8.02 or (3) continue to act as Trustee hereunder
without terminating this Indenture, acting in its own absolute discretion
without appointing any successor Depositor and receiving additional
compensation at rates determined as provided in clause (1) of this Section
6.01(f).
(g) If (i) the value of any Trust as shown by any evaluation by the
Trustee pursuant to Section 5.01 hereof shall be less than that amount set
forth in the Prospectus, or (ii) by reason of the Depositor's redemption of
Units of a Trust not theretofore sold constituting more than 60% of the
number of Units initially authorized, the net worth of the Trust is reduced
to less than 40% of the aggregate principal amount of Securities initially
deposited in such Trust, the Trustee may in its discretion, and shall when
so directed by the Depositor, terminate this Indenture and the trust
created hereby and liquidate such Trust, all in the manner provided in
Section 8.02.
(h) In no event shall the Trustee be liable for any taxes or other
governmental charges imposed upon or in respect of the Securities or upon
the interest thereon or upon it as Trustee hereunder or upon or in respect
of any Trust which it 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 the premises. For all such taxes and charges and for any
expenses, including counsel fees, which the Trustee may sustain or incur
with respect to such taxes or charges, the Trustee shall be reimbursed and
indemnified out of the Interest and Principal Accounts of the affected
Trust, and the payment of such amounts so paid by the Trustee shall be
secured by a prior lien on such Trust.
(i) No payment to a Depositor or to any principal underwriter (as defined
in the Investment Company Act of 1940) for the Trust or to any affiliated
person (as so defined) or agent of a Depositor or such underwriter shall be
allowed the Trustee as a expense except for payment of such reasonable
amounts as the Securities and Exchange Commission may prescribe as
compensation for performing bookkeeping and other administrative services
of a character normally performed by the Trustee.
(j) The Trustee, except by reason of its own negligence or willful
misconduct, shall not be liable for any action taken or suffered to be
taken by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture.
(k) The Trustee is authorized to appoint as co-trustee of any Trust a
trust company affiliated with the Trustee to perform the functions of
custodian and receiving and paying agent.
(l) The Trustee in its individual or any other capacity may become owner
or pledgee of, or be an underwriter or dealer in respect of, stocks, bonds
or other obligations issued by the same issuer (or an affiliate of such
issuer) or any obligor of any Securities at any time held as part of the
Trust and may deal in any manner with the same or with the issuer (or an
affiliate of the issuer) with the same rights and powers as if it were not
the Trustee hereunder.
(m) The Trust may include a letter or letters of credit for the purchase
of Contract Securities issued by the Trustee in its individual capacity for
the account of the Depositor, and the Trustee may otherwise deal with the
Depositor with the same rights and powers as if it were not the Trustee
hereunder.
SECTION 6.02. BOOKS, RECORDS AND REPORTS. The Trustee shall keep proper
books of record and account of all the transactions of each Trust under
this Indenture at its unit investment trust office, including a record of
the name and address of, and the Certificates issued by each Trust and held
by, every Unitholder, and such books and records of each Trust shall be
open to inspection by any Unitholder of such Trust at all reasonable times
during the usual business hours. The Trustee shall make such annual or
other reports as may from time to time be required under any applicable
state or federal statute or rule or regulation thereunder.
Unless the Depositor determines that such an audit is not required, the
accounts of the Trust shall be audited not less than annually by
independent public accountants designated from time to time by the
Depositor and the reports of such accountants shall be furnished by the
Trustee, upon request, to Unitholders. So long as the Depositor is making
a secondary market for Units, the Depositor shall bear the cost of such
annual audits to the extent such cost exceeds that amount set forth in the
related Prospectus.
To the extent permitted under the Investment Company Act of 1940 as
evidenced by an opinion of independent counsel to the Depositor or
"no-action" letters issued by or published interpretations of the staff of
the Securities and Exchange Commission, the Trustee shall pay, or reimburse
to the Depositor or others, from the Interest or Principal Account the
costs of the preparation of documents and information with respect to each
Trust required by law or regulation in connection with the maintenance of a
secondary market in units of each Trust. Such costs may include but are
not limited to accounting and legal fees, blue sky registration and filing
fees, printing expenses and other reasonable expenses related to documents
required under Federal and state securities laws.
SECTION 6.03. INDENTURE AND LIST OF SECURITIES ON FILE. The Trustee shall
keep a certified copy or duplicate original of this Indenture on file at
its corporate trust office available for inspection at all reasonable times
during the usual business hours by any Unitholder, together with a current
list of the Securities in each Trust.
SECTION 6.04. COMPENSATION. For services performed under this Indenture
the Trustee shall be paid an amount per annum at the rate as set forth in
the Trust Agreement. During the first year, such compensation shall be
reduced for each Trust under each plan of distribution by the amount set
forth in the Prospectus which amount represents the amount of interest
which accrues on any "when-issued" Securities and any Securities otherwise
delivered after the First Settlement Date between the First Settlement Date
of the respective Trust and the respective dates of delivery of any
mk12such Securities. The Depositor shall reimburse the Trustee for such
reduction on or before the First Settlement Date of the Trust. The
Trustee's compensation shall accrue daily and be computed on the basis of
the greatest principal amount of Securities in each Trust at any time
during the period with respect to which such compensation is being computed
(such period being the period commencing with the next preceding Record
Date, or the initial date of deposit, as appropriate, and running to, but
not including, the Record Date on which such computation is made) and shall
be apportioned among the respective plans of distribution in effect as of
January 1 next preceding such computation. The Trustee may periodically
adjust the compensation provided for pursuant to this paragraph in response
to fluctuations in short-term interest rates and average cash balances of
the Trust accounts (reflecting the cost to the Trustee of advancing funds
to a Trust to meet scheduled distributions and changes in anticipated
earnings on cash balances) and may, in addition, adjust such portion of its
fee as is not computed by reference to the cash balances in the Trust
accounts in accordance with the percentage of the total increase, after the
Date of Deposit of the Trust, in consumer prices for services as measured
by the United States Department of Labor Consumer Price Index entitled "ALL
SERVICES LESS RENT OF SHELTER". The consent or concurrence of any
Unitholder hereunder shall not be required for any such adjustment or
increase. Such compensation shall be charged by the Trustee against the
Interest and Principal Accounts of each Trust on or before the Distribution
Date on which such period terminates; PROVIDED, HOWEVER, that such
compensation shall be deemed to provide only for the usual, normal and
proper functions undertaken as Trustee pursuant to this Indenture. The
Trustee shall charge the Interest and Principal Accounts relating to such
Trust for any and all expenses and disbursements incurred hereunder,
including insurance premiums, legal and auditing expenses, and for any
extraordinary services performed by the Trustee hereunder relating to such
Trust.
The Trustee shall be indemnified ratably by the affected Trust and held
harmless against any loss or liability accruing to it without negligence,
bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of this Trust, including
the costs and expenses (including counsel fees) of defending itself against
any claim of liability in the premises. If the cash balances in the
Interest and Principal Accounts of the affected Trust shall be insufficient
to provide for amounts payable pursuant to this Section 6.04, the Trustee
shall have the power to sell (i) Securities from the current list of
Securities designated to be sold pursuant to Section 5.02 hereof, or (ii)
if no such Securities have been so designated, such Securities of the
affected Trust as the Trustee may see fit to sell in its own discretion,
and to apply the proceeds of any such sale in payment of the amounts
payable pursuant to this Section 6.04. The Depositor and Trustee will
observe the procedures described in Section 5.02 with respect to the
purchase of Permanent Insurance in connection with any such sale of
Securities from an Insured Trust.
