<PAGE> 1
File No. 333-21085
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
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
Fidelity Defined Trusts Municipal Income Trust, Series 1
(Exact Name of Trust)
National Financial Services Corporation
(Exact Name of Depositor)
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
(Complete address of Depositor's principal executive offices)
National Financial Services Corporation Chapman and Cutler
Attention: David J. Pearlman Attention: Mark J. Kneedy
82 Devonshire Street N7A 111 West Monroe Street
Boston, Massachusetts 02109-3614 Chicago, Illinois 60603
(Name and complete address of agents for service)
(X) Check if it is proposed that this filing will become effective on July
1, 1998 pursuant to paragraph (b) of Rule 485.
<PAGE> 2
CONTENTS OF POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement comprises the
following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
<PAGE> 3
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- --------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS SERIES, MUNICIPAL INCOME TRUST, SERIES 1
PROSPECTUS - PART I
JULY 1, 1998
INSURED MASSACHUSETTS TRUST, SERIES 1
INSURED PENNSYLVANIA TRUST, SERIES 1
This Part I of the Prospectus may not be distributed unless accompanied by Part
II of the Prospectus. Both Parts I and II of the Prospectus should be retained
for future reference.
FIDELITY INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 4
This Prospectus does not contain all of the information set forth in the
registration statement and exhibits relating thereto, filed with the Securities
and Exchange Commission, Washington, D.C. under the Securities Act of 1933 and
the Investment Company Act of 1940, and to which reference is made.
---------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are registered
as unit investment trusts under the Investment Company Act of 1940. Such
registration does not imply that the Trusts or the Units have been guaranteed,
sponsored, recommended or approved by the United States or any state or any
agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, securities in any state to any person to whom it is not lawful
to make such offer in such state.
-2-
<PAGE> 5
FIDELITY DEFINED TRUSTS, MUNICIPAL INCOME TRUST, SERIES 1
PROSPECTUS
Part I
July 1, 1998
The Trusts
Fidelity Defined Trusts, Municipal Income Trust, Series 1 consists of two
underlying unit investment trusts: Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1
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 Commonwealth of Massachusetts 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
Insured Pennsylvania Trust, Series 1 (the "Insured Pennsylvania Trust") consists
of a portfolio of interest-bearing obligations issued by or on behalf of the
Commonwealth of Pennsylvania 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.
-3-
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
THE UNITHOLDERS, SPONSOR AND TRUSTEE
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS TRUST, SERIES 1
INSURED PENNSYLVANIA TRUST, SERIES 1
We have audited the statements of financial condition and schedules of portfolio
securities of Fidelity Defined Trusts Insured Massachusetts Trust, Series 1 and
Insured Pennsylvania Trust, Series 1 as of February 28, 1998, and the related
statements of operations and changes in net assets for the period from March 5,
1997 (date of deposit) to February 28, 1998. These financial statements are the
responsibility of the Trustee (see Footnote (a)(1)). Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the securities owned as of February 28, 1998 as shown in the
statements of financial condition and schedules of portfolio securities by
correspondence with The Chase Manhattan Bank, the Trustee. An audit also
includes assessing the accounting principles used and the significant estimates
made by the Trustee, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fidelity Defined Trusts
Municipal Income Trust, Insured Massachusetts Trust, Series 1 and Insured
Pennsylvania Trust, Series 1 as of February 28, 1998, and the results of their
operations and the changes in their net assets for the period from March 5, 1997
(date of deposit) to February 28, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
May 27, 1998
New York, New York
- 4 -
<PAGE> 7
ESSENTIAL INFORMATION
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
AS OF FEBRUARY 28, 1998
SPONSOR: NATIONAL FINANCIAL SERVICES CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
EVALUATOR: MULLER DATA CORPORATION
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 50,000 Units of a Trust. Unitholders
purchasing 50,000 Units or more of a Trust will receive a slightly higher return
because of the reduced sales charge for larger purchases.
<TABLE>
<CAPTION>
INSURED INSURED
MASSACHUSETTS PENNSYLVANIA
TRUST TRUST
<S> <C> <C>
Public Offering Price per Units (1)................................. $ 10.51155 $ 10.56114
Principal Amount of Securities per Unit............................. $ 10.00 $ 10.00
Estimated Current Return based on Public Offering Price (2)(4)(5)... 4.842% 4.879%
Estimated Long-Term Return based on Public Offering Price(2)(3)(4).. 4.745% 4.679%
Estimated Normal Annual Distribution per Unit....................... $ .4678 $ .4723
Principal Amount of Securities...................................... $1,500,000 $3,000,000
Number of Units..................................................... 150,000 300,000
Fractional Undivided Interest per Units............................. 1/150,000 1/300,000
Calculation of Public Offering Price:
Aggregate Bid Price of Securities................................. $1,509,533 $3,024,943
Aggregate Bid Price of Securities per Unit........................ $ 10.06355 $ 10.08314
Plus Sales Charge per Unit (2).................................... $ .478 $ .478
Public Offering Price per Unit (1)................................ $ 10.54155 $ 10.56114
Calculation of Estimated Net Annual Interest Income per Unit:
Estimated Annual Interest Income.................................. $ .53583 $ .54041
Less: Estimated Annual Expense.................................... $ .0254 $ .0251
Estimated Net Annual Interest Income.............................. $ .51043 $ .51531
Estimated Daily Rate of Net Interest Accrual........................ $ .00141 $ .00143
Estimated Average Life of Securities................................ 24.9 years 23.9 years
Minimum Principal Value of the Trust under which Trust Agreement
may be terminated (5)............................................. 20% 20%
</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.
<TABLE>
<CAPTION>
INSURED INSURED
MASSACHUSETTS PENNSYLVANIA
TRUST TRUST
<S> <C> <C>
Interest Payments (7):
Estimated Normal Monthly Distribution per Unit.................... $ .0389 $.03935
Estimated Normal Annual Distribution per Unit..................... $ .4678 $ .4723
Date Trusts Established............................................. 3/5/97 3/5/97
Mandatory Termination Date.......................................... 12/31/2045 12/31/2045
Trustee's Annual Fee per Unit (6)................................... $ .0139 $ .0136
Maximum Evaluator's Annual Evaluation Fee per Unit.................. $.00520 $ .0052
Estimated Annual Organizational Expenses per Unit (8)............... $ .004 $ .004
</TABLE>
- 5 -
<PAGE> 8
(1) Anyone ordering Units will pay accrued interest from the preceding record
date to the date of settlement (normally three business days after order).
(2) The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Public Offering
of Units - Public Offering Price" in Part II of this Prospectus.
(3) The Estimated Current Returns are calculated by dividing the estimated net
annual interest income per Unit by the Public Offering Price. The
estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trustee, the Sponsor and the Evaluator and with
the principal prepayment, redemption, maturity, exchange or sale of
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities and with changes in the
accrued interest; therefore, there is no assurance that the present
Estimated Current Returns indicated above will be realized in the future.
The Estimated Long-Term Returns are calculated using a formula which: (1)
takes into consideration and determines and factors in the relative
weightings of, the market values, yield (which take into account the
amortization of premiums and the accretion of discounts) and the expected
retirement dates of all of the Securities in the applicable Trust and (2)
takes into account the expenses and sales charge associated with each
Trust Unit. Since the market values and estimated retirement dates of the
Securities and expenses of each Trust will change, there is no assurance
that the present Estimated Long-Term Returns as indicated above will be
realized in the future. The Estimated Current Returns and Estimated
Long-Term Returns are expected to differ because the calculation of the
Estimated Long-Term Returns reflects the estimated date and amount of
principal returned while the Estimated Current Return calculations include
only net annual interest income and Public Offering Price.
(4) This figure is based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in current
interest rates and with the principal prepayment, redemption, maturity,
call, exchange or sale of the underlying Securities. The estimated cash
flows to Unitholders for the Trusts are available upon request at no
charge from the Sponsor.
(5) The minimum principal value of each Trust under which the Trust Agreement
may be terminated is 20% of the total aggregate principal amount of
securities deposited in each Portfolio during the initial offering period.
(6) The Trustee's annual fee includes $.07 per Unit which is paid to the
Sponsor in return for its providing certain bookkeeping and administrative
services to its customers. See "Trust Information Trust Expenses".
(7) Unitholders will receive interest distributions monthly. The Record Date
is the 10th day of the month, and the distribution date is the 20th day of
the month.
(8) Each Trust (and therefore the Unitholders of the respective Trust) will
bear all or a portion of its organizational costs (including costs of
preparing the registration statement, the Trust indenture and other
closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolios, legal
fees and the initial fees and expenses of the Trustee but not including
the expenses incurred in the preparation and printing of brochures and
other advertising materials and other selling expenses) as is common for
mutual funds. Total organizational expenses will be amortized over a
five-year period or over the life of a Trust if the term of such Trust is
less than five years. See "Trust Expenses" in Part II of this Prospectus
and "Statements of Net Assets. Historically, the Sponsors of Unit
investment trusts have paid all of the costs of establishing such trusts.
