FILE NO. 333-SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549-1004FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: Fidelity Defined Trusts
Series 4
B. Name of Depositor: National Financial Services Corporation
C. Complete address of Depositor's principal executive offices:
82 Devonshire Street N7A
Boston, MA 02109-3614
D. Name and complete address of agents for service:
National Financial Services Corporation Chapman And Cutler
Attention: David J. Pearlman Attention: Mark J.
Kneedy
82 Devonshire Street N7A 111 West Monroe Street
Boston, MA 02109-3614 Chicago, Illinois
60603
E. Title and amount of securities being registered: An indefinite number
of Units pursuant to Rule 24f-2 promulgated under the Investment Company
Act of 1940, as amended
F. Proposed maximum offering price to the public of the securities being
registered: Indefinite
G. Amount of registration fee: $0.00
H. Approximate date of proposed sale to the public:
As Soon As Practicable After The Effective Date Of The Regitation
Statement
/ / Check box if it is proposed that this filing will become effective on
, 1997 pursuant to Rule 487.
______________________________________________________________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
FIDELITY DEFINED TRUSTS
SERIES 4
CROSS REFERENCE SHEET
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust ) Prospectus Front Cover Page
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Essential Information
) The Sponsor
3. Name and address of Trustee ) Essential Information
) Trust Administration
4. Name and address of principal ) Public Offering of Units
underwriter
5. Organization of trust ) The Trusts
6. Execution and termination of ) The Trusts
Trust Indenture and Agreement ) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. General Description of the Trust and
Securities of the Trust
10. General information regarding ) The Trusts
trust's securities and ) Tax Status
rights of security holders ) Public Offering of Units
) Unitholders
) Trust Administration
11. Type of securities comprising ) Prospectus Front Cover Page
units ) The Trusts
) Portfolio
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, charges and expenses ) Prospectus Front Cover Page
) Essential Information
) Portfolio
)
) Trust Expenses
) Public Offering of Units
) Unitholders and Sponsor
(b) Certain information regarding )
periodic payment plan ) *
certificates )
(c) Certain percentages ) Prospectus Front Cover Page
) Essential Information
)
(d) Variations in fees among certain ) Public Offering of Units
classes of holders ) Unitholders
(e) Certain other fees, expenses or ) Trust Expenses
charges payable by holders ) Unitholders
(f) Certain profits to be received ) Public Offering of Units
by depositor, principal ) Public Offering of Units
underwriter, trustee or any ) Portfolio
affiliated persons )
(g) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Unitholders
15. Receipt and handling of payments ) Public Offering of Units
from purchasers )
16. Acquisition and disposition of ) The Trusts
underlying securities ) Unitholders
) Trust Administration
17. Withdrawal or redemption ) Unitholders
) Trust Administration
18. (a) Receipt and disposition ) Prospectus Front Cover Page
of income ) Unitholders
(b) Reinvestment of distributions ) Distribution Reinvestment
(c) Reserves or special funds ) Trust Expenses
) Unitholders
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Unitholders
) Trust Administration
20. Certain miscellaneous provisions ) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Portfolio
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
Trust Indenture Agreement )
III. Organization, Personnel and Affiliated
Persons of Depositor
25. Organization of Depositor ) Trust Administration
26. Fees received by Depositor ) *
27. Business of Depositor ) Trust Administration
28. Certain information as to ) The Sponsor
officials and affiliated )
persons of Depositor )
29. Companies owning securities ) The Sponsor
of Depositor )
30. Controlling persons of Depositor ) The Sponsor
31. Compensation of Officers of ) *
Depositor )
32. Compensation of Directors ) *
33. Compensation to Employees ) *
34. Compensation to other persons ) *
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities ) Public Offering of Units
by states )
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
)
(b) Underwriting agreements ) Public Offering of Units
)
(c) Selling agreements )
39. (a) Organization of principal ) *
underwriter )
(b) N.A.S.D. membership by ) *
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Trust Administration
underwriter )
(b) Branch offices of principal ) *
underwriter )
(c) Salesmen of principal ) *
underwriter )
42. Ownership of securities of ) *
the trust )
43. Certain brokerage commissions ) *
received by principal underwriter )
44. (a) Method of valuation ) Prospectus Front Cover Page
) Essential Information
) Trust Expenses
) Public Offering of Units
(b) Schedule as to offering ) *
price )
(c) Variation in offering price ) *
to certain persons )
45. Suspension of Redemption Rights ) *
46. (a) Redemption valuation ) Unitholders
) Trust Administration
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Public Offering of Units
in underlying securities ) Trust Administration
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of ) Trust Administration
Trustee )
49. Fees and expenses of Trustee ) Essential Information
) Trust Expenses
50. Trustee's lien ) Trust Expenses
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's ) Trust Expenses
securities )
52. (a) Provisions of trust agreement )
with respect to replacement ) Trust Administration
or elimination portfolio )
securities )
(b) Transactions involving )
elimination of underlying ) *
securities )
(c) Policy regarding substitution )
or elimination of underlying ) Trust Administration
securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust ) Tax Status
VII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55. )
56. Certain information regarding ) *
57. periodic payment certificates )
58. )
59. Financial statements (Instructions ) Report of Independent Certified
1(c) to Form S-6) ) Public Accountants
Statements of Condition
______________________________________________
* Inapplicable, omitted, answer negative or not required
Preliminary Prospectus Dated May 14, 1997
Fidelity Defined Trusts, Series 4
1,000 Units (A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is hereby
used as a preliminary Prospectus for the above stated Series. The
narrative information and structure of the attached final Prospectus will
be substantially the same as that of the final Prospectus for this Series.