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of any sale of Securities made pursuant to this
Section 6.04. Any moneys payable to the Trustee pursuant to this Section
shall be secured by a prior lien on the affected Trust.
SECTION 6.05. REMOVAL AND RESIGNATION OF TRUSTEE; SUCCESSOR. The
following provisions shall provide for the removal and resignation of the
Trustee and the appointment of any successor trustee:
(a) The Trustee or any trustee or trustees hereafter appointed may resign
and be discharged of the Trusts created by this Indenture, by executing an
instrument in writing resigning as Trustee of such Trusts and filing same
with the Depositor and (unless the Depositor shall have, concurrently with
such resignation, appointed a successor trustee) mailing a copy of a notice
of resignation to all Unitholders then of record, not less than 60 days
before the date specified in such instrument when, subject to Section
6.05(e), such resignation is to take effect. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor trustee as
hereinafter provided, by written instrument, in duplicate, one copy of
which shall be delivered to the resigning Trustee and one copy to the
successor trustee. In case at any time the Trustee shall not meet the
requirements set forth in Section 6.06 hereof, or shall become incapable of
acting, or if a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Trustee in an involuntary
case, or the Trustee shall commence a voluntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
any receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) for the Trustee or for any substantial part of its
property shall be appointed, or the Trustee shall generally fail to pay its
debts as they become due, or shall fail to meet such written standards for
the Trustee's performance as shall be established from time to time by the
Depositor, or if the Depositor determines in good faith that there has
occurred either (1) a material deterioration in the creditworthiness of the
Trustee or (2) one or more negligent acts on the part of the Trustee having
a materially adverse effect, either singly or in the aggregate, on the
Trust or on one or more Trusts of one or more Funds, such that the
replacement of the Trustee is in the best interests of the Unitholders, the
Depositor, upon 60 days' prior written notice, may remove the Trustee and
appoint a successor trustee having qualifications and at a rate of
compensation satisfactory to the Depositor by written instrument, in
duplicate, one copy of which shall be delivered to the Trustee so removed
and one copy to the successor trustee. Notice of such resignation or
removal of a Trustee and appointment of a successor trustee shall be mailed
by the successor trustee, promptly after its acceptance of such
appointment, to each Unitholder then of record.
(b) Any successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Depositor and to the resigning or removed Trustee an
instrument accepting such appointment hereunder, and such successor trustee
without any further act, deed or conveyance shall become vested with all
the rights, powers and duties and obligations of its predecessor hereunder
with like effect as if originally named Trustee herein and shall be bound
by all the terms and conditions of this Indenture. Upon the request of
such successor trustee, the Depositor and the resigning or removed Trustee
shall, upon payment of any amounts due the resigning or removed Trustee, or
provision therefor to the satisfaction of such resigning or removed
Trustee, execute and deliver an instrument acknowledged by it transferring
to such successor trustee all the rights and powers of the resigning or
removed Trustee; and the resigning or removed Trustee shall transfer,
deliver and pay over to the successor trustee all Securities and moneys at
the time held by it hereunder, together with all necessary instruments of
transfer and assignment or other documents properly executed necessary to
effect such transfer and such of the records or copies thereof maintained
by the resigning or removed Trustee in the administration hereof as may be
requested by the successor trustee, and shall thereupon be discharged from
all duties and responsibilities under this Indenture.
(c) In case at any time the Trustee shall resign and no successor trustee
shall have been appointed and have accepted appointment within 30 days
after notice of resignation has been received by the Depositor, the
retiring Trustee may forthwith apply to a court of competent jurisdiction
for the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(d) Any corporation into which any trustee hereunder may be merged or with
which it may be consolidated, or any corporation resulting from any merger
or consolidation to which any trustee hereunder shall be a party, shall be
the successor trustee under this Indenture without the execution or filing
of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such
merger or consolidation, by which any such trustee may seek to retain
certain powers, rights and privileges theretofore obtaining for any period
of time following such merger or consolidation, to the contrary
notwithstanding.
(e) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to this Section shall become effective upon
acceptance of appointment by the successor trustee as provided in
subsection (b) hereof.
SECTION 6.06. QUALIFICATIONS OF TRUSTEE. The Trustee shall be a
corporation organized and doing business under the laws of the United
States or any state thereof, which is authorized under such laws to
exercise corporate trust powers and having at all times an aggregate
capital, surplus and undivided profits of not less than $5,000,000.
ARTICLE VII
RIGHTS OF UNITHOLDERS
SECTION 7.01. BENEFICIARIES OF TRUST. By the purchase and acceptance or
other lawful delivery and acceptance of any Units, the Unitholder shall be
deemed to be a beneficiary of such Trust created by this Indenture and
vested with all right, title and interest in such Trust to the extent of
the Unit or Units set forth and evidenced by such Certificate or evidenced
by the records in the registration books of such Trust subject to the terms
and conditions of this Indenture, and of such Certificate or of the initial
transaction statements sent to Unitholders in uncertificated form.
SECTION 7.02. RIGHTS, TERMS AND CONDITIONS. In addition to the other
rights and powers set forth in the other provisions and conditions of this
Indenture, the Unitholders shall have the following rights and powers and
shall be subject to the following terms and conditions:
(a) A Unitholder may at any time prior to the evaluation time as of the
date on which the Trust is terminated tender his Unit or Units to the
Trustee for redemption in accordance with Section 5.02.
(b) The death or incapacity of any Unitholder shall not operate to
terminate this Indenture or a related Trust, nor entitle his legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court of competent jurisdiction for a partition or
winding up of the Trust Fund or a related Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any of them.
Each Unitholder expressly waives any right he may have under any rule of
law, of the provisions of any statute, or otherwise, to require the Trustee
at any time to account, in any manner other than as expressly provided in
this Indenture, in respect of the Securities or moneys from time to time
received, held and applied by the Trustee hereunder.
(c) No Unitholder shall have any right to vote or in any manner otherwise
control the operation and management of the Trust Fund, a related Trust, or
the obligations and management of the Trust Fund, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates or in the initial transaction statement, be
construed so as to constitute the Unitholders from time to time as partners
or members of an association; nor shall any Unitholder ever be under any
liability to any third persons by reason of any action taken by the parties
to this Indenture, or any other cause whatsoever.
ARTICLE VIII
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
SECTION 8.01. AMENDMENTS. This Indenture may be amended from time to time
by the Depositor and Trustee hereto or their respective successors, without
the consent of any of the Unitholders (a) to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision contained herein; or (b) to make
such other provision regarding matters or questions arising hereunder as
shall not adversely affect the interests of the Unitholders; PROVIDED,
HOWEVER, that the parties hereto may not amend this Indenture so as to (i)
increase the number of Units issuable hereunder above the amount issued
pursuant to Section 2.01, or such lesser amount as may be outstanding at
any time during the term of this Indenture, or (ii) subject to Sections
3.08 and 3.14, permit the deposit or acquisition hereunder of interest
bearing obligations or other securities either in addition to or in
substitution for any of the Securities.