- 6 -
<PAGE> 9
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FEBRUARY 28, 1998
TRUST PROPERTY
Investments in securities at market value (cost
$1,435,396 (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $1,509,533
Accrued interest receivable 28,306
Deferred organizational costs 4,800
----------
Total 1,542,639
----------
LESS LIABILITIES:
Accrued organizational costs $ 5,600
Advance from Trustee 29,522
Accrued Sponsor fees 194
----------
Total liabilities 35,316
----------
NET ASSETS:
Balance applicable to 150,000 Units of fractional
undivided interest outstanding (Note (c)):
Net amount applicable to investors 1,509,533
Overdistributed net investment income
and principal (Note (b)) (2,210)
----------
Net assets $1,507,323
==========
Net asset value per Unit ($1,507,323 divided by 150,000 Units) $ 10.05
==========
See notes to financial statements
- 7 -
<PAGE> 10
STATEMENT OF OPERATIONS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FOR THE PERIOD FROM
MARCH 5, 1997
(DATE OF DEPOSIT) TO
FEBRUARY 28, 1998
Investment income - interest $101,699
--------
Less Expenses:
Trustee fees and expenses 4,678
Sponsor fees 194
Amortization of organizational costs 1,200
--------
Total expenses 6,072
--------
Investment income - net 95,627
--------
Net gain on investments:
Realized gain on securities sold or redeemed 20,173
Change in unrealized market appreciation 74,137
--------
Net gain on investments 94,310
--------
Net increase in net assets resulting from operations $189,937
========
See notes to financial statements
- 8 -
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FOR THE PERIOD FROM
MARCH 5, 1997
(DATE OF DEPOSIT) TO
FEBRUARY 28, 1998
Operations:
Net investment income $ 95,627
Realized gain on securities sold or redeemed 20,173
Net unrealized market appreciation 74,137
-----------
Net increase in net assets resulting from
operations 189,937
-----------
Less Distribution to Unit Holders:
Investment income - net (89,315)
-----------
Total capital share transactions (89,315)
-----------
Less Capital Share Transactions:
Redemption of 150,000 Units (1,461,330)
Accrued interest on redemption (2,760)
-----------
Total capital share transactions (1,464,090)
-----------
Net decrease in net assets (1,363,468)
Net assets:
Beginning of period (Note (c)) 2,870,791
-----------
End of period (including overdistributed net investment
income and principal of $(2,210)) $ 1,507,323
===========
See notes to financial statements
- 9 -
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FEBRUARY 28, 1998
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of the significant accounting
policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of the
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide
reasonable assurance as to the integrity and reliability of, financial
reporting of the Trust. The Trustee is also responsible for all
estimates and accruals reflected in the Trust's financial statements.
The Evaluator determines the price for each underlying Security
included in the Trust's Portfolio of Securities on the basis set forth
in Part II of this Prospectus, "Public Offering of Units - Public
Offering Price". Under the Securities Act of 1933 ("the Act"), as
amended, the Sponsor is deemed to be an issuer of the Trust Units. As
such, the Sponsor has the responsibility of an issuer under the Act
with respect to financial statements of the Trust included in the
Trust's Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the Evaluator
based on the bid side evaluations on the last day of trading during
the period, except that value on the initial date of deposit (March 5,
1997) represents the cost of investments to the Trust based on the
offering side evaluations as of the opening of business on the initial
date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained and
under "Trust Expenses" in Part II of this Prospectus.
- 10 -
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FEBRUARY 28, 1998
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Distributions to Unitholders" in Part II of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (March 5, 1997) exclusive of
accrued interest, computed on the basis set forth under "Public Offering of
Units - Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of February 28, 1998 follows:
Original cost to investors $ 3,013,954
Less: Gross underwriting commissions (sales charge ) (143,163)
-----------
Net cost to investors 2,870,791
Cost of securities sold or redeemed (1,435,395)
Unrealized market appreciation 74,137
-----------
Net amount applicable to investors $ 1,509,533
===========
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during the period:
Income distributions during period $ .47
======
Net asset value at end of period $10.05
======
Trust Units outstanding at end of period 150,000
=======
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<PAGE> 14
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PORT- OPTIONAL
FOLIO RATING FACE COUPON MATURITY REFUNDING MARKET
NO. TITLE OF SECURITIES (1) AMOUNT RATE DATE REDEMPTIONS(2) VALUE(3)(4)
<S> <C> <C> <C> <C> <C> <C>
1. Massachusetts State Water
Resources Authority, General
Revenue Bonds, 1993 Series C. AAA $ 250,000 5.250% 12/01/20 12/01/04@102 $ 249,812
2. Massachusetts State Indus-
trial Finance Agency, Reve-
nue Bonds, College of the
Holy Cross, 1996 Issue. AAA 200,000 5.500 03/01/20 03/01/06@102 204,472
3. Massachusetts Health and
Educational Facilities
Authority, Revenue Bonds,
New England Medical Center
Hospitals Issue, Series G. AAA 250,000 5.375 07/01/24 07/01/04@102 250,945
4. Massachusetts State Indus-
trial Finance Agency, Reve-
nue Bonds, Dexter School
Project Issue, Series 1997. AAA 250,000 5.450 05/01/19 05/01/07@102 254,163
5. Massachusetts State Indus-
trial Finance Agency, Reve-
nue Bonds, Babson College
Issue, Series 1997 A. AAA 250,000 5.250 10/01/27 10/01/07@102 248,500
6. Massachusetts Bay Transit
Authority, General Trans-
portation System Bonds, 1995
Series B. AAA 250,000 5.375 03/01/25 03/01/05@101 251,468
7. South Essex Massachusetts
Sewerage District (Massachu-
setts), General Obligation
Sewer Bonds, 1996 Series A. AAA 50,000 5.250 06/15/24 06/15/06@102 50,173
---------- ----------
$1,500,000 $1,509,533
========== ==========
</TABLE>
See notes to schedule of portfolio securities
- 12 -
<PAGE> 15
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED MASSACHUSETTS, SERIES 1
FEBRUARY 28, 1998
(1) 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" and "Description of Bond Ratings" in Part II of this
Prospectus.
(2) 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) is 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 II 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 II of this Prospectus.
(3) The market value of the Securities as of February 28, 1998 was determined
by the Evaluator on the basis of bid side evaluations for the Securities
at such date.
(4) At February 28, 1998, the unrealized market appreciation of all Securities
was comprised of the following:
Gross unrealized market appreciation $74,137
Gross unrealized market depreciation -
-------
Unrealized market appreciation $74,137
=======
The aggregate cost of the Securities for Federal income tax purposes was
$1,435,396 at February 28, 1998.
- 13 -
<PAGE> 16
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FEBRUARY 28, 1998
TRUST PROPERTY
Investments in Securities at market value (amortized
cost $2,880,467) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $3,024,943
Accrued interest receivable 37,792
Deferred organizational costs 4,800
----------
Total 3,067,535
----------
LESS LIABILITIES:
Accrued organizational costs $ 5,600
Advance from Trustee 27,307
Accrued Trustee's fees and expenses 1,311
Accrued Sponsor's fees 300
----------
Total liabilities 34,518
----------
NET ASSETS:
Balance applicable to 300,000 Units of
fractional undivided interest outstanding
(Note (c)):
Net amount applicable to investors 3,024,943
Undistributed net investment income
and principal (Note (b)) 8,074
----------
Net assets $3,033,017
==========
Net asset value per Unit ($3,033,017 divided by 300,000 Units) $ 10.11
==========
See notes to financial statements
- 14 -
<PAGE> 17
STATEMENT OF OPERATIONS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FOR THE PERIOD FROM
MARCH 5, 1997
(DATE OF DEPOSIT) TO
FEBRUARY 28, 1998
Investment income - interest $159,908
--------
Less Expenses:
Trustee fees and expenses 7,130
Sponsor fees 300
Amortization of organizational costs 1,200
--------
Total expenses 8,630
--------
Investment income - net 151,278
Change in unrealized market appreciation 144,476
--------
Net increase in net assets resulting from operations $295,754
========
See notes to financial statements
- 15 -
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FOR THE PERIOD FROM
MARCH 5, 1997
(DATE OF DEPOSIT) TO
FEBRUARY 28, 1998
Operations:
Net investment income $ 151,278
Change in unrealized market appreciation 144,476
----------
Net increase in net assets resulting from
operations 295,754
----------
Less Distribution to Unit Holders:
Investment income - net (141,704)
----------
Total distributions (141,704)
----------
Net increase in net assets 154,050
Net assets:
Beginning of period (Note (c)) 2,878,967
----------
End of period (including undistributed net investment
income and principal of $8,074) $3,033,017
==========
See notes to financial statements
- 16 -
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FEBRUARY 28, 1998
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of the significant accounting
policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of the
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide
reasonable assurance as to the integrity and reliability of, financial
reporting of the Trust. The Trustee is also responsible for all
estimates and accruals reflected in the Trust's financial statements.