Information with respect to pricing, the number of Units, dates and summary
information regarding the characteristics of securities to be deposited in
this Series is not now available and will be different since each Series
has a unique Portfolio. Accordingly the information contained herein with
regard to the previous Series should be considered as being included for
informational purposes only. Ratings of the securities in this Series are
expected to be comparable to those of the securities deposited in the
previous Series. However, the Estimated Current Return for this Series
will depend on the interest rates and offering prices of the securities in
this Series and may vary materially from that of the previous Series.
A registration statement relating to the units of this Series has been
filed with the Securities and Exchange Commission but has not yet become
effective. Information contained herein is subject to completion or
amendment. Such Units may not be sold nor may offer to buy be accepted
prior to the time the registration statement becomes effective. This
Prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of the Units in any state in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
(Incorporated herein by reference is the final prospectus from Fidelity
Defined Trusts, Series 2 (Registration No. 333-02833) as filed on June 7,
1996, which shall be used as a preliminary prospectus for the current
Series of the Fund.)
SUMMARY
PUBLIC OFFERING PRICE. The Public Offering Price per Unit of a Trust during
the initial offering period is equal to a pro rata share of the offering
prices of the Securities in such Trust plus or minus a pro rata share of
cash, if any, in the Principal Account held or owned by such Trust, plus
accrued interest and the applicable sales charge indicated under "Essential
Information." The sales charge applicable to Units purchased during the
initial offering period consists of an initial sales charge and a deferred
sales charge. See "Trust Information - Public Offering of Units - Public
Offering Price." The secondary market Public Offering Price per Unit will
be based upon a pro rata share of the bid prices of the Securities in each
Trust plus or minus a pro rata share of cash, if any, in the Principal
Account held or owned by such Trust, plus accrued interest plus the
applicable sales charge indicated under "Trust Information - Public
Offering of Units - Public Offering Price." The sales charge is reduced on
a graduated scale for sales involving at least $500,000 or 50,000 Units and
will be applied on whichever basis is more favorable to the investor. The
minimum amount which an investor may purchase of a Trust is $5,000.
REINVESTMENT. Certain Unitholders may be eligible to elect for
distributions of principal and/or interest to be automatically invested,
without a sales charge, in shares of certain mutual funds managed by
Fidelity Management & Research Company, an affiliate of the Sponsor. Please
ask your financial consultant regarding the availability of distribution
reinvestment.
ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of the opening
of business on the Initial Date of Deposit, the Estimated Long-Term Return
and the Estimated Current Return, if applicable, for each Trust were as set
forth in "Essential Information." There is no assurance that either the
present Estimated Current Return or the present Estimated Long-Term Return
will be realized in the future. See "Interest, Estimated Long-Term Return
and Estimated Current Return" for information regarding the calculation of
each figure.
MARKET FOR UNITS. After the initial offering period, the Sponsor, while
under no obligation to do so, intends to maintain a market for the Units
and to offer to repurchase such Units at prices which are based on the
aggregate bid side evaluation of the Securities in a Trust plus accrued
interest.