Promptly after the execution of any such amendment, the Trustee shall
furnish written notification to all then outstanding Unitholders of the
substance of such amendment.
SECTION 8.02. TERMINATION. This Indenture and each Trust created hereby
shall terminate upon the maturity, redemption, sale or other disposition as
the case may be of the last Security held in such Trust hereunder unless
sooner terminated as hereinbefore specified, and may be terminated at any
time by the written consent of that percentage of the outstanding Units of
the respective Trust as set forth in the related Prospectus; PROVIDED that
in no event shall any Trust continue beyond the end of the calendar year
preceding the fiftieth anniversary of the execution of this Indenture (the
"MANDATORY TERMINATION DATE"); and PROVIDED FURTHER, that in connection
with any such termination, it shall not be necessary for the Trustee to
dispose of any Security or Securities of the respective Trust if retention
of such Security or Securities of the respective Trust, until due, shall be
deemed to be in the best interests of Unitholders of the respective trust,
including but not limited to, situations in which a Security or Securities
are in default, situations in which a Security or Securities reflect a
deteriorated market price resulting from a fear of default, and situations
in which a Security or Securities mature after the Mandatory Termination
Date. The Depositor and Trustee will observe the procedures described in
Section 5.02 with respect to the purchase of Permanent Insurance in
connection with the disposition of Securities from an Insured Trust. Upon
the date of termination the registration books of the Trustee shall be
closed.
Written notice of any termination, specifying the time or times at which
the Unitholders of such Trust may surrender their Units for cancellations
shall be given by the Trustee to each Unitholder at his address appearing
on the registration books of the Trustee. Within a reasonable period of
time after such termination, the Trustee shall fully liquidate the
Securities of such Trust then held, if any, and shall:
(a) deduct from the Interest Account of such Trust or, to the extent that
funds are not available in such Account of such Trust, from the Principal
Account of such Trust, and pay to itself individually an amount equal to
the sum of (i) its accrued compensation for its ordinary recurring
services, (ii) any compensation due it for its extraordinary services in
connection with such Trust, and (iii) any costs, expenses, indemnities or
advances in connection with such Trust as provided herein;
(b) deduct from the Interest Account of such Trust or, to the extent that
funds are not available in such Account, from the Principal Account of such
Trust, and pay accrued and unpaid fees of the Evaluator, the Portfolio
Supervisor and bond counsel in connection with such Trust, if any;
(c) deduct from the Interest Account of such Trust or the Principal
Account of such Trust any amounts which may be required to be deposited in
the Reserve Account to provide for payment of any applicable taxes or other
governmental charges and any other amounts which may be required to meet
expenses incurred under this Indenture in connection with such Trust;
(d) distribute to each Unitholder of such Trust, upon surrender for
cancellation of his Unit or Units, such holder's PRO RATA share of the
balance of the Interest Account of such Trust;
(e) distribute to each Unitholder of such Trust, upon surrender for
cancellation of his Unit or Units, such holder's PRO RATA share of the
balance of the Principal Account and, upon satisfaction of the conditions
provided in Section 3.04 hereof, the Reserve Account, of such Trust; and
(f) together with such distribution to each Unitholder as provided for in
(d) and (e), furnish to each such Unitholder a final distribution statement
as of the date of the computation of the amount distributable to
Unitholders, setting forth the data and information in substantially the
form and manner provided for in Section 3.06 hereof.
The amounts to be so distributed to each Unitholder shall be that PRO RATA
share of the balance of the total Interest and Principal Accounts of such
Trust as shall be represented by the Units therein evidenced by the
outstanding Unit or Units held of record by such Unitholder.
The Trustee shall be under no liability with respect to moneys held by it
in the Interest, Reserve and Principal Accounts of a Trust upon termination
except to hold the same in trust within the meaning of the Investment
Company Act of 1940, without interest until disposed of in accordance with
the terms of this Indenture.
In the event that all of the Unitholders of such Trust shall not surrender
their Units for cancellation within six months after the time specified in
the above mentioned written notice, the Trustee shall give a second written
notice to the remaining Unitholders to surrender their Units for
cancellation and receive the liquidation distribution with respect thereto.
If within one year after the second notice all the Units of such Trust
shall not have been surrendered for cancellation, the Trustee may take
steps, or may appoint an agent to take appropriate steps, to contact the
remaining Unitholders concerning surrender of their Units and the cost
thereof shall be paid out of the moneys and other assets which remain in
trust hereunder.
SECTION 8.03. CONSTRUCTION. This Indenture is executed and delivered in
the State of New York, and all laws or rules of construction of such state
shall govern the rights of the parties hereto and the Unitholders and the
interpretation of the provisions hereof.
SECTION 8.04. REGISTRATION OF UNITS. The Depositor agrees and undertakes
on its own part to register the Units with the Securities and Exchange
Commission or other applicable governmental agency, Federal or state,
pursuant to applicable Federal or state statutes, if such registration
shall be required, and to do all things that may be necessary or required
to comply with this provision during the term of the Trust Fund created
hereunder, and the Trustee shall incur no liability or be under any
obligation or expenses in connection therewith, except as provided in
Section 3.01.
SECTION 8.05. WRITTEN NOTICE. Any notice, demand, direction or
instruction to be given to the Depositor hereunder shall be in writing and
shall be duly given if mailed or delivered to the Depositor, World Trade
Center, 164 Northern Avenue, ZT3, Boston, Massachusetts 02210, or at such
other address as shall be specified by the Depositor to the other parties
hereto in writing.
Any notice, demand, direction or instruction to be given to the Trustee
shall be in writing and shall be duly given if mailed or delivered to the
Unit Investment Trust offices of the Trustee, 4 New York Plaza, New York,
New York 10004-2413, Attention: Unit Investment Trust Division, or such
other address as shall be specified by the Trustee to the other parties
hereto in writing.
Any notice, demand, direction or instruction to be given to the Evaluator
hereunder shall be in writing and shall be duly given if mailed or
delivered to the Evaluator, 395 Hudson Street, New York, New York
10014-3622, or at such other address as shall be specified by the Evaluator
to the other parties hereto in writing.
Any notice, demand, direction or instruction to be given to the Portfolio
Supervisor shall be in writing and shall be duly given if mailed or
delivered to the Portfolio Supervisor at World Trade Center, 164 Northern
Avenue, ZT3, Boston, Massachusetts 02210 hereto or such other address as
shall be specified by the Portfolio Supervisor to the other parties hereto
in writing.
Any notice to be given to the Unitholders shall be duly given if mailed by
first class mail with postage prepaid or delivered to each Unitholder at
the address of such holder appearing on the registration books of the
Trustee.
SECTION 8.06. SEVERABILITY. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be held contrary to
any express provision of law or contrary to policy of express law, though
not expressly prohibited, or against public policy, or shall for any reason
whatsoever be held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Indenture and shall in no way affect the
validity or enforceability of the other provisions of this Indenture or of
the Certificates or the rights of the holders thereof.
SECTION 8.07. DISSOLUTION OF DEPOSITOR NOT TO TERMINATE. The dissolution
of the Depositor for any cause whatsoever shall not operate to terminate
this Indenture or any Trust Fund insofar as the duties and obligations of
the Trustee are concerned.