The Evaluator determines the price for each underlying Security
included in the Trust's Portfolio of Securities on the basis set forth
in Part II of this Prospectus, "Public Offering of Units - Public
Offering Price". Under the Securities Act of 1933 ("the Act"), as
amended, the Sponsor is deemed to be an issuer of the Trust Units. As
such, the Sponsor has the responsibility of an issuer under the Act
with respect to financial statements of the Trust included in the
Trust's Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the Evaluator
based on the bid side evaluations on the last day of trading during
the period, except that value on the initial date of deposit (March 5,
1997) represents the cost of investments to the Trust based on the
offering side evaluations as of the opening of business on the initial
date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for Federal
income tax purposes; accordingly, no provision is required for such
taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained and
under "Trust Expenses" in Part II of this Prospectus.
- 17 -
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FEBRUARY 28, 1998
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Distributions to Unitholders" in Part II of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (March 5, 1997) exclusive of
accrued interest, computed on the basis set forth under "Public Offering of
Units - Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of February 28, 1998 follows:
Original cost to investors $3,022,538
Less: Gross underwriting commissions (sales charge) (143,571)
----------
Net cost to investors 2,878,967
Unrealized market appreciation 144,476
Accumulated interest accretion 1,500
----------
Net amount applicable to investors $3,024,943
==========
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during the period:
Income distributions during period $ .47
======
Net asset value at end of period $10.11
======
Trust units outstanding at end of period 300,000
=======
- 18 -
<PAGE> 21
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PORT- OPTIONAL
FOLIO RATING FACE COUPON MATURITY REFUNDING MARKET
NO. TITLE OF SECURITIES (1) AMOUNT RATE DATE REDEMPTIONS(2) VALUE(4)(3)
<S> <C> <C> <C> <C> <C> <C>
1. Lehigh County (Pennsyl-
vania) General Purpose
Authority, Hospital Revenue
Bonds (Lehigh Valley Hospi-
tal), Series B of 1995. AAA $ 500,000 5.625% 07/01/25 07/01/05@102 $ 513,085
2. Allegheny County Hospital
Development Authority (Penn-
sylvania), Health Care Reve-
nue Bonds, Series of 1995
(University of Pittsburgh
Medical Center System). AAA 400,000 5.375 12/01/25 12/01/05@102 398,420
3. Dauphin County General
Authority (Commonwealth of
Pennsylvania), County Guar-
anteed Revenue Bonds, Series
of 1993. AAA 100,000 0.000 10/01/20 NONE 30,098
4. Philadelphia Authority for
Industrial Development,
Lease Revenue Bonds, 1996
Series A, (City of Philadel-
phia Project). AAA 500,000 5.375 02/15/27 02/15/07@102 500,515
5. County of Luzerne (Pennsyl-
vania) General Obligation
Bonds, Series of 1997. AAA 500,000 5.625 12/15/21 12/15/07@100 517,440
6. Bellefonte Area School Dis-
trict (Centre County, Penn-
sylvania) General Obligation
Bonds, Series of 1996. AAA 500,000 5.500 05/15/26 05/15/06@100 507,530
7. McKeesport Area School Dis-
trict (Allegheny County,
Pennsylvania) General Obliga-
tion Bonds, Series of 1996. AAA 500,000 6.000 10/01/25 10/01/06@100 557,855
---------- ----------
$3,000,000 $3,024,943
========== ==========
</TABLE>
See notes to schedule of portfolio securities
- 19 -
<PAGE> 22
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS
MUNICIPAL INCOME TRUST, SERIES 1
INSURED PENNSYLVANIA, SERIES 1
FEBRUARY 28, 1998
(1) 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" and "Description of Bond Ratings" in Part II of this
Prospectus.
(2) 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) is 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 II 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 II of this Prospectus.
(3) The market value of the Securities as of February 28, 1998 was determined
by the Evaluator on the basis of bid side evaluations for the Securities
at such date.
(4) At February 28, 1998, the unrealized market appreciation of all Securities
was comprised of the following:
Gross unrealized market appreciation $144,476
Gross unrealized market depreciation -
--------
Unrealized market appreciation $144,476
========
The aggregate amortized cost of the Securities for Federal income tax
purposes was $2,880,467 at February 28, 1998.
- 20 -
<PAGE> 23
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- --------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS MUNICIPAL INCOME TRUST SERIES PROSPECTUS - PART II
JUNE 30, 1998
This Part II of the Prospectus may not be distributed unless accompanied by Part
I of the Prospectus. Both Parts I and II of the Prospectus should be retained
for future reference.
FIDELITY INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUSTS ............................................................... 4
STATE CONSIDERATIONS AND STATE TAX STATUS ................................ 5
RISK FACTORS ............................................................. 16
INSURANCE ON THE BONDS ................................................... 20
PUBLIC OFFERING OF UNITS ................................................. 22
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN .................. 26
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURNS ............................. 27
TAX STATUS ............................................................... 28
TRUST EXPENSES ........................................................... 33
DISTRIBUTIONS TO UNITHOLDERS ............................................. 35
REPORTS TO UNITHOLDERS ................................................... 36
UNIT VALUE AND EVALUATION ................................................ 37
OWNERSHIP AND TRANSFER OF UNITS .......................................... 37
REDEMPTION ............................................................... 38
PURCHASE OF UNITS BY THE SPONSOR ......................................... 40
TRUST ADMINISTRATION ..................................................... 40
THE TRUSTEE .............................................................. 41
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE ........................ 41
SUCCESSOR TRUSTEES AND SPONSORS .......................................... 42
THE SPONSOR .............................................................. 42
OTHER INFORMATION ........................................................ 43
DESCRIPTION OF BOND RATINGS .............................................. 44
</TABLE>
-2-
<PAGE> 26
This Prospectus does not contain all of the information set forth in the
registration statement and exhibits relating thereto, filed with the Securities
and Exchange Commission, Washington, D.C. under the Securities Act of 1933 and
the Investment Company Act of 1940, and to which reference is made.
---------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are registered
as unit investment trusts under the Investment Company Act of 1940. Such
registration does not imply that the Trusts or the Units have been guaranteed,
sponsored, recommended or approved by the United States or any state or any
agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, securities in any state to any person to whom it is not lawful
to make such offer in such state.
-3-
<PAGE> 27
THE TRUSTS
General. Fidelity Defined Trusts - Municipal Income Trust Series consist
of the underlying separate unit investment trusts set forth in Part I of this
Prospectus. Each Trust consists 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 (the "Bonds"). See "Portfolio" appearing in
Part I of this Prospectus for a description of the portfolio for each Trust. The
various trusts are collectively referred to herein as the "Fidelity Defined
Trusts," the "Fidelity Advisor Defined Trusts", the "MITs Trusts" or the
"Trusts." Each Trust is divided into "Units" representing equal shares of the
underlying assets of such Trust. 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 I of this Prospectus, the
information contained in this Part II 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 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.") Each of
the Trusts was created under the laws of the State of New York pursuant to a
trust indenture dated the Initial Date of Deposit (the "Trust Agreement")
between National Financial Services Corporation (the "Sponsor") and The Chase
Manhattan Bank (the "Trustee").(1)
Because certain of the Bonds in certain of the Trusts may from time to
time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be given
that a Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the Trustee shall be liable in anyway for
any default, failure or defect in any Bond. The Sponsor may not alter the
portfolio of a Trust except upon the occurrence of certain extraordinary
circumstances. See "Trust Administration."
Subsequent to the date of Part I of this Prospectus, a Bond may cease to
be rated or its rating may be reduced below any minimum required as of a Trust's
Initial Date of Deposit. Neither event requires the elimination of such
investment from a Trust, but may be considered in the Sponsor's determination to
direct the Trustee to dispose of such Bond. See "Trust Administration."
- --------
(1) Reference is made to the Trust Agreement and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreement.
-4-
<PAGE> 28
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.")
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 I 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.
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 income 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 were rated "Aaa" by Moody's, as of the Initial
Date of Deposit, and both the Bonds in the Trusts and the Units of the Trusts
were rated "AAA" by Standard & Poor's, as of the Initial Date of Deposit. (See
"Insurance on the Bonds" and "Description of Ratings.") 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."