RISK FACTORS. An investment in the Trusts should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer or an insurer to pay the principal of
or interest on a security when due, the general condition of the relevant
securities market, economic recession, volatile interest rates, early call
provisions and changes to the tax status of the Securities. Rolling
Government Series 2 is subject to the additional risk that the GNMA
securities included in the Trust may be prepaid more quickly than expected
and that, during the reinvestment period, the Trustee may be unable to
reinvest principal into additional Securities. See "Risk Factors" in each
Trust section and "Trust Information - Risk Factors."
FIDELITY DEFINED TRUSTS SERIES 2
ESSENTIAL INFORMATION
AT THE OPENING OF BUSINESS ON THE INITIAL DATE OF DEPOSIT: JUNE 7, 1996
SPONSOR: NATIONAL FINANCIAL SERVICES CORPORATION
EVALUATOR: MULLER DATA CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
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>
<S> <C> <C> <C> <C> <C>
ROLLING INVESTMENT INVESTMENT
GOVERNMEN GRADE GRADE
T SERIES 1 SERIES 2
SERIES 2
Public Offering Price per Unit (1) (2) $ 10.2701 $ 9.9079 $ 10.1055
Principal Amount of Securities per Unit $ 10.0600 $ 10.0600 $ 10.0600
Estimated Current Return based on Public
Offering Price (3) (4) (5) (6) 7.21% 6.25% 6.75%
Estimated Long-Term Return (3) (4) (5) (6) 7.17% 6.38% 6.75%
Estimated Normal Annual Distribution per Unit $ 0.74052 $ 0.61812 $ 0.68256
(6)
Principal Amount of Securities $ 500,000 $ 1,250,0 $ 3,750,0
00 00
Number of Units 49,702 124,254 372,763
Fractional Undivided Interest per Unit 1/49,702 1/124,25 1/372,76
4 3
Calculation of Public Offering Price:
Aggregate Offering Price of Securities $ 492,500 $ 1,188,1 $ 3,634,8
96 86
Aggregate Offering Price of Securities per $ 9.9091 $ 9.5626 $ 9.7512
Unit
Plus Maximum Sales Charge per Unit (3) $ 0.4211 $ 0.4064 $ 0.4144
Less Deferred Sales Charge per Unit (3) $ (0.0601 $ (0.0601 $ (0.0601
) ) )
Public Offering Price per Unit (1) (2) $ 10.2701 $ 9.9079 $ 10.1055
Redemption Price per Unit (3) $ 9.8238 $ 9.4774 $ 9.6659
Sponsor's Initial Repurchase Price per Unit $ 9.8490 $ 9.5025 $ 9.6911
Excess of Public Offering Price per Unit over
Redemption Price per Unit (3) $ 0.4463 $ 0.4305 $ 0.4396
Excess of Public Offering Price per Unit over
Sponsor's Initial Repurchase Price per Unit $ 0.4211 $ 0.4064 $ 0.4144
Calculation of Estimated Net Annual
Interest Income per Unit (6):
Estimated Annual Interest $ 0.75450 $ 0.63881 $ 0.70370
Less: Estimated Annual Expense $ 0.01398 $ 0.02062 $ 0.02123
Estimated Net Annual Interest $ 0.74052 $ 0.61819 $ 0.68247
Estimated Daily Rate of Net Interest
Accrual per Unit (if applicable) $ 0.00205 $ 0.00171 $ 0.00189
7 7 6
Estimated Average Life of Securities 13.5 8.68 10.48
Minimum Principal Value of the Trust under
which
Trust Agreement may be terminated (7) 40% 20% 20%
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made
as of the close of business of the Sponsor (currently 4:15 p.m. Eastern
Time) next following receipt of an order for a sale or purchase of Units or
receipt by the Trustee of Units tendered for redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ROLLING INVESTMENT INVESTMENT
GOVERNMEN GRADE GRADE
T SERIES 1 SERIES 2
SERIES 2
Trustee's Annual Fee per $1,000 principal
amount
of Securities (8) $ 0.880 $ 1.430 $ 1.500
Estimated net annual interest income per Unit
during the first year $ 0.74052 $ 0.61819 $ 0.68247
Interest Payments (9):
First Payment per Unit, representing 28 $ 0.03908 $ 0.04808 $ 0.05308
days (19
days in the case of Rolling Government
Series 2)
Estimated Normal Monthly Distribution per $ 0.06171 $ 0.05151 $ 0.05687
Unit
Estimated Normal Annual Distribution per $ 0.74052 $ 0.61819 $ 0.68247
Unit
Maximum Sales Charge (3):
As a percentage of Public Offering Price per 4.101% 4.101% 4.101%
Unit
As a percentage of net amount invested 4.276% 4.276% 4.276%
As a percentage of net amount invested in
earning assets 4.276% 4.276% 4.276%
Date of Trust Agreements 6/7/96 6/7/96 6/7/96
First Settlement Date 6/12/96 6/12/96 6/12/96
Mandatory Termination Date 12/31/27 1/1/08 8/15/09
Maximum Evaluator's Evaluation Fee $ 6.00 $ 8.00 $ 8.00
per Evaluation
Maximum Sponsor's Annual Surveillance Fee $ 0.10 $ 0.10 $ 0.10
per $1,000 Principal Amount of Securities
Estimated Annual Organizational Expenses
per Unit (10) $ 0.20 $ 0.30 $ 0.29
</TABLE>
__________
(1) Anyone ordering Units for settlement after the First Settlement Date
will pay accrued interest from such date to the date of settlement
(normally three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. For purchases
settling on the First Settlement Date, no accrued interest will be added to
the Public Offering Price.