In Witness Whereof, National Financial Services Corporation, Muller Data
Corporation and The Chase Manhattan Bank have each caused these Standard
Terms and Conditions of Trust to be executed by authorized officers all as
of the day, month and year first above written.
National Financial Services
Corporation, Depositor and
Portfolio Supervisor
By
Muller Data Corporation, Evaluator
By
The Chase Manhattan Bank, Trustee
By
Vice President
SCHEDULE A
SECURITIES INITIALLY DEPOSITED
FIDELITY DEFINED TRUSTS MUNICIPAL INCOME TRUST, SERIES 1
(Note: For the purposes of Schedule A, the Schedule may be completed using
the column headings shown below or a printed copy of the "Portfolio" for
each Trust as the same appears in the Prospectus pertaining to Fidelity
Defined Trusts Municipal Income Trust, Series 1 and appropriately
designated "Schedule A" may be attached hereto.)
Principa
l Full Name of Date Coup Cost to
Amount Obligation of on Fund Ratin
Deposite Matu Rate g
d rity
Exhibit 3.1
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
March 5, 1997
National Financial Services Corporation
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1
Gentlemen:
We have served as counsel for National Financial Services Corporation, as
Sponsor and Depositor (the "Depositor") of Fidelity Defined Trusts -
Municipal Income Trust, Series 1 (the "Fund") in connection with the
preparation, execution and delivery of a Trust Agreement dated March 5,
1997 and a Standard Terms and Conditions of Trust dated March 5, 1997
(collectively, the "Indenture") each of which are between National
Financial Services Corporation, as Depositor and Portfolio Supervisor,
Muller Data Corporation, as Evaluator and The Chase Manhattan Bank, as
Trustee, pursuant to which the Depositor has delivered to and deposited the
Securities listed in Schedule A to the Trust Agreement with the Trustee and
pursuant to which the Trustee has issued to or on the order of the
Depositor a certificate or certificates representing units of fractional
undivided interest in and ownership of the Fund created under said Trust
Agreement.
In connection therewith, we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable
us to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. the execution and delivery of the Indenture and the execution and
issuance of certificates evidencing the Units in the Fund have been duly
authorized; and
2. the certificates evidencing the Units in the Fund when duly executed
and delivered by the Depositor and the Trustee in accordance with the
aforementioned Indenture, will constitute valid and binding obligations of
the Fund and the Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-21085) relating to the Units referred
to above, to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
Chapman and Cutler
MJK/cjw
Exhibit 3.4
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
March 5, 1997
The Chase Manhattan Bank,
as Trustee of
Fidelity Defined Trusts -
Municipal Income Trust, Series 1
4 New York Plaza
New York, New York 10004-2413
Attention: Mr. Paul J. Holland
Vice President
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1
Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank ("CHASE") in
connection with the execution and delivery of a Standard Terms and
Conditions of Trust and a related Trust Agreement each dated as of today
(collectively, the "INDENTURE") and between National Financial Services
Corporation, as Depositor and Portfolio Supervisor (the "DEPOSITOR"),
Muller Data Corporation, as Evaluator (the "EVALUATOR") and Chase, as
Trustee (the "TRUSTEE"), establishing Fidelity Defined Trusts - Municipal
Income Trust, Series 1, which comprises Insured Massachusetts Trust, Series
1 and Insured Pennsylvania Trust, Series 1 (each, a "TRUST"), and the
execution by Chase, as Trustee under the Indenture, of a certificate or
certificates evidencing ownership of a number of units constituting the
entire interest in the respective Trust (such certificate or certificates
and such aggregate units being herein called "CERTIFICATES" and "UNITS"),
each of which Units represents an undivided interest in the Trust, which
consists of interest bearing, tax exempt bonds (including confirmations of
contracts for the purchase of certain obligations not yet delivered and
cash, cash equivalents or an irrevocable letter of credit in the amount
required for such purchase upon the receipt of such obligations), such
obligations being defined in the Indenture as Securities and referenced in
the schedules to the Indenture.
We have examined the Indenture, the Closing Memorandum delivered today by
the parties to the Indenture (the "CLOSING MEMORANDUM"), the form of
Certificate and such other documents as we have deemed necessary in order
to render this opinion. Based on the foregoing, we are of the opinion
that:
1. Chase is a duly organized and existing corporation having the powers of
a trust company under the laws of the State of New York.
2. The Indenture has been duly executed and delivered by Chase and,
assuming due execution and delivery by the Depositor, constitutes the valid
and legally binding obligation of Chase.
3. The Certificates are in proper form for execution and delivery by
Chase, as Trustee.
4. Chase, as Trustee, has duly executed and delivered to or upon the order
of the Depositor a Certificate or Certificates evidencing ownership of the
Units, registered in the name of the Depositor. Upon receipt of
confirmation of the effectiveness of the registration statement for the
sale of the Units filed with the Securities and Exchange Commission under
the Securities Act of 1993, the Trustee may deliver such other
Certificates, in such names and denominations as the Depositor may request,
to or upon the order of the Depositor as provided in the Closing
Memorandum.
5. Chase, as Trustee, may lawfully advance to the Trust amounts as may be
necessary to provide periodic interest distributions of approximately equal
amounts, and may be reimbursed, without interest, for any such advances
form funds in the interest account, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered, among other
things, whether the Securities have been duly authorized and delivered.
Very truly yours,
Carter, Ledyard & Milburn
SFl:dbc
Exhibit 4.2
Consent of Independent Auditors
We consent to the use of our report dated March 5, 1997, accompanying the
financial statements of the Fidelity Defined Trusts - Municipal Income
Trust, Series 1 (Insured Massachusetts Trust, Series 1 and Insured
Pennsylvania Trust, Series 1) included herein and to the reference to our
Firm as experts under the heading "Independent Certified Public
Accountants" in the prospectus which is a part of this registration
statement.
Deloitte & Touche LLP
March 5, 1997
New York, New York
Exhibit 4.1
Standard & Poor's
25 Broadway
New York, NY 10004-1064
March 5, 1997
Chapman & Cutler
111 West Monroe Street
Chicago, IL 60603
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1
consisting of Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1
Pursuant to your request for a Standard & Poor's rating on the units of the
above-captioned Trust, SEC 333-21085, we have reviewed the information
presented to us and have assigned a "AAA" rating to the units of the Trust
and a "AAA" rating to the securities contained in the Trust for so long as
they remain in the Trust. Since such policies have been issued by one or
more insurance companies which have been assigned a "AAA" claims paying
ability rating by Standard & Poor's, Standard & Poor's has assigned a "AAA"
rating to the units of teh Trust and to the securities contained in teh
Trust for as long as they remain in the Trust.
Standard & Poor's will maintain surveillance on the "AAA" rating until
April 3, 1998. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the Trust.
You have permission to use the name of Standard & Poor's and the
above-assigned ratings in connection with your dissemination of information
relating to these units, provided that it is understood that the ratings
are not "market" ratings nor recommendations to buy, hold, or sell the
units of the Trust or the securities contained in the Trust. Further, it
should be understood the rating on the units does not take into account the
extent to which Trust expenses or portfolio asset sales for less than the
Trust's purchase price will reduce payment to the unit holders of the
interest and principal required to be paid on the portfolio assets.
Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on
the sponsor and its counsel, accountants, and other experts for the
accuracy and completeness of the information submitted in connection with
the ratings. Standard & Poor's does not independently verify the truth or
accuracy of any such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the registration
statement or prospectus relating to the units or the Trust. However, this
letter should not be construed as a consent by us, within the meaning of
Section 7 of the Securities Act of 1933, to the use of the name of Standard
& Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. in
connection with the ratings assigned to the securities contained in the
Trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send us a copy of your final prospectus as soon as it
becomes available. Should we not receive it within a reasonable time after
the closing or should it not conform to the representations made to us, we
reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If we
can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Exhibit 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 5, 1997
National Financial Services Corporation
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1
Gentlemen:
We have served as counsel for National Financial Services Corporation,
Depositor of Fidelity Defined Trusts - Municipal Income Trust, Series 1
(the "Trust") in connection with the issuance of Units of fractional
undivided interest in said Trust (the "Units") under a Trust Agreement
dated March 5, 1997 (the "Indenture") among National Financial Services
Corporation, as Depositor, and Portfolio Supervisor, Muller Data
Corporation, as Evaluator and The Chase Manhattan Bank, as Trustee.
In this connection, we have examined the Registration Statement, the form
of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we
have deemed pertinent.
Based upon the foregoing, and upon an investigation of such matters of law
as we consider to be applicable, we are of the opinion that, under existing
federal income tax law:
(i) Each Trust is not an association taxable as a corporation but will be
governed by the provisions of Subchapter J (relating to Trusts) of Chapter
1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share of each
asset of the respective Trust in the proportion that the number of Units of
such Trust held by him bears to the total number of Units outstanding of
such Trust. Under Subpart E, Subchapter J of Chapter 1 of the Code, income
of each Trust will be treated as income of each Unitholder in the
proportion described, and an item of Trust income will have the same
character in the hands of a Unitholder as it would have in the hands of the
Trustee. Accordingly, to the extent that the income of a Trust consists of
interest and original issue discount excludable from gross income under
Section 103 of the Code, such income will be excludable from federal gross
income of the Unitholder, except in the case of a Unitholder who is a
substantial user (or a person related to such user) of a facility financed
through issuance of any industrial development bonds or certain private
activity bonds held by the Trust. In the case of such Unitholder who is a
substantial user (and no other) interest received with respect to his Units
attributable to such industrial development bonds or such private activity
bonds is includable in his gross income. To the extent a Trust holds Bonds
that are "specified private activity bonds" within the meaning of Section
57(a)(5) of the Code, a Unitholder's pro rata portion of the income on such
Bonds will be included as an item of tax preference in the computation of
the alternative minimum tax applicable to all taxpayers (including
non-corporate taxpayers) subject to the alternative minimum tax. In the
case of certain corporations, interest on all of the Bonds is included in
computing the alternative minimum tax pursuant to Section 56(c) of the
Code, the environmental tax (the "Superfund Tax") imposed by Section 59A of
the Code, and the branch profits tax imposed by Section 884 of the Code
with respect to U.S. branches of foreign corporations. Legislative
proposals have been made that would extend the Superfund Tax.
(iii) Gain or loss will be recognized to a Unitholder upon redemption or
sale of his Units. Such gain or loss is measured by comparing the proceeds
of such redemption or sale with the adjusted basis of the Units. If a bond
is acquired with accrued interest, that portion of the price paid for the
accrued interest is added to the tax basis of the Bond. When this accrued
interest is received, it is treated as a return of capital and reduces the
tax basis of the Bond. If a Bond is purchased for a premium, the amount
of the premium is added to the tax basis of the Bond. Bond premium is
amortized over the remaining term of the Bond, and the tax basis of the
Bond is reduced each tax year by the amount of the premium amortized in
that tax year. Accordingly, Unitholders must reduce the tax basis of their
Units for their share of accrued interest received by the respective Trust,
if any, on Bonds delivered after the Unitholders pay for their Units to the
extent that such interest accrued on such Bonds before the date the Trust
acquired ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller) and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. In addition,
such basis will be increased by the Unitholder's aliquot share of the
accrued original issue discount (and market discount, if the Unitholder
elects to include market discount in income as it accrues) with respect to
each Bond held by the Trust with respect to which there was an original
issue discount at the time the Bond was issued (or which was purchased with
market discount) and reduced by the annual amortization of bond premium, if
any, on Bonds held by the Trust.
(iv) If the Trustee disposes of an asset of a Trust (whether by sale,
payment on maturity, redemption or otherwise), gain or loss is recognized
to the Unitholder and the amount thereof is measured by comparing the
Unitholder's aliquot share of the total proceeds from the transaction with
his basis for his fractional interest in the asset disposed of. Such basis
is ascertained by apportioning the tax basis for his Units among each of
the assets of such Trust (as of the date on which his Units were acquired)
ratably according to their values as of the valuation date nearest the date
on which he purchased such Units. A Unitholder's basis in his Units and of
his fractional interest in each asset of the Trust must be reduced by the
amount of his aliquot share of accrued interest received by the Trust, if
any, on Bonds delivered after the Unitholders pay for their Units to the
extent that such interest accrued on the Bonds before the date the Trust
acquired ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller), must be reduced
by the annual amortization of bond premium, if any, on Bonds held by the
Trust and must be increased by the Unitholder's share of the accrued
original issue discount (and market discount, if the Unitholder elects to
include market discount in income as it accrues) with respect to each Bond
which, at the time the Bond was issued, had original issue discount (or
which was purchased with market discount).
(v) In the case of any Bond held by the Trust where the "stated redemption
price at maturity" exceeds the "issue price", such excess shall be original
issue discount. With respect to each Unitholder, upon the purchase of his
Units subsequent to the original issuance of Bonds held by the Trust,
Section 1272(a)(7) of the Code provides for a reduction in the accrued
"daily portion" of such original issue discount upon the purchase of a Bond
subsequent to the Bond's original issue, under certain circumstances. In
the case of any Bond held by the Trust the interest on which is excludable
from gross income under Section 103 of the Code, any original issue
discount which accrues with respect thereto will be treated as interest
which is excludable from gross income under Section 103 of the Code.
(vi) Certain Bonds in the portfolio of the Trust have been insured by the
issuers, underwriters, the Sponsor or others against default in the prompt
payment of principal and interest (the "Insured Bonds"). Such Insured
Bonds are so designated on the portfolio pages in the Prospectus for each
Trust. Insurance on Insured Bonds is effective so long as such bonds
remain outstanding. For each of these Insured Bonds, we have been advised
that the aggregate principal amount of such Insured Bonds listed on the
portfolio page was acquired by the Trust and are part of the series of such
Insured Bonds in the listed aggregate principal amount. Based upon the
assumption that the Insured Bonds of the Trust are part of a series covered
by an insurance policy, it is our opinion that any amounts received by the
Trust representing maturing interest on such Insured Bonds will be
excludable from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid in normal course by the
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 Insured Bonds, rather than
the insurer will pay debt service on the Insured Bonds. Paragraph (ii) of
this opinion is accordingly applicable to such payment.
Sections 1288 and 1272 of the Code provide a complex set of rules governing
the accrual of original issue discount. These rules provide that original
issue discount accrues either on the basis of a constant compound interest
rate or ratably over the term of the Bonds, depending on the date the Bond
was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue
discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). The application of these rules will also
vary depending on the value of the Bond on the date a Unitholder acquires
his Units, and the price the Unitholder pays for his Units.