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" and "Description of Ratings" 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.")
STATE CONSIDERATIONS AND STATE TAX STATUS
Risk Factors Specific to Massachusetts. The fiscal health of the
Commonwealth of Massachusetts remains strong, following its recovery from
recession and excessive government spending in the late 1980's. Growth will
continue through the second half of Fiscal Year 1998 and Fiscal Year 1999 at a
modest annualized growth rate of about 2.1%.
Economic growth at the national level has been mirrored in Massachusetts,
where over 373,000 jobs have been created since the low point of the recession
in 1991. The
-5-
<PAGE> 29
unemployment rate in the Commonwealth has fallen almost consistently from its
peak of 9.6% in early 1991 to 3.6% in January 1998, one of the lowest rates for
any large industrial state. The unemployment rate in January 1998 was 4.7% for
the nation as a whole and 4.1% in New England. Total nonfarm employment
(seasonally adjusted) is also at an all-time high, growing by 91,300 during 1997
to 3,173 million.
Improvements in the employment picture have had a positive impact on
personal income for Massachusetts residents. On average, personal income growth
has been among the highest in the nation, outpacing the rate of growth in the
national economy in most quarters since 1991. During Fiscal Year 1997,
Massachusetts personal income grew by 6.0%, down slightly from 6.2% in Fiscal
1996. Growth in personal income is expected to decline from the Fiscal 1997 rate
to approximately 5.7% in Fiscal 1998. Personal income is also expected to fall
in Fiscal Year 1999 to 4.3-4.5% and remain at that rate through the next few
years. Unemployment is projected at 3.7% through Fiscal Year 1998 and to remain
steady at 3.7-3.9% annually through 2000.
The Commonwealth is the third most densely populated state according to
the 1990 census, but it experienced only a modest increase in population from
1980 to 1990, growing at a rate which is less than one-half the rate of increase
in the United States population as a whole. Economic risks for Massachusetts
include a shortage of skilled labor, low net population growth that may
constrain job creation, as well as the prominence of the financial services
industry coupled with a relatively high proportion of non-wage income, both of
which are sensitive to the performance of the financial markets.
Massachusetts has a diversified economic base which includes traditional
manufacturing, high technology and service industries, served by an extensive
transportation system and related facilities. The service sector, at
approximately 34.3% of the state work force, is the largest sector in the
Commonwealth's economy. Although the manufacturing and trade sectors experienced
large decreases in employment in recent years, in 1997 these sectors rebounded
with growth rates of 2.3% and 3.0%, respectively, the largest annual increase
since the mid-1980's. At the same time, there has been a reversal of the
dramatic growth which occurred during the 1980's in the finance, insurance and
real estate sector and in the construction sectors of the Massachusetts economy.
The Commonwealth has a very full public construction agenda which is
expected not only to improve mobility, but also to provide a substantial number
of construction and related employment opportunities. These projects include the
$6 billion Central Artery/Tunnel project involving the construction of a third
tunnel under Boston Harbor linking the MassPike and downtown Boston with Logan
International Airport, and the depression into tunnels of the Central Artery
that traverses the City of Boston. Federal funds are expected to cover
approximately 90% of the cost of this project. The Central Artery/Tunnel project
is expected to employ approximately 5,000 on-site workers and 10,000 auxiliary
workers during the peak years of construction in the mid-1990s.
Revenues and Expenditures. The financial condition of the Commonwealth
during Fiscal Year 1997 reflects the recovery which began early this decade.
Massachusetts'
-6-
<PAGE> 30
revenues exceeded expenditures for the seventh consecutive year. In addition,
during Fiscal Year 1997, the Commonwealth was able to retire the last of its
1990 fiscal recovery bonds: the September 1990 $1.455 billion bond sale, the
seventh largest municipal bond issue in history, was a response to a $1.9
billion budgetary deficit.
During 1997, the Massachusetts Legislature enacted a law to raise the
statutory ceiling on the Commonwealth's Stabilization (or "rainy day") Fund from
5% of tax revenues to 5% of total budgetary revenue. Including the Fiscal Year
1997 deposit of $234.3 million, the fund's balance at the middle of Fiscal 1998
stands at $799.3 million, in marked contrast to the zero balance carried in the
fund during Fiscal 1990. Also in Fiscal 1997, a separate $229.8 million capital
investment trust, funded with surplus revenue instead of bonded debt, was
established to address immediate capital needs. Moreover, the Commonwealth
passed legislation to reserve a one-time Fiscal 1997 federal welfare-revenue
windfall as a safeguard against future caseload increases.
An expanding economy translates directly into a broader tax revenue base.
Increased employment, income, housing starts, and business activity directly
impact sales, personal income, corporate, deeds, and other tax collections. In
Fiscal 1997, sales tax collections were up 10.2%, and income tax revenues
increased to $7.18 billion, up by 7.1% or $475 million over Fiscal 1996. In the
aggregate, tax revenues totaled $12.865 billion in Fiscal 1997, up $815 million
or 6.8% from Fiscal 1996. According to the December 1997 Comprehensive Annual
Financial Report, Fiscal 1997 closed with a $1.1 billion balance in budgeted
funds.
Through December 31, 1997, Fiscal Year 1998 tax revenue collections
totaled $6.147 billion, up $341 million or 5.9% from the same period in Fiscal
1997. The Commonwealth's Department of Revenue projects that total tax receipts
for Fiscal 1998 will reach $13.154 billion, an increase of 2.25% over Fiscal
1997. The change is lower than the projected tax-base growth of 5.2% because of
six recent tax law changes and the implementation of six others approved in
prior fiscal years. Spending in Fiscal 1998 is projected to total $18.150
billion, a 2.9% increase over Fiscal 1997.
Fiscal Year 1999 total revenues are projected to be $18.961 billion.
Non-tax revenues are expected to reach $5.297 billion, a 5.3% decrease from
Fiscal 1998. For the tax revenue base, the Department of Revenue projects a
slowing in the growth rate based upon the assumption of moderate economic growth
and low inflation. In Fiscal 1999, the tax revenue base is expected to increase
4.9%, as compared to 5.2% in Fiscal 1998 and 8.5% in Fiscal 1997. Total tax
revenues for Fiscal 1999 are estimated at $13.665 billion, which reflects a 3.9%
increase over projected Fiscal 1998 revenues and a reduction of $244.8 million
due to proposed tax cuts. Proposed spending reflects a modest increase of 3.4%
in Fiscal 1999, directed largely to increased funding for local aid, education
and health care. Fiscal 1999 total expenditures are projected to be $19.06
billion, a 3.4% increase over projected Fiscal 1998 expenditures.
Important proposals for Fiscal 1999 include reducing the tax rate for
"earned" income from 5.95% to 5% over the next three years, reducing the tax
rate for "unearned" income from 12% to 5% over the next five years, creating
personal income tax credits and
-7-
<PAGE> 31
exemptions to encourage saving for higher education, creating an exemption from
capital gains taxes on the sale of a principal residence, and creating a
personal income tax exemption for providing care to elderly relatives.
Much of the Commonwealth's fiscal difficulties in the late 1980's stemmed
from an escalation in state borrowing to balance operating shortfalls with
bonded debt. Massachusetts' current debt-management policy has resulted in a
drop in the percentage growth of outstanding general obligation debt from 29% in
Fiscal Year 1991 to 2% in Fiscal 1997. The average annual increase in the growth
of debt for Fiscal Years 1998 through 2002 is projected at only 3.3%, despite
the burden of finishing construction of the Central Artery/Tunnel Project,
scheduled for completion in 2004.
Ratings. Standard & Poor's Ratings Services raised its rating of general
obligation bonds of the Commonwealth of Massachusetts from A+ to AA- in October
1997. The Moody's Investors Service, Inc. rating has remained at A1 since
November 1994, and Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.)
raised its rating from A+ to AA- in January 1998.
Massachusetts State Taxation. At the time of the closing on the Initial
Date of Deposit for the Massachusetts Trust, Special Counsel to the
Massachusetts Trust for Massachusetts tax matters rendered an opinion under then
existing Massachusetts income tax law applicable to taxpayers whose income is
subject to Massachusetts income taxation and based on rulings of the
Commissioner of Revenue substantially to the effect that:
For Massachusetts income tax purposes, if the Massachusetts Trust is an
"investment" trust within the meaning of 26 CFR 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 Massachusetts 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 Massachusetts 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 Massachusetts Trust in their
Massachusetts gross income to the extent that such earnings or distributions are
derived from the proceeds of insurance on the Bonds that represent maturing
interest on defaulted Bonds held by the Trustee, if and to the same extent that
such earnings or distributions would have been excludable from the gross income
of
-8-
<PAGE> 32
such Unitholders if derived from interest paid by the issuer of the defaulted
Bond 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 Bonds, 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 Massachusetts 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 Bonds.