(2) Many unit investment trusts issue a number of units such that each unit
represents approximately $1,000 principal amount of underlying securities.
The Sponsor, on the other hand, in determining the number of Units for each
Trust has elected not to follow this format but rather to provide that
number of Units which will establish as close as possible as of the Initial
Date of Deposit a Principal Amount of Securities per Unit of approximately
$10.
(3) The Maximum Sales Charge per Unit consists of an initial sales charge
and a deferred sales charge. See "Fee Table" contained herein and "Trust
Information - Public Offering of Units" for additional information
regarding these charges. The Estimated Current Return and Estimated
Long-Term Return are increased for transactions entitled to a reduced sales
charge. See "Trust Information - Public Offering of Units - Public Offering
Price." The sales charge as a percentage of the net amount invested in
earning assets will increase as accrued interest increases. Transactions
subject to quantity discounts (see "Trust Information - Public Offering of
Units - Public Offering Price") will have reduced sales charges, thereby
reducing all percentages in the table. Units tendered for redemption or
sold prior to the collection of the entire deferred sales charge will be
assesssed the amount of the remaining sales charge at the time of
redemption or sale.
(4) Estimated Long Term Returns for the Trusts are calculated using a
formula which takes into consideration the market values, yield and the
expected retirement dates (estimated average life of the Securities in
Rolling Government Series 2) of all of the Securities in the applicable
Trust, a compounding factor and the expenses and sales charge associated
with each Trust Unit. Estimated Current Returns are calculated by dividing
the estimated net annual interest income per Unit by the Public Offering
Price, and in contrast to Estimated Long Term Return does not reflect the
amortization of premium or accretion of discount, if any. For additional
information see "Interest, Estimated Long-Term Return and Estimated Current
Return."
(5) 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 either set forth under "Estimated
Cash Flows to Unitholders" for each Trust or are available upon request at
no charge from the Sponsor.
(6) The actual net annual interest income per Unit will vary with changes
in fees and expenses and principal prepayment, redemption, maturity, call,
exchange or sale of the underlying Securities. See "The Trusts" and "Trust
Information - Interest, Estimated Long-Term Return and Estimated Current
Return."
(7) The minimum principal value of each Trust under which the Trust
Agreement may be terminated is 20% (40% for Rolling Government Series 2) of
the total aggregate principal amount of securities deposited in each
Portfolio during the initial offering period.
(8) The Trustee's annual fee includes $0.07 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."
(9) Unitholders will receive interest distributions monthly. The Record
Date for the Investment Grade Series is the 10th day of the month,
commencing July, 1996 and the distribution date is the 20th day of the
month, commencing July, 1996. The Record Date for the Rolling Government
Series is the first day of the month, commencing July, 1996. The
distribution date is the 20th day of the month, commencing July 1996.
(10) Each Trust (and therefore the Unitholders of the respective Trust)
will bear all or a portion of its organizational costs (including costs of
preparing the registration statement, the trust indenture and other closing
documents, registering Units with the Securities and Exchange Commission
and states, the initial audit of the Trust portfolios, legal fees and the
initial fees and expenses of the Trustee but not including the expenses
incurred in the preparation and printing of brochures and other advertising
materials and other selling expenses) as is common for mutual funds. Total
organizational expenses will be amortized over a five year period or over
the life of a Trust if the term of such Trust is less than five years. See
"Trust Information - Trust Expenses" and "Statements of Financial
Condition." Historically, the sponsors of unit investment trusts have paid
all of the costs of establishing such trusts.