Except with respect to those Trusts that hold "specified private activity
bonds" within the meaning of Section 57(a)(5) of the Code issued on or
after August 8, 1986 as identified in the Prospectus related hereto (the
"AMT Trusts"), the Trusts do not include any specified private activity
bonds and accordingly none of the interest income of the Trusts (other than
the AMT Trusts, if any) shall be treated as an item of tax preference when
computing the alternative minimum tax. Because the AMT Trusts include
"specified private activity bonds," all or a portion of the income of the
AMT Trusts shall be treated as an item of tax preference for alternative
minimum tax purposes. In the case of corporations, for taxable years
beginning after December 31, 1986, 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. Legislative proposals have been made that would extend the
Superfund Tax.
Pursuant to Section 56(c) of the Code, 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) for taxable years beginning after 1989, 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
operating loss deduction). "Adjusted current earnings" includes all
tax-exempt interest, including interest on all Bonds in the Trust, and
tax-exempt original issue discount. Under current Code provisions, the
Superfund Tax does not apply to tax years beginning on or after January 1,
1996. Legislative proposals have been made that would extend the Superfund
Tax.
Effective for tax returns filed after December 31, 1987, all taxpayers are
required to disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year of
100% of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section
593 of the Code applies, to purchase or carry obligations acquired after
August 7, 1986, the interest on which is exempt from federal income taxes
for such taxable year. Under rules prescribed by Section 265, the amount
of interest otherwise deductible by such financial institutions in any
taxable year which is deemed to be attributable to tax-exempt obligations
acquired after August 7, 1986, will generally be the amount that bears the
same ratio to the interest deduction otherwise allowable (determined
without regard to Section 265) to the taxpayer for the taxable year as the
taxpayer's average adjusted basis (within the meaning of Section 1016) of
tax-exempt obligations acquired after August 7, 1986, bears to such average
adjusted basis for all assets of the taxpayer.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units
is not 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 indebtedness
incurred for expenditures of a personal nature such as a mortgage incurred
to purchase or improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for
bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds an
investor's purchase price (except to the extent that such difference, if
any, is attributable to original issue discount not yet accrued) subject to
a statutory de minimis rule. Market discount can arise based on the price
a Trust pays for Bonds or the price a Unitholder pays for his or her Units.
Under the Tax Act, accretion of market discount is taxable as ordinary
income; under prior law, the accretion had been treated as capital gain.
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.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-21085) relating to the Units referred
to above and to the use of our name and to the reference of our firm in
said Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EFF/erg
Exhibit 3.3
Carter, Ledyard & Milburn
2 WALL STREET
NEW YORK, NEW YORK 10005
March 5, 1997
The Chase Manhattan Bank,
as Trustee of
Fidelity Defined Trusts -
Municipal Income Trust, Series 1
4 New York Plaza
New York, New York 10004-2413
Attention: Mr. Paul J. Holland
Vice President
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1:
Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1
Dear Sirs:
We are acting as special counsel with respect to New York tax matters for
Fidelity Defined Trusts - Municipal Income Trust, Series 1, with respect to
trusts thereunder, Insured Massachusetts Trust, Series 1 and Insured
Pennsylvania Trust, Series 1 (each, a "TRUST"), which will be established
under a certain Standard Terms and Conditions of Trust and a related Trust
Agreement each dated as of today (collectively, the "INDENTURE") between
National Financial Services Corporation, as Depositor and Portfolio
Supervisor (the "DEPOSITOR"), Muller Data Corporation, as Evaluator (the
"EVALUATOR") and The Chase Manhattan Bank, as Trustee (the "TRUSTEE").
Pursuant to the terms of the Indenture, units of fractional undivided
interest in the Trust (the "UNITS") will be issued in the aggregate number
set forth in the Indenture.
We have examined and are familiar with originals or certified copies,
or copies otherwise identified to our satisfaction, of such documents as we
have deemed necessary or appropriate for the purpose of this opinion. In
giving this opinion, we have relied upon the two opinions, each dated today
and addressed to the Trustee, of Chapman and Cutler, counsel for the
Depositor , with respect to the matters of law set forth therein.
Based upon the foregoing, we are of the opinion that:
1. The Trust will not constitute an association taxable as a corporation
under New York law, and accordingly will not be subject to the New York
State franchise tax or the New York City general corporation tax.
2. Under the income tax laws of the State and City of New York, the income
of the Trust will be considered the income of the holders of the Units.
We consent to the filing of this opinion as an exhibit to the Registration
Statement (No.333-21085) filed with the Securities and Exchange Commission
with respect to the registration of the sale of the Units and to the
references to our name under the captions "Tax Status" and "Legal Opinions"
in such Registration Statement and the preliminary prospectus included
therein.
Very truly yours,
Carter, Ledyard & Milburn
SFl:tbm
Exhibit 3.5
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 5, 1997
Fidelity Defined Trusts - Municipal Income
Trust, Series 1
c/o National Financial Services Corporation
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
The Chase Manhattan Bank
4 New York Plaza, 6th Floor
New York, New York 10004-2413
Re: Insured Pennsylvania Trust, Series 1
Gentlemen:
We have served as counsel for National Financial Services Corporation,
Depositor of Fidelity Defined Trusts - Municipal Income Trust, Series 1
(the "Trust") in connection with the issuance of Units of fractional
undivided interest in said Trust under a Trust Agreement dated March 5,
1997 (the "Indenture") among National Financial Services Corporation, as
Depositor, and Portfolio Supervisor, Muller Data Corporation, as Evaluator
and The Chase Manhattan Bank, as Trustee. The Units represent fractional
undivided interests in the principal of and net income on obligations
deposited in one of several separate trusts, including the above-captioned
trust (the "Trust), will be evidenced by a certificate (the "Certificate")
and will be sold to various investors (the "Unitholders"). Each separate
trust will be administered as a distinct entity with separate certificates,
investments, expenses, books and records.
We have examined certain laws of the State of Pennsylvania (the "STATE") to
determine their applicability to the Pennsylvania Trust (the "TRUST") and
to the holders of Units in the Trust who are residents of the State of
Pennsylvania (the "UNITHOLDERS"). The assets of the Trust will consist of
interest-bearing obligations issued by or on behalf of the State, any
public authority, commission, board or other agency created by the State or
a political subdivision of the State, or political subdivisions thereof
(the "BONDS"). Distributions of income with respect to the Bonds received
by the Trust will be made monthly.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued by the State or its municipalities, as the case may be, (ii) the
interest thereon is excludable from gross income for federal income tax
purposes, (iii) the interest thereon is exempt from Pennsylvania State and
local taxes and (iv) the Bonds are exempt from county personal property
taxes. This opinion does not address the taxation of persons other than
full-time residents of Pennsylvania.
Based on the foregoing, and review and consideration of existing State laws
as of this date, it is our opinion, and we herewith advise you, as follows:
(1) The Trust will have no tax liability for purposes of the personal
income tax (the "PERSONAL INCOME TAX"), the corporate income tax (the
"CORPORATE INCOME TAX") and the capital stock-franchise tax (the "FRANCHISE
TAX"), all of which are imposed under the Pennsylvania Tax Reform Code of
1971, or the Philadelphia School District Investment Net Income Tax (the
"PHILADELPHIA SCHOOL TAX") imposed under Section 19-1804 of the
Philadelphia Code of Ordinances.