Each Massachusetts 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 Bonds.
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 Bonds delivered to the Trustee after the
Unitholders pay for their Units, for accrued original issue discount with
respect to each Bond which, at the time the Bond was issued, had original issue
discount.
The Units of the Massachusetts 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.
Risk Factors Specific to Pennsylvania. Investors should be aware of
certain factors that might affect the financial conditions of the Commonwealth
of Pennsylvania. Pennsylvania historically has been identified as a heavy
industry state although that
-9-
<PAGE> 33
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries began to
decline. A more diversified economy was necessary as the traditionally strong
industries in the Commonwealth declined due to a long-term shift in jobs,
investment and workers away from the northeast part of the nation. The major
sources of growth in Pennsylvania are in the service sector, including trade,
medical and the health services, education and financial institutions.
Pennsylvania's agricultural industries are also an important component of the
Commonwealth's economic structure, particularly in crop and livestock products
as well as agribusiness and food related industries.
Strong growth experienced in Pennsylvania in 1997 was unanticipated and is
unlikely to continue. The peak growth was reached during the first quarter and
growth in subsequent quarters has been lower. Due to Pennsylvania's improved
competitive position, the Commonwealth should experience economic growth rates
close to the national average. The annual rate of job growth, ranked 45th in
1995, is currently ranked 17th nationwide.
Non-manufacturing employment has increased in recent years to 82.8% of
total Commonwealth employment as of March 1998. Consequently, manufacturing
employment constitutes a diminished share of total employment within the
Commonwealth. Manufacturing, contributing 17.2% of non-agricultural employment
as of March 1998, has fallen behind both the services sector and the trade
sector as the largest single source of employment within the Commonwealth. In
March 1998, the services sector accounted for 31.8% of all non-agricultural
employment while the trade sector accounted for 22.4%.
Preliminary results from the Pennsylvania Department of Labor and Industry
show Pennsylvania's total non-farm jobs increased by 66,900 or almost 1.2% from
March 1997 to March 1998, a stark difference from the 106,200 gain between
December 1996 and December 1997. The services industry was responsible for over
one-half of all new jobs created during this period. Retail trade increased
merely .31% or 3,000 jobs. Construction employment increased 3% or 6,300 jobs.
Manufacturing growth was slow at .6% or 5,100 jobs from March 1997 to March
1998. As of March 1998, the seasonally adjusted unemployment rate for the
Commonwealth was 4.8% compared to 4.7% for the United States.
More jobs in 1997 brought faster growing personal income. For the four
quarters ending with the first quarter of 1997, personal income in Pennsylvania
rose at a rate of over 6%. This healthy advance contributed to a 6.1% increase
in General Fund tax revenue for fiscal year 1996-97 due to similar increases in
collections for personal income tax and the sales and use tax.
Financial information for the principal operating funds of the
Commonwealth is maintained on a budgetary basis of accounting. A budgetary basis
of accounting is used for the purpose of ensuring compliance with the enacted
operating budget and is governed by applicable statutes of the Commonwealth and
by administrative procedures. The Commonwealth also prepares annual financial
statements in accordance with generally accepted accounting principles ("GAAP").
The budgetary basis financial information
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maintained by the Commonwealth to monitor and enforce budgetary control is
adjusted at fiscal year-end to reflect appropriate accruals for financial
reporting in conformity with GAAP.
Fiscal 1997 Financial Results. At June 30, 1997, the Commonwealth reported
an unreserved/undesignated fund balance (budgetary basis) of $402.7 million in
the General Fund. This compares to a budgetary basis fund balance of $158.5
million at June 30, 1996. The budgetary basis fund balance for the fiscal year
ended June 30, 1997 was the result of revenue collections totaling $26,149.6
million less appropriation authorizations totaling $25,835.7 million, less other
net financing uses totaling $69.7 million. Included in the $25,835.7 million
appropriation authorizations are $164.3 million of state supplemental
appropriations and $207.0 million in federal supplemental appropriations
authorized during the fiscal year.
On a GAAP basis, at June 30, 1997, the Commonwealth's General Fund
reported a fund balance of $1,364.9 million, an increase of $729.7 million from
the $635.2 million fund balance at June 30, 1996. Total assets increased by
$563.4 million to $4,268.5 million .
Liabilities decreased $166.3 million to $2,903.6 million.
For fiscal year 1996-97, revenues of the Commonwealth's General, Special
Revenue, Debt Service and Capital Projects Funds (collectively, the governmental
funds) totaled $32,073 million, an increase of $1,147 million or 3.7% from
fiscal year 1995-96. Taxes accounted for 56.6% of the total general governmental
revenues. Their combined fund balances at June 30, 1997 increased by $914.6
million to $2,900.9 million. The unreserved/undesignated fund balance was $699.2
million compared to $378.2 million from the previous year.
Fiscal 1998 Budget. Total receipts for fiscal year 1997-98 are projected
at $17,077 million. Appropriations are estimated at $17,269 million. The closing
balance in the General Fund (after adding the beginning balance of $403 billion
and deducting lapses of $120 million) is $331 million. After a transfer to the
Rainy Day Fund of $50 million, the ending balance in the General Fund for fiscal
year 1997-98 is estimated at $281 million.
Estimated revenues for 1997-98 have been raised $231.1 million due to
substantial upward revisions to personal income and inheritance revenues and
downward revisions to sales and use and insurance premiums taxes. The personal
income tax has provided almost all of the revenue surplus. Through December
1997, fiscal year 1997-98 revenues have increased 2.8% over the same period in
the prior fiscal year. Revised estimates for 1997-98 project a 2.1% increase in
General Fund revenues. Total revenues, excluding proposed tax changes, are
projected to increase by 2.9%.
Proposed Fiscal 1999 Budget. The Governor's 1998-99 Budget continues a
four-year record of tax cuts and fiscal discipline. The proposed 1998-99 General
Fund Budget is $17.8 billion, an increase of $518 million or 3%. The total
recommended budget for 1998-99 is $35.8 billion. Approximately $10.16 billion is
from federal funds.
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General Fund revenue is estimated to be generated in the following
percentages: 34.7% from sales tax, 34.2% from personal income tax, 12.5% from
business tax, 9.3% from corporate net income tax, 5.4% from other revenues, and
3.9% from the inheritance tax. Total expenditures for fiscal year 1998-99 are
estimated in the following percentages: 44.3% for education, 34.4% for health
and human services, 11.3% for protection, 3.8% for direction programs, 3.1% for
other programs, and 3.1% for economic development.
Budgets for the past four years have proposed an average spending growth
of 2.0%. The average growth in the enacted budgets during the previous ten-year
period was 5.4%. Over $128 million in tax reductions are proposed in 1998-99 to
help working families and to stimulate job creation and retention.
After an estimated $2 million transfer to the Rainy Day Fund in 1998-99,
the ending fund balance for the General Fund for fiscal year 1998-99 is
estimated at $9 million. With the projected transfer at the end of 1998-99, the
reserve balance in the Commonwealth's Rainy Day Fund will exceed $500 million,
more than seven times the balance in 1994-95.
Debt Administration. The Constitution of the Commonwealth of Pennsylvania
permits the incurrence of debt, without approval of the electorate, for capital
projects specifically authorized in a capital budget. Capital project debt
outstanding cannot exceed one and three quarters (1.75) times the average of the
annual tax revenues deposited in all funds during the previous five fiscal
years. The certified constitutional debt limit at August 29, 1997 was $34.3
billion. Outstanding capital project debt at August 29, 1997 amounted to $3.7
billion.
In addition to constitutionally authorized capital project debt, the
Commonwealth may incur debt for electorate approved programs, such as economic
revitalization, land and water development, and water facilities restoration;
and for special purposes approved by the General Assembly, such as disaster
relief. The total general obligation bond indebtedness outstanding at June 30,
1997 was $4,842 million. Total debt service transfers paid from General Fund and
Motor License Fund appropriations during the fiscal year ended June 30, 1997
amounted to $781.5 million.
All outstanding general obligation bonds of the Commonwealth are rated AA-
by S&P and Aa3 by Moody's. Any explanation concerning the significance of such
ratings must be obtained from the rating agencies. There is no assurance that
any ratings will continue for any period of time or that they will not be
revised or withdrawn.
In addition to general obligation bonds, the Commonwealth issues tax
anticipation notes ("TANS") to meet operating cash needs during certain months
of the fiscal year. The Commonwealth anticipates issuance of $225 million in
General Fund TANS during the 1997-98 fiscal year. During fiscal year 1996-97,
$550 million TANS were issued.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,478,002 in 1996, according to
the U.S. Bureau of the Census. Philadelphia functions both as a city of the
first class and a county for the purpose of administering various governmental
programs.