FEE TABLE
This Fee Table is intended to assist investors in understanding the costs
and expenses that an investor in a Trust will bear directly or indirectly.
See "Public Offering Price - Offering Price" and "Fund Operating Expenses".
Although each Trust is a unit investment trust rather than a mutual fund,
this information is presented to permit a comparison of fees, assuming a
public offering price of $10 and the principal amount and distributions are
rolled over each year into a new Trust subject only to the deferred sales
charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
UNITHOLDER TRANSACTION EXPENSES ROLLING INVESTMEN INVESTMEN
GOVERNMEN T GRADE T GRADE
T SERIES 1 SERIES 2
SERIES 2
Maximum Initial Sales Charge Imposed on 3.500% 3.500% 3.500%
Purchase
(as a percentage of offering price) (1)
Maximum Deferred Sales Charge (as a .601% .601% .601%
percentage
of offering price) (2)
Maximum sales charge 4.101% 4.101% 4.101%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Trustee's Fee .087% .144% .151%
Portfolio Supervision and Evaluation Fees .015% .017% .017%
Organizational Expenses .020% .030% .029%
Other Operating Expenses .018% .015% .015%
Total .140% .206% .212%
</TABLE>
EXAMPLE
An investor would pay the following expenses on a .140% .206% .212%
$1,000 investment generating a 5% annual return,
assuming an estimated expense ratio of:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CUMULATIVE EXPENSES PAID FOR PERIOD OF: ROLLING INVESTMEN INVESTMEN
GOVERNMEN T GRADE T GRADE
T SERIES 1 SERIES 2
SERIES 2
1 year $ 42 $ 43 $ 43
3 years $ 45 $ 47 $ 47
5 years $ 48 $ 52 $ 52
10 years $ 56 $ 64 $ 64
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilize a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. For purposes of the
example, the deferred sales charge imposed on reinvestment of dividends is
not reflected until the year following payment of the dividend; the
cumulative expenses would be higher if sales charges on reinvested
dividends were reflected in the year of reinvestment. The example should
not be considered as a representation of past or future expenses or annual
rate of return; the actual expenses and annual rate of return may be more
or less than those assumed for purposes of the example.
(1) The maximum Initial Sales Charge for each trust is actually the
difference between 4.101% and the maximum deferred sales charge ($6.01 per
100 Units) and would exceed 3.5% if the Public Offering Price exceeds
$1,000 per 100 Units.
(2) The actual fee is $.167 per month per 100 Units, irrespective of
purchase or redemption price, deducted monthly for 36 months. If a holder
sells or redeems Units before all of these deductions have been made, the
balance of the deferred the sales charge payments remaining will be
deducted from the sales or redemption proceeds. If Unit price exceeds $10
per Unit, the deferred portion of the sales charge will be less than
0.601%; if Unit price is less than $10 per Unit, the deferred portion of
the sales charge will exceed 0.601%. Units purchased subsequent to the
initial deferred sales charge payment will be subject to only that portion
of the deferred sales charge payments not yet collected.
THE TRUSTS
Fidelity Defined Trusts Series 2 consists of the underlying separate unit
investment trusts set forth above. The various trusts are collectively
referred to herein as the "Fidelity Defined Trusts", "the Fidelity Advisor
Defined Trusts" or the "Trusts." Each Trust is divided into "Units"
representing equal shares of the underlying assets of such Trust. Rolling
Government Series 2, GNMA Portfolio is referred to herein as the "GNMA
Portfolio", Investment Grade Series 1, Insured Utility Portfolio is
referred to herein as the "Insured Utility Portfolio," and Investment Grade
Series 2, Corporate Portfolio is referred to herein as the "Corporate
Portfolio." Each of the Trusts is separate and is designated by a different
series number. Each of the Trusts was created under the laws of the State
of New York pursuant to a trust indenture dated the Initial Date of Deposit
(the "Trust Agreements") between National Financial Services Corporation
(the "Sponsor") and The Chase Manhattan Bank (National Association) (the
"Trustee").*
As used herein, the terms defined below shall have the following meanings:
"Securities" and "Bonds" shall mean the obligations initially deposited in
the Trusts described under "Portfolio" for each Trust (including all
contracts to purchase such obligations accompanied by an irrevocable letter
of credit sufficient to perform such contracts initially deposited in the
Trusts) and any additional obligations deposited in the Trusts following
the Initial Date of Deposit; "GNMA Securities" and "Ginnie Maes" shall mean
the obligations (and contracts for the purchase thereof) included in the
GNMA Portfolio; "Utility Bonds" shall mean the obligations (and contracts)
included in the Insured Utility Portfolio; and "Corporate Bonds" shall mean
the obligations (and contracts) included in the Corporate Portfolio.