(2) Interest on the Bonds, net of Trust expenses, which is exempt from the
Personal Income Tax when received by the Trust and which would be exempt
from such tax if received directly by a Unitholder, will retain its status
as exempt from such tax when received by the Trust and distributed to such
Unitholder. Interest on the Bonds which is exempt from the Corporate
Income Tax and the Philadelphia School Tax when received by the Trust and
which would be exempt from such taxes if received directly by a Unitholder,
will retain its status as exempt from such taxes when received by the Trust
and distributed to such Unitholder.
(3) Distributions from the Trust attributable to capital gains recognized
by the Trust upon its disposition of a Bond issued on or after February 1,
1994, will be taxable for purposes of the Personal Income Tax and the
Corporate Income Tax. No opinion is expressed with respect to the taxation
of distributions from the Trust attributable to capital gains recognized by
the Trust upon its disposition of a Bond issued before February 1, 1994.
(4) Distributions from the Trust attributable to capital gains recognized
by the Trust upon its disposition of a Bond will be exempt from the
Philadelphia School Tax if the Bond was held by the Trust for a period of
more than six months and the Unitholder held his Unit for more than six
months before the disposition of the Bond. If, however, the Bond was held
by the Trust or the Unit was held by the Unitholder for a period of less
than six months, then distributions from the Trust attributable to capital
gains recognized by the Trust upon its disposition of a Bond issued on or
after February 1, 1994 will be taxable for purposes of the Philadelphia
School Tax; no opinion is expressed with respect to the taxation of any
such gains attributable to Bonds issued before February 1, 1994.
(5) Insurance proceeds paid under policies which represent maturing
interest on defaulted obligations will be exempt from the Corporate Income
Tax to the same extent as such amounts are excluded from gross income for
federal income tax purposes. No opinion is expressed with respect to
whether such insurance proceeds are exempt from the Personal Income Tax or
the Philadelphia School Tax.
(6) Each Unitholder will recognize gain for purposes of the Corporate
Income Tax if the Unitholder redeems or sells Units of the Trust to the
extent that such a transaction results in a recognized gain to such
Unitholder for federal income tax purposes and such gain is attributable to
Bonds issued on or after February 1, 1994. No opinion is expressed with
respect to the taxation of gains realized by a Unitholder on the sale or
redemption of a Unit to the extent such gain is attributable to Bonds
issued prior to February 1, 1994.
(7) A Unitholder's gain on the sale or redemption of a Unit will be subject
to the Personal Income Tax, except that no opinion is expressed with
respect to the taxation of any such gain to the extent it is attributable
to Bonds issued prior to February 1, 1994.
(8) A Unitholder's gain upon a redemption or sale of Units will be exempt
from the Philadelphia School Tax if the Unitholder held his Unit for more
than six months and the gain is attributable to Bonds held by the Trust for
a period of more than six months. If, however, the Unit was held by the
Unitholder for less than six months or the gain is attributable to Bonds
held by the Trust for a period of less than six months, then the gains will
be subject to the Philadelphia School Tax; except that no opinion is
expressed with respect to the taxation of any such gains attributable to
Bonds issued before February 1, 1994.
(9) The Bonds will not be subject to taxation under the County Personal
Property Tax Act of June 17, 1913 (the "PERSONAL PROPERTY TAX"). Personal
property taxes in Pennsylvania are imposed and administered locally, and
thus no assurance can be given as to whether Units will be subject to the
Personal Property Tax in a particular jurisdiction. However, in our
opinion, Units should not be subject to the Personal Property Tax.
Unitholders should be aware that, generally, interest on indebtedness
incurred or continued to purchase or carry Units is not deductible for
purposes of the Personal Income Tax, the Corporate Income Tax or the
Philadelphia School Tax.
We have not examined any of the Bonds to be deposited and held in the Trust
or the proceedings for the issuance thereof or the opinions of bond counsel
with respect thereto, and therefore express no opinion as to the exemption
from federal or state income taxation of interest on the Bonds if interest
thereon had been received directly by a Unitholder.
Chapman and Cutler has expressed no opinion with respect to taxation under
any other provision of Pennsylvania law. Ownership of the Units may result
in collateral Pennsylvania tax consequences to certain taxpayers.
Prospective investors should consult their tax advisors as to the
applicability of any such collateral consequences.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-21085) relating to the Units referred
to above and to the use of our name and to the reference of our firm in
said Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
0
March 3, 1997
Fidelity Defined Trusts--Municipal Income Trust
Series 1
c/o National Financial Services Corporation
82 Devonshire Street
Boston, MA 02109
The Chase Manhattan Bank,
as Trustee of Fidelity Defined Trusts--Municipal
Income Trust Series 1
4 New York Plaza
New York, NY 10004-2413
Re: Massachusetts Insured Trust, Series 1
Dear Ladies and Gentlemen:
We have acted as special counsel, with respect to Massachusetts state and
local tax matters, to the above mentioned Trust ("Trust") of Fidelity
Defined Trusts--Municipal Income Trust Series 1 (the "Fund") concerning the
issuance by the Trust of Units of fractional undivided interest in the
Trust.
In preparing the opinion, we have reviewed the preliminary Prospectus for
the Fund and such other documents and instruments as we have deemed
necessary as a basis for the opinion set forth herein. In our examination
of the foregoing, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures and the capacity
of each party executing a document to so execute such documents. We have
been furnished with a copy of the opinion of Chapman and Cutler on the
federal tax status of the Fund, its constituent Trusts and their
Unitholders (the "Chapman and Cutler Opinion") and we have relied upon that
opinion as to federal income tax matters to the extent such matters are
relevant to the opinions expressed herein. We have also examined
applicable Massachusetts law.
The Trust is comprised initially of delivery statements relating to
contracts to purchase insured interest bearing obligations issued by
Massachusetts, its counties, municipalities,
authorities, political subdivisions or instrumentalities or by Puerto Rico,
the Virgin Islands, Guam, or the Northern Mariana Islands. The interest on
all these bonds is either excludable from federal gross income or exempt
from all regular federal income tax (except in certain instances depending
on the Unitholder) and, with certain exceptions, from Massachusetts income
taxes for individual purchasers who are Massachusetts residents under
existing law at the time of issuance in the opinion of recognized bond
counsel to the issuing governmental authorities.
In the opinion of Chapman and Cutler, the Trust is not an association
taxable as a corporation for federal income tax purposes and interest on
the underlying insured interest bearing obligations issued by
Massachusetts, its counties, municipalities, authorities, political
subdivisions or instrumentalities or by Puerto Rico, the Virgin Islands,
Guam, or the Northern Mariana Islands ("Obligations"), which is exempt from
federal income tax under the Internal Revenue Code of 1986, as amended (the
"Code"), when received by the Trust will retain its status as tax-exempt
interest, for federal income tax purposes, when distributed to the
Unitholders, except that the alternative minimum tax and environmental tax
applicable to certain corporate Unitholders may, in certain circumstances,
include in the amount on which such taxes are calculated a portion of the
interest income received by the Trust. Further, each Unitholder of the
Trust will be treated as the owner of a pro rata portion of such Trust
under Subpart E, Subchapter J of Chapter 1 of the Code. Each Unitholder
will be considered to have received his pro rata share of interest on an
Obligation when it is received by the TRUST, and each Unitholder will have
a taxable event for federal income tax purposes when the TRUST disposes of
an Obligation (whether by sale, exchange, redemption, or payment at
maturity) or when the Unitholder redeems or sells Units.