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Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8, 1992. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA on
April 30, 1996.
As of February 28, 1997, PICA has issued approximately $1,761.7 million of
its Special Tax Revenue Bonds to provide financial assistance to Philadelphia,
to liquidate the cumulative General Fund balance deficit, to refund certain
general obligation bonds of the City and to fund additional capital projects. 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 expired on December 31, 1996. Its ability to refund existing
outstanding debt is unrestricted. PICA had $1,102.4 million in Special Tax
Revenue Bonds outstanding as of June 30, 1997.
The audited General fund balance of the City as of June 30, 1995, 1996,
and 1997 showed a surplus of approximately $80.5 million, $118.5 million, and
$128.8 million, respectively.
S&P's rating on Philadelphia's general obligation bonds is "BBB" and
Moody's rating is "Baa." Any explanation concerning the significance of such
ratings must be obtained from the rating agencies. There is no assurance that
any ratings will continue for any period of time or that they will not be
revised or withdrawn.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Pennsylvania State Taxation. The assets of the Pennsylvania Trust will
consist of interest-bearing obligations issued by or on behalf of the State of
Pennsylvania (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").
Neither the Sponsor nor its counsel have independently examined the Bonds
deposited and held in the Pennsylvania Trust. Although no opinion is expressed
herein regarding such matters, it is assumed that: (i) the Bonds were validly
issued by the State or its municipalities, as the case may be, (ii) the interest
therein 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
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opinion does not address the taxation of persons other than full-time residents
of Pennsylvania.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
Pennsylvania law existing as of the date of Part I of the Prospectus and based
on the assumptions set forth above:
1. The Pennsylvania 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 Pennsylvania Trust expenses, which
is exempt from the Personal Income Tax when received by the Pennsylvania
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 Pennsylvania 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 Pennsylvania 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
Pennsylvania Trust and distributed to such Unitholder.
3. Distributions from the Pennsylvania Trust attributable to
capital gains recognized by the Pennsylvania 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
Pennsylvania Trust attributable to capital gains recognized by the
Pennsylvania Trust upon its disposition of a Bond issued before February
1, 1994.
4. Distributions from the Pennsylvania Trust attributable to
capital gains recognized by the Pennsylvania Trust upon its disposition of
a Bond will be exempt from the Philadelphia School Tax if the Bond was
held by the Pennsylvania 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
Pennsylvania Trust or the Unit was held by the Unitholder for a period of
less than six months, then distributions from the Pennsylvania Trust
attributable to capital gains recognized by the Pennsylvania 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
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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
Pennsylvania 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
Pennsylvania 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 Pennsylvania 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.
Chapman and Cutler has not examined any of the Bonds to be deposited and
held in the Pennsylvania 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.
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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. 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 or the
Standard & Poor's AAA or Moody's Aaa ratings of the Bonds in the Trust
portfolio. The Bonds described below may be subject to special or extraordinary
redemption provisions.
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 abilities 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.
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Electric Utility Obligations are obligations of issuers whose revenues are
primarily derived from the sale of electric energy. The ability of such issuers
to make debt service payments on these obligations is dependent on various
factors, including the rates for electricity, the demand for electricity, the
degree of competition, governmental regulation, overhead expenses and variable
costs, such as fuel.
Transportation Facility Revenue Obligations are obligations of issuers
which are payable from and secured by revenues derived from the ownership and
operation of airports, public transit systems and ports. The ability of issuers
to make debt service payments on airport obligations is dependent on the
capability of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other factors,
many airlines may have difficulty meeting their obligations under these use
agreements. Bonds that are secured primarily by the revenue collected by a
public transit system typically are additionally secured by a pledge of sales
tax receipts collected at the state or local level, or of other governmental
financial assistance. The revenue of issuers of transit system obligations will
be affected by variations in utilization, which in turn may, be affected by the
degree of local governmental subsidization, competition from other forms of
transportation, and increased costs. Port authorities derive their revenues
primarily from fees imposed on ships using the facilities which may fluctuate
depending on the local economy and on competition from competing forms of
transportation such as air, rail and trucks. The revenues of issuers which
derive their payments from bridge, road or tunnel toll revenues could be
adversely affected by increases in fuel costs, competition from toll-free
vehicular bridges and roads, and alternative modes of transportation.
Water and/or Sewerage Obligations are obligations of issuers whose
revenues are payable from user fees from the sale of water and/or sewerage
services. The problems of such issuers include the ability to obtain rate
increases, population declines, the limitations on operations and increased
costs and delays attributable to environmental considerations, the difficulties
obtaining new supplies of fresh water, the effect of conservation programs and
the effect of "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 tuition 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
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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 I 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
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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 maybe 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.
Certain of the Bonds may be subject to optional call or mandatory
redemption pursuant to sinking fund provisions, in each case prior to their
stated maturity. A bond subject to optional call is one which is subject to
redemption or refunding prior to maturity at the option of the issuer, often at
a premium over par. A refunding is a method by which a bond issue is redeemed,
at or before maturity, by the proceeds of a new bond issue. A bond subject to
sinking fund redemption is one which is subject to partial call from time to
time at par with proceeds from a fund accumulated for the scheduled retirement
of a portion of an issue prior to maturity. Special or extraordinary redemption
provisions may provide for redemption at par of all or a portion of an issue
upon the occurrence of certain circumstances, which may be prior to the optional
call dates shown under "Portfolio" in Part 1 of this Prospectus for each Trust.
Redemption pursuant to optional call provisions is more likely to occur, and
redemption pursuant to special or extraordinary redemption provisions may occur,
when the Bonds have an offering side evaluation which represents a premium over
par, that is, when they are able to be refinanced at a lower cost. The proceeds
from any such call or redemption pursuant to sinking fund provisions, as well as
proceeds from the sale of Bonds and from Bonds which mature in accordance with
their terms from a Trust, unless utilized to pay for Units tendered for
redemption, will be distributed to Unitholders of such Trust and will not be
used to purchase additional Bonds for such Trust. Accordingly, any such call,
redemption, sale or maturity will reduce the size and diversity of a Trust and
the net annual interest income of such Trust and may reduce the Estimated
Current Return and the Estimated Long-Term Return. See "Estimated Long-Term
Return and Estimated Current Return." The call, redemption, sale or maturity of
Bonds also may have tax consequences to a Unitholder. See "Tax Status."
Information with respect to the call provisions and maturity dates of the Bonds
is contained under "Portfolio" in Part I of this Prospectus for each Trust.
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Like other investment companies, financial and business organizations and
individuals around the world, the Trusts could be adversely affected if the
computer systems used by the Sponsor, Evaluator, Portfolio Supervisor or Trustee
or other service providers to the Trusts do not properly process and calculate
date-related information and dates involving dates of January 1, 2000 and
thereafter. This is commonly known as the "Year 2000 Problem." The Sponsor,
Evaluator, Portfolio Supervisor and Trustee are taking steps that they believe
are reasonably designed to address the Year 2000 Problem with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by the Trusts' other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to the Trusts. The Sponsor is unable to predict what
impact, if any, the Year 2000 Problem will have on issuers of the Bonds
contained in the Trusts.
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 Part I of the Prospectus 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 hereof, 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" or "MBIA"). 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
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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 domiciled in the State of New
York and licensed to do business in and subject to regulation under the laws of
all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
As of December 31, 1997 the Insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1998, the Insurer had admitted assets of $5.4
billion (unaudited), total liabilities of $3.6 billion (unaudited), and total
capital and surplus of $1.8 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of the Insurer's financial statements prepared in accordance
with statutory accounting practices are available from MBIA. The address of MBIA
is 113 King Street, Armonk, New York 10504. The telephone number of MBIA is
(914) 273-4545.
Effective February 17, 1998, MBIA acquired all of the outstanding stock of
Capital Markets Assurance Corporation ("CMAC"), a New York domiciled financial
guarantee insurance company, through a merger with its parent, CapMAC Holdings,
Inc. Pursuant to a reinsurance agreement, CMAC has ceded all of its net insured
risks (including any amounts due but unpaid from third party reinsurers), as
well as its unearned premiums and contingency reserves, to MBIA. MBIA is not
obligated to pay the debts of or claims against CMAC.
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
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<PAGE> 45
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
Public Offering Price. 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
$50,000:
SALES CHARGE (% OF PUBLIC OFFERING PRICE)
YEARS TO MATURITY
<TABLE>
<CAPTION>
Amount of Investment Less than 2 2 to 4.99 5 to 9.99 10 or more
- -------------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 2.50% 3.50% 4.00% 4.90%
$50,000 but less than $100,000 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
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<PAGE> 46
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
"Public Offering of Units --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 at the Public Offering Price less the
concession the Sponsor typically would allow such broker-dealer. See "Public
Offering of Units -- Public Distribution of Units."