On the Initial Date of Deposit, the Sponsor delivered to the Trustee that
aggregate principal amount of Securities or contracts for the purchase
thereof for deposit in the Trust Funds as set forth under "Essential
Information." In exchange for the Securities so deposited, the Trustee
delivered to the Sponsor documentation evidencing the ownership of that
number of Units for each Trust as indicated under "Essential Information."
The Sponsor has a limited right of substitution for such Securities in the
event of a failed contract. See "Trust Information - General Information."
(*) Reference is made to the Trust Agreements and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
Additional Units of each Trust may be issued from time to time following
the Initial Date of Deposit by depositing in such Trust additional
Securities or contracts for the purchase thereof together with irrevocable
letters of credit or cash. As additional Units are issued by a Trust, the
aggregate value of the Securities in the Trust will be increased and the
fractional undivided interest in the Trust represented by each Unit will be
decreased. The Sponsor may continue to make additional deposits of
Securities into a Trust following the Initial Date of Deposit, provided
that such additional deposits will be in principal amounts which will
maintain the same original percentage relationship among the principal
amounts of the Securities in such Trust established on the initial deposit
of the Securities. Thus, although additional Units will be issued, each
Unit will continue to represent the same principal amount of each Security,
and the percentage relationship among the principal amount of each Security
in the related Trust will remain the same. To the extent that any Units are
redeemed by the Trustee or additional Units are issued the fractional
undivided interest in a Trust (set forth under "Essential Information")
represented by each unredeemed Unit will increase or decrease accordingly,
although the actual interest in such Trust represented by such fraction
will remain unchanged. Units will remain outstanding until redeemed upon
tender to the Trustee by Unitholders, which may include the Sponsor, or
until the termination of the Trust Agreement.
ROLLING GOVERNMENT SERIES 2, GNMA PORTFOLIO
THE TRUST PORTFOLIO
Rolling Government Series 2, GNMA Portfolio was formed for the purpose of
obtaining safety of capital as is consistent with current income and
current monthly distributions of interest through investment in a portfolio
primarily consisting of taxable-mortgage-backed securities of the fully
modified pass-through type, the payment of principal and interest on which
is fully guaranteed by GNMA. In an effort to minimize the effect of
principal payments and prepayments during the period when, in the Sponsor's
opinion, such reinvestment is practical (the "Reinvestment Period"), the
Sponsor will direct the Trustee to reinvest all distributions of principal
into additional GNMA securities which are similar as to maturity and
interest rates as the GNMA securities upon which the principal was
received. The Sponsor currently expects the Reinvestment Period to last two
years from the Initial Date of Deposit. Subsequent to the Reinvestment
Period, amounts of principal will be distributed as in accordance with
interest distributions.
In selecting Ginnie Maes for deposit in the Trust, the following factors,
among others, were considered by the Sponsor: (i) the types of such
securities available; (ii) the prices and yields of such securities
relative to other comparable securities, including the extent to which such
securities are trading at a premium or at a discount from par; and (iii)
the maturities of such securities. See "Portfolio" for information with
respect to the Securities initially selected for deposit in the Trust. The
Ginnie Maes included in the Trust are backed by the indebtedness secured by
the mortgages contained in the underlying mortgage pools.
Standard & Poor's has rated the Units of the Trust "AAA." This is the
highest rating assigned by Standard & Poor's. See "Rating of Units."
REINVESTMENT
During the Reinvestment Period, the Sponsor will direct the Trustee to
reinvest all payments and prepayments of principal from the underlying
Ginnie Maes into additional Ginnie Mae securities which have similar
maturities and interest rates as the Securities upon which the principal
was received. Reinvestment of principal into additional Ginnie Maes during
periods when interest rates are at a level different from those prevailing
at the Initial Date of Deposit will have the effect of increasing or
decreasing monthly distributions of interest income from the Trust.