Based upon and subject to the foregoing it is our opinion that under
existing law and administration of the affairs of the Trust:
FOR MASSACHUSETTS INCOME TAX PURPOSES, IF THE TRUST IS AN "INVESTMENT"
TRUST WITHIN THE MEANING OF 26 CFR (SUB-SECTION)301.7701-4(C) AND IS
CLASSIFIED AS A TRUST UNDER THAT REGULATION, IT WILL BE TREATED AS A FIXED
INVESTMENT TRUST AS THAT TERM IS DEFINED IN SECTION 62.8.1 OF TITLE 830 OF
THE CODE OF MASSACHUSETTS REGULATIONS, AND, THEREFORE, WILL NOT BE SUBJECT
AS AN ENTITY TO MASSACHUSETTS INCOME TAXATION UNDER CHAPTER 62 OF THE
MASSACHUSETTS GENERAL LAWS.
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 DISTRIBUTION 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 THE 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 SUCH TRUST IN THEIR MASSACHUSETTS GROSS
INCOME TO THE EXTENT THAT SUCH EARNINGS OR DISTRIBUTIONS ARE DERIVED FROM
THE PROCEEDS OF INSURANCE ON THE OBLIGATIONS 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 AND IF AND TO THE EXTENT THAT SUCH
EARNINGS OR DISTRIBUTIONS REPRESENT TAX-EXEMPT INTEREST EXCLUDIBLE FROM
GROSS INCOMES FOR FEDERAL TAX PURPOSES, PROVIDED THAT, AT THE TIME SUCH
POLICIES ARE PURCHASED, THE AMOUNTS PAID FOR SUCH POLICIES ARE REASONABLE,
CUSTOMARY AND CONSISTENT WITH THE REASONABLE EXPECTATIONS THAT THE ISSUER
OF THE OBLIGATIONS, RATHER THAN THE INSURER, WILL PAY DEBT SERVICE ON THE
BONDS.
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 OBLIGATIONS.
EACH 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 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;
SUCH 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 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 OBLIGATIONS
DELIVERED TO THE TRUSTEE AFTER THE UNITHOLDERS PAY FOR THEIR UNITS, FOR
ACCRUED ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH OBLIGATION WHICH, AT
THE TIME THE 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. THE MASSACHUSETTS ESTATE TAX FOR
A DECEASED UNITHOLDER WHO IS A RESIDENT OF MASSACHUSETTS IS A SO-CALLED
"SPONGE TAX," A TAX THAT WILL NOT EXCEED THE ALLOWABLE FEDERAL CREDIT, AND
THEREFORE THE HOLDING OF UNITS DOES NOT DIRECTLY AFFECT THE AMOUNT OF
MASSACHUSETTS ESTATE TAX DUE.
The foregoing opinions are based upon present provisions of federal and
Massachusetts law, administrative interpretations thereof, court decisions
and the Chapman and Cutler Opinion. With respect to Unitholders which are
corporations subject to Massachusetts taxation under M.G.L. Chapter 63, no
opinion is rendered on the includability of 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 Puerto Rico, the Virgin Islands,
Guam, or the Northern Mariana Islands.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in such
Registration Statement and the Prospectus included therein.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
365896.c2
MULLER DATA CORPORATION
395 Hudson Street
New York, New York 10014-3622
March 5, 1997
Fidelity Capital Markets
164 Northern Avenue
Boston, MA 02110
Re: Fidelity Defined Trusts - Municipal Income Trust, Series 1
Gentlemen:
We have examined Registration Statement File No. 333-21085 for the above
captioned trusts. We hereby acknowledge that Muller Data Corporation is
currently acting as the evaluator for the trust. We hereby consent to the
use in the Registration Statement of the reference to Muller Data
Corporation as evaluator.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely
/s/Mario S. Buscemi
Chief Operating Officer
MSB:tg
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR Fidelity Defined Trusts - Municipal Income
Trust Series 1 Pennsylvania Insured Trusts, Series 1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<RESTATED>
<CIK> 0001032110
<NAME> Fidelity Defined Trusts - Municipal Income Trust Series 1
<SERIES>
<NUMBER> 1
<NAME> Massachusetts Insured Trust, Series 1
<MULTIPLIER> 1
<S>
<C>
<FISCAL-YEAR-END> MAR-5-1997
<PERIOD-START> MAR-5-1997
<PERIOD-END> MAR-5-1997
<PERIOD-TYPE> OTHER
<INVESTMENTS-AT-COST> 2,870,791
<INVESTMENTS-AT-VALUE> 2,870,791
<RECEIVABLES> 21,793
<ASSETS-OTHER> 6,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,898,584
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,793
<TOTAL-LIABILITIES> 27,793
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,013,957
<SHARES-COMMON-STOCK> 300,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 2,870,791
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR Fidelity Defined Trusts - Municipal Income
Trust Series 1 Pennsylvania Insured Trusts, Series 1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<RESTATED>
<CIK> 0001032110
<NAME> Fidelity Defined Trusts - Municipal Income Trust Series 1
<SERIES>
<NUMBER> 2
<NAME> Pennsylvania Insured Trust, Series 1
<MULTIPLIER> 1
<S>
<C>
<FISCAL-YEAR-END> MAR-5-1997
<PERIOD-START> MAR-5-1997
<PERIOD-END> MAR-5-1997
<PERIOD-TYPE> OTHER
<INVESTMENTS-AT-COST> 2,878,967
<INVESTMENTS-AT-VALUE> 2,878,967
<RECEIVABLES> 43,763
<ASSETS-OTHER> 6,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,928,730
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,763
<TOTAL-LIABILITIES> 49,763
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,022,541
<SHARES-COMMON-STOCK> 300,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 2,878,967
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
Memorandum
File No. 333-21085
The Prospectus and the Indenture filed with Amendment No. 1 to the
Registration Statement on Form S-6 have been revised to reflect information
regarding the execution of the Indenture and the deposit of securities on
March 5, 1997 and to set forth certain statistical data based thereon. In
addition, there are a number of other changes described below.
The Prospectus
Prospectus - Part A The following information for each Trust appears:
The total number of units of each Trust.
The Public Offering Price at the opening of business on the Initial Date
of Deposit.
The initial annual fee of the Trustee.
The first and second distributions and record dates.
The estimated long-term returns and estimated current returns (if
applicable) to Unitholders as of the opening of business on the Initial
Date of Deposit.
Estimated net annual unit income.
Prospectus - Part A The following information for each Trust appears on the
pages indicated:
Summary data regarding the composition of the portfolio of each Trust.
The portfolio for each Trust.
Prospectus - Part A The Report of Independent Certified Public Accountants
has been completed for each Trust.
Prospectus - Part A The Statements of Condition have been completed.
The Trust Agreement and Standard Terms and Conditions of Trust
The Trust Agreement has been conformed to reflect the execution thereof.
Chapman and Cutler
March 5, 1997