Had Units of a Trust been available for sale at the opening of business on
the date of Part I of this Prospectus, the Public Offering Price would have been
as shown under "Essential Information" for each Trust in Part I of this
Prospectus. The Public Offering Price per Unit of a Trust on the date of Part I
of this Prospectus or on any subsequent date will vary from the amount stated
under "Essential Information" for each Trust in Part I 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 side evaluations of
the Bonds shall be determined (i) on the basis of current bid prices of the
Bonds, (ii) if bid prices are not available for any particular Bond, on the
basis of current bid prices for comparable bonds, (iii) by determining the value
of Bonds on the bid side of the market by appraisal or (iv) by any combination
of the above.
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.
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<PAGE> 47
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 foregoing evaluations and computations shall be made as of the
evaluation time stated under "Essential Information" for each Trust in Part I of
this Prospectus, on each business day, 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 Interest on the Bonds deposited in a Trust, less the related estimated
fees and expenses, is estimated to accrue in the annual amounts per Unit set
forth under "Essential Information" for each Trust in Part I 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 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. 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 is necessary for redemption. 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 generally is paid semi-annually, although a Trust accrues such interest
daily. Because of this, each Trust always has an amount of interest earned but
not yet collected by the Trustee. For this
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<PAGE> 48
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of the respective Trust the amount,
if any, of accrued interest paid on their Units.
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. Therefore, there
will always remain an item of accrued interest that is added to the value of the
Units. If a Unitholder sells or redeems all or a portion of his Units, he will
be entitled to receive his proportionate share of the accrued interest from the
purchaser of his Units. Since the Trustee has the use of the funds held in the
Interest Account for distributions to Unitholders and since such Account is
noninterest-bearing to Unitholders, the Trustee benefits thereby.
Public Distribution of Units. The Sponsor currently intends to maintain a
market for Units of each Trust. See "Public Offering of Units -- 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>
Amount of Purchase Less than 2 2 to 4.99 5 to 9.99 10 or more
- ------------------ --------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 1.75% 2.75% 3.25% 4.00%
$50,000 but less than $100,000 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 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
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<PAGE> 49
specified time period. In addition, at various times the Sponsor may implement
other programs under which the sales force of a dealer may be eligible to win
other nominal awards for certain sales efforts, or under which the Sponsor will
reallow to any such dealer that sponsors sales contests or recognition programs
conforming to the criteria established by the Sponsor, or participates in sales
programs sponsored by the Sponsor, an amount not exceeding the total applicable
sales charges on the sales generated by such person at the public offering price
during such programs. Also, the Sponsor in its discretion may from time to time
pursuant to objective criteria established by the Sponsor pay fees to qualifying
dealers or others for certain services or activities which are primarily
intended to result in sales of Units of the Trusts. Such payments are made by
the Sponsor out of its own assets, and not out of the assets of a Trust. These
programs will not change the price Unitholders pay for their Units or the amount
that a Trust will receive from the Units sold.
Profits of Sponsor. In maintaining a market for the Units, the Sponsor
will realize profits or sustain losses in the amount of any difference between
the price at which Units are purchased and the price at which Units are resold
(which price included a sales charge as indicated in Public Offering of Units)
or redeemed. The secondary market public offering price of Units may be greater
or less than the cost of such Units to the Sponsor.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
As of the date of Part I of this Prospectus, the Estimated Long-Term
Return and the Estimated Current Return, if applicable, for each Trust were as
set forth in "Essential Information" in Part I of this Prospectus. 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.
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.
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<PAGE> 50
Estimated Current Return and Estimated Long-Term Return are expected to
differ because the calculation of Estimated Long-Term Return reflects the
estimated date and amount of principal returned while Estimated Current Return
calculations include only net annual interest income and Public Offering Price.
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 chances, 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."
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.
The Sponsor may from time to time in its advertising 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 CDs 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.
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.
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURNS
As of the date of Part I of this Prospectus, the following table shows the
approximate taxable estimated current returns for individuals that are
equivalent to tax-exempt estimated current returns under combined Federal and
State (if applicable) taxes using the published Federal and State (if
applicable) tax rates scheduled to be in effect in 1998. This table illustrates
approximately what you would have to earn on taxable investments to equal the
tax-exempt estimated current return in your income tax bracket. For cases in
which more than one State bracket falls within a Federal bracket, the highest
State bracket is combined with the Federal bracket. The combined State and
Federal tax rates shown reflect the fact that State tax payments are currently
deductible for Federal tax purposes. The table does not show the approximate
taxable estimated current returns for individuals who are subject to the
alternative minimum tax. The taxable equivalent estimated current returns may be
somewhat higher than the equivalent returns indicated in the following table for
those
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<PAGE> 51
individuals who have adjusted gross incomes in excess of $124,500. The table
does not reflect the effect of limitations on itemized deductions and the
deduction for personal exemptions which were designed to phase out certain
benefits of these deductions for higher income taxpayers. 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
percent of his allowable itemized deductions, with certain exceptions. See "Tax
Status" for a more detailed discussion of recent Federal tax legislation,
including a discussion of provisions affecting corporations.
MASSACHUSETTS TAX EQUIVALENT TABLE
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
- -------------------------------- ---------------------------------------------------------------------------------
Single Joint Tax 4-1/2% 5% 5-1/2% 6% 6-1/2% 7% 7-1/2%
Return Return Bracket Equivalent Taxable Estimated Current Return
- -------------------------------- ------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25.35 $ 0-42.35 25.2% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36% 10.03%
25.35-61.40 42.35-102.30 36.6 7.10 7.89 8.68 9.46 10.25 11.04 11.83
61.40-128.10 102.30-155.95 39.3 7.41 8.24 9.06 9.88 10.71 11.53 12.36
128.10-278.45 155.95-278.45 43.7 7.99 8.88 9.77 10.66 11.55 12.43 13.32
Over 278.451 Over 278.45 46.8 8.46 9.40 10.34 11.28 12.22 13.16 14.10
</TABLE>
PENNSYLVANIA TAX EQUIVALENT TABLE
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
- -------------------------------- ---------------------------------------------------------------------------------
Single Joint Tax 4-1/2% 5% 5-1/2% 6% 6-1/2% 7% 7-1/2%
Return Return Bracket Equivalent Taxable Estimated Current Return
- -------------------------------- ------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-25.35 0-42.35
25.35-61.40 42.35-102.30 30.0 6.43 7.14 7.86 8.57 9.29 10.00 10.71
61.40-128.10 102.30-155.95 32.9 6.71 7.45 8.20 8.94 9.69 10.43 11.18
128.10-278.45 155.95-278.45 37.8 7.23 8.04 8.84 9.65 10.45 11.25 12.06
Over 278.45 Over 278.45 41.3 7.67 8.52 9.37 10.22 11.07 11.93 12.78
</TABLE>
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. For
a discussion of the tax status of State Trusts see "State Considerations and
State Tax Status." 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 correlation 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.
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<PAGE> 52
Gain realized on the sate 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.) 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. For
purposes of the following opinion, it is assumed that each asset of a Trust is
debt, the interest on which is excluded for Federal income tax purposes.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under
existing law, as of the date of this Prospectus:
(1) The Trusts are not associated 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 in
computing the alternative minimum tax, an additional tax on branches of
foreign corporations and the environmental tax (the "Superfund Tax") if
extended by Congress. 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. The Taxpayer Relief Act of 1997 includes
provisions that treat certain transactions designed to reduce or eliminate
risk of loss and opportunities for gain (but not loss) as constructive
sales for purposes of determining holding periods. 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 Unitholders pay for their Units to the extent that such interest
accrued on such Bonds for 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
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<PAGE> 53
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. 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
issued 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 I
of this Prospectus 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
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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, REMIC or FASIT) 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.
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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 I FOR CERTAIN TRUSTS, THE TRUSTS DO NOT INCLUDE ANY SUCH
PRIVATE ACTIVITY BONDS ISSUED ON OR AFTER THAT DATE.
For taxpayers other than corporations, net capital gain (which is defined
as net long-term capital gain over net short-term capital loss for the taxable
year) is subject to a maximum marginal stated tax rate of either 28% or 20%,
depending upon the holding periods of the capital assets. Capital gain or loss
is long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. Generally,
capital gains realized from assets held for more than one year but not more than
18 months are taxed at a maximum marginal stated tax rate of 28% and capital
gains realized from assets (with certain exclusions) held for more than 18
months are taxed at a maximum marginal state tax rate of 20% (10% in the case of
certain taxpayers in the lowest tax bracket). Further, capital gains realized
from assets held for one year or less are
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taxed at the same rates as ordinary income. Legislation is currently pending
that provides the appropriate methodology that should be applied in netting the
realized capital gains and losses. Such legislation is proposed to be effective
retroactively for tax years ending after May 6, 1997.