Reinvestment of principal into the Ginnie Maes eligible for inclusion in
the Trust will also have the effect of increasing the par value of the
Units for reinvestment during periods of increasing interest rates from
those prevailing at the Initial Date of Deposit and during periods of
declining interest rates the par value of the Units will decrease. There
may be times when the Principal Account of the Trust has cash which cannot
be reinvested because additional Ginnie Maes are not available or the
amount of cash in the Principal Account is insufficient to buy additional
Ginnie Maes without the Trust incurring disproportionate expenses. During
these periods, the amounts in the Principal Account will remain uninvested,
thus reducing the return to Unitholders. Amounts, if any, which cannot be
reinvested during the Reinvestment Period will be distributed to
Unitholders semiannually unless the amount available for distribution is
less than $0.01 per Unit. In such a circumstance, Unitholders should be
aware that at the time of the receipt of such principal they may not be
able to reinvest such principal in other securities at a yield equal to or
in excess of the yield which such principal would have earned to
Unitholders had the principal been reinvested. In addition, principal will
not be reinvested and will be distributed to Unitholders if required to
maintain the status of the Trust as a "regulated investment company." See
"Trust Information - Tax-Status - Regulated Investment Company." The costs
of acquiring the additional Ginnie Maes will be borne by the Trust and
hence, the Unitholders. Although it is currently anticipated that the
Trustee will purchase Ginnie Maes directly from market makers, the Trustee
may retain the Sponsor to purchase the additional Ginnie Maes and pay them
usual and customary brokerage commissions. There will be no attempt to time
or delay the purchase of additional Ginnie Maes for reinvestment to take
advantage of market movements.
TAX STATUS
Rolling Government Series 2, GNMA Portfolio has been created as a regulated
investment company for federal tax reasons. For information concerning the
Trust's status as a regulated investment company see "Trust Information -
Tax Status - Regulated Investment Company."
RISK FACTORS
The Portfolio of the Trust consists of contracts to purchase Ginnie Maes
fully guaranteed as to payments of principal and interest by GNMA. Each
group of Ginnie Maes described herein as having a specified range of
maturities includes individual mortgage-backed securities which have
varying ranges of maturities within each range set forth in the Portfolio.
Current market conditions accord no difference in price among individual
Ginnie Mae securities within certain ranges of stated maturity dates on the
basis of the difference in the maturity dates of each Ginnie Mae. A
purchase of Ginnie Maes with the same coupon rate and maturity date within
such range will be considered an acquisition of the same security for both
additional deposits and for the reinvestment of principal. In the future,
however, the difference in maturity ranges could affect market value of the
individual Ginnie Maes. At such time, any additional purchases by the Trust
will take into account the maturities of the individual securities. The
mortgages underlying the Ginnie Maes in the Trust have an original stated
maturity of up to 30 years.
The reinvestment of principal by the Trustee in additional Ginnie Maes may
result in Securities being acquired at a market discount or market premium
(see "Trust Information - Risk Factors - General"). See "Trust Information
- - Risk Factors - GNMA Securities" for a general discussion of the risks
associated with an investment in GNMA securities.
During the Reinvestment Period, the Sponsor will direct the Trustee to
reinvest principal payments and prepayments into additional securities.
Precise duplication of the Ginnie Maes may not be possible because
fractions of Ginnie Maes may not be purchased and substantially similar
securities may not be available, but duplication will be the goal of the
Sponsor with respect to the purchase of additional securities. Principal
amounts which cannot be reinvested will be distributed to Unitholders
semiannually unless the amount available for distribution is less than
$0.01 per Unit. After the Reinvestment Period, principal will not be
reinvested and will be distributed monthly to Unitholders. See "Trust
Information - Unitholders - Distributions to Unitholders."
During the Reinvestment Period, the pro rata share of cash in the Principal
Account which has not been reinvested or committed for reinvestment will be
computed as of the 1st day of each June and December and distributions to
the Unitholders as of the related Record Date will be made on the 20th day
of the respective month. After the Reinvestment Period, the pro rata share
of cash in the Principal Account will also be computed as of the 1st day of
each month and distributions to the Unitholders as of the related Record
Date will be made on the 20th day of such month. Proceeds from the
disposition of any of the Securities or amounts representing principal on
the Securities received after such Record Date and prior to the following
Distribution Date will be held in the Principal Account and not distributed
until the next Distribution Date. The Trustee is not required to pay
interest on funds held in the Principal or Interest Account (but may itself
earn interest thereon and therefore benefits from the use of such funds)
nor to make a distribution from the Principal Account unless the amount
available for distribution shall equal at least $0.01 per Unit. See "Trust
Information - Unitholders - Distributions to Unitholders."