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 "State Considerations and State Tax Status."
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 I 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 "Essential Information" for each Trust in Part I of this Prospectus but
in no event will such compensation, when combined with all compensation received
from other unit investment trusts for which the Sponsor both acts as sponsor and
provides portfolio surveillance, exceed the aggregate cost to the Sponsor for
providing such services. Such fee shall be based on the total number of Units of
the related Trust outstanding as of the December Record Date preceding any
annual period. The Sponsor will receive a portion of the sales commissions paid
in connection with the purchase of Units and will share in profits, if any,
related to the deposit of Bonds in the Trusts.
The Trustee receives for its services fees set forth under "Essential
Information" for each Trust in Part I 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.
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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.
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 "Essential Information" for each Trust in Part I 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 I 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.
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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 or
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 (the 10th of each month) and
distributions to the Unitholders as of such Record Date will be made on or
shortly after the twentieth 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 twentieth 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.
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
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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 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, if any, which are 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
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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.
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
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Unitholder who holds a Certificate may chance 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, 4 New York Plaza, New York,
New York 10004, 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
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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 canceled. To the extent
that Bonds are sold from a Trust, the size and diversity of such Trust will be
reduced. Such sales maybe 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 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%.
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The right of redemption maybe 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 I 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
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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.
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 is The Chase Manhattan Bank whose address is 4 New York Plaza,
New York, New York 10004. 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 maybe 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.
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<PAGE> 65
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
III owns approximately 12% and Abigail P. Johnson owns approximately 24.5% of
the issued and outstanding shares of the Voting Common Stock of FMR. Members of
the Edward C. Johnson III family and trusts for their benefit control up to 49%
of the voting shares of FMR.
Fidelity Management & Research Company a subsidiary of FMR, is the
management arm of Fidelity Investments, which was established in 1946. It
provides a number of mutual funds and other clients with investment research and
portfolio management services. It maintains a large staff of experienced
investment personnel and a full complement of related support facilities. It is
now America's largest mutual fund manager and as of May 31,
-42-
<PAGE> 66
1998, it manages more than $590 billion in assets in over 38 million individual
shareholder accounts.
If at any time the Sponsor shall fail to perform any of its duties under
the Trust Agreement or shall become incapable of actions or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Trust Agreement and liquidate the Trusts as
provided therein, or (c) continue to act as Trustee without terminating the
Trust Agreement.
The foregoing 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 maybe
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 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 I of this Prospectus.) The sale of Bonds from the Trusts upon termination
may result in
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<PAGE> 67
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 Opinions. 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
"State Considerations and State Tax Status." 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 financial statements for each Trust at the date of Part I of
this Prospectus have been audited by Deloitte & Touche LLP, independent public
accountants, as indicated in their report in Part I of this Prospectus, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
DESCRIPTION OF BOND RATINGS*
Standard & Poor's. A brief description of the applicable Standard & Poor's
ratings symbols and their meanings follows:
A Standard & Poor's corporate or municipal bond 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.
- --------
* As published by the ratings companies.
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<PAGE> 68
The bond 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; and
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 - Bonds rated AAA have 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 higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
- --------
** Bonds insured by Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, Municipal Bond Investors Assurance Corporation, Connie Lee
Insurance Company, Financial Security Assurance and Capital Guaranty
Insurance Company are automatically rated "AAA" by Standard & Poor's.
-45-
<PAGE> 69
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 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. The
investor should exercise his/her own judgment with respect to such likelihood
and risk.
Credit Watch: Credit Watch highlights potential changes in ratings of
bonds and other fixed income securities. It focuses on events and trends which
place companies and government units under special surveillance by S&P's
180-member analytical staff. These may include merges, voter referendums,
actions by regulatory authorities, or developments gleaned from analytical
reviews. Unless otherwise noted, a rating decision will be made within 90 days.
Issues appear on Credit Watch where an event, situation, or deviation from
trends occurred and needs to be evaluated as to its impact. On credit ratings. A
listing, however, does not mean a rating change is inevitable. Since S&P
continuously monitors all of its ratings, Credit Watch is not intended to
include all issues under review. Thus, rating changes will occur without issues
appearing on Credit Watch.
Bonds insured by Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, Municipal Bond Investors Assurance Corporation, Connie Lee
Insurance Company, Financial Security Assurance and Capital Guaranty Insurance
Company are automatically rated "AAA" by Standard & Poor's
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 of 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 fluctuation 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
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<PAGE> 70
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.
A 1 and Baa 1 - Bonds which are rated A 1 and Baa 1 offer the maximum in
security within their quality group, can be bought for possible upgrading in
quality, and additionally, afford the investor an opportunity to gauge more
precisely the relative attractiveness of offerings in the market place.
Baa - Bonds which are rated Baa are considered as medium grade obligation;
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 form
occasional speculative factors applying to some bonds of this class, Baa market
valuations will move in parallel with Aaa, Aa, and A obligations during periods
of economic normalcy, except in instances of oversupply.
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.
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.
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<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Fidelity Defined Trusts Municipal Income Trust, Series 1, certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Boston and State of Massachusetts on
the 1st day of July, 1998.
Fidelity Defined Trusts Municipal
Income Trust, Series 1
(Registrant)
By National Financial Services Corporation
(Depositor)
By /s/David J. Pearlman
-------------------------------------
Assistant Clerk
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities on May 1, 1998:
Norman R. Malo
- ------------------------
Norman R. Malo President and Chief Operating Officer
*James H. Messenger
- ------------------------
James H. Messenger Director and Chief Executive Officer
*Timothy M. McKenna
- ------------------------
Timothy M. McKenna Director
John J. Mulherin
- ------------------------
John J. Mulherin Director
Kenneth A. Rathgeber
- ------------------------
Kenneth A. Rathgeber Director
S-2
<PAGE> 72
Kenneth Klipper
- ------------------------
Kenneth Klipper Vice President and Chief Financial Officer
David J. Pearlman
- ------------------------
(Attorney-in-fact)*
* An executed copy of the related powers of attorney were filed as Exhibit
7.1 to the initial Registration Statement on Form S-6 for Fidelity Defined
Trusts, Series 1 as filed on August 29, 1995 (File No. 33-62243) and the same is
hereby incorporated herein by this reference.
S-3
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report, dated May 27, 1998, 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 "Auditors" in the prospectus which is a part of this registration
statement.
DELOITTE & TOUCHE LLP
June 24, 1998
New York, New York
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR FIDELITY DEFINED TRUSTS INSURED PA TRUST SER 1 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001032110
<NAME> FIDELITY DEFINED TRUSTS INSURED PA TRUST
<SERIES>
<NUMBER> 1
<NAME> FIDELITY DEFINED TRUSTS MUNICIPAL INCOME TRUSTS SERIES I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-05-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 2,880,467
<INVESTMENTS-AT-VALUE> 3,024,943
<RECEIVABLES> 42,592
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,067,535
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,518
<TOTAL-LIABILITIES> 34,518
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,880,467
<SHARES-COMMON-STOCK> 300,000
<SHARES-COMMON-PRIOR> 300,000
<ACCUMULATED-NII-CURRENT> 8,074
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144,476
<NET-ASSETS> 3,033,017
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 158,408
<OTHER-INCOME> 1,500
<EXPENSES-NET> 8,630
<NET-INVESTMENT-INCOME> 151,278
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 144,476
<NET-CHANGE-FROM-OPS> 295,754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 141,704
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 154,050
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR INSURED MASSACHUSETTS SERIES 1 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001032110
<NAME> INSURED MASSACHUSETTS SERIES 1
<SERIES>
<NUMBER> 2
<NAME> FIDELITY DEFINED TRUSTS MUNICIPAL INCOME TRUSTS SERIES I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-05-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 1,435,396
<INVESTMENTS-AT-VALUE> 1,509,533
<RECEIVABLES> 33,106
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,542,639
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,316
<TOTAL-LIABILITIES> 35,316
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,429,634
<SHARES-COMMON-STOCK> 150,000
<SHARES-COMMON-PRIOR> 300,000
<ACCUMULATED-NII-CURRENT> 3,552
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,137
<NET-ASSETS> 1,507,323
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 101,699
<OTHER-INCOME> 0
<EXPENSES-NET> 6,072
<NET-INVESTMENT-INCOME> 95,627
<REALIZED-GAINS-CURRENT> 20,173
<APPREC-INCREASE-CURRENT> 74,137
<NET-CHANGE-FROM-OPS> 189,937
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 89,315
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 150,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,363,468)
<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>