ROLLING GOVERNMENT SERIES 2, GNMA PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JUNE 7, 1996
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, MODIFIED
PASS-THROUGH MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL COUPON YEARS OF COST OF COST OF PROFIT
AMOUNT RATE STATED SECURITIES SECURITIES OR (LOSS) TO
MATURITY TO TO TRUST (2) SPONSOR
SPONSOR (1)
$ 500,000 7.50% 2025-2026 $ 492,500 $ 492,500 $ --
</TABLE>
_________________
(1) All Securities on the Initial Date of Deposit are represented by the
Sponsor's contracts to purchase such securities. Such contracts were
acquired by the Sponsor on June 6, 1996. Interest will begin accruing to
the benefit of Unitholders from June 12, 1996, the First Settlement Date of
the Trust. The cost of Securities to Sponsor and Profit or (Loss) to
Sponsor reflects portfolio hedging gains and losses.
(2) The cost of the Securities to the Trust represents the offering side
evaluation of the Securities as determined by Muller Data Corporation. The
offering side evaluation is greater than the current bid side evaluation of
the Securities which is the basis on which Redemption Price per Unit is
determined. The aggregate value based on the bid side evaluation at the
opening of business on the Initial Date of Deposit was ($491,252, which is
$1,250 ($0.025 per Unit; .25% of the aggregate principal amount) lower
than the aggregate cost of the securities to the Trust based on the
offering side evaluation.
In addition to the information as to the GNMA fully modified pass-through
mortgage-backed Securities set forth above, the Trustee will furnish
Unitholders a statement listing the name of issuer, pool number, interest
rate, maturity date and principal amount for each such Security in the
Portfolio upon written request.
INVESTMENT GRADE SERIES 1, INTERMEDIATE INSURED UTILITY PORTFOLIO
THE TRUST PORTFOLIO
Investment Grade Series 1, Intermediate Insured Utility Portfolio consists
almost entirely of a fixed portfolio of corporate debt obligations
("Bonds") issued after July 18, 1984 by utility companies. The Insured
Utility Portfolio was created to provide a high level of current income.
The Insured Utility Portfolio may also contain zero coupon U.S. Treasury
Obligations.
The selection of Bonds for the Trust was based largely upon the experience
and judgment of the Sponsor. In making such selections the Sponsor
considered the following factors: (i) the price of the Bonds relative to
other issues of similar quality and maturity; (ii) whether the Bonds were
issued by a utility company; (iii) the diversification of the Bonds as to
location of issuer, (iv) the income to the Unitholders of the Trusts; (v)
whether the Bonds were insured or the availability and cost of insurance
for the scheduled payment of principal and interest on the Bonds; (vi)
whether the Bonds were issued after July 18, 1984; and (vii) the stated
maturity of the Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trust's
portfolio other than any U.S. Treasury Obligations are rated "Aaa" by
Moody's and "AAA" by Standard & Poor's. Standard & Poor's states that
"bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and principal is extremely
strong." Moody's states that bonds "which are rated Aaa are judged to be
the best quality. They carry the smallest degree of investment risk and are
generally referred to as `gilt edge.' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues. Their safety is so absolute that, with the occasional
exception of oversupply in a few specific instances, characteristically,
their market value is affected solely by money market fluctuations." See
"Trust Information - Insurance on the Bonds." Subsequent to the Initial
Date of Deposit, a bond may cease to be so rated. If this should occur, a
Trust would not be required to eliminate the Bond from the Trust, but such
event may be considered in the Sponsor's determination to direct the
Trustee to dispose of such investment. See "Trust Information - Investment
Supervision."
Insurance guaranteeing the scheduled payment of principal and interest on
all of the Bonds in the Trust has been obtained directly by the issuer of
such Bonds or by the Sponsor from MBIA Insurance Corporation or other
insurers. As a result of such insurance, the Units of the Trust are rated
"AAA" by Standard & Poor's.
TAX STATUS
Investment Grade Series 1, Intermediate Insured Utility Portfolio has been
created as a grantor trust for federal tax reasons. For information
concerning the Trust's status as a grantor trust see "Trust Information -
Tax Status - Grantor Trust."
RISK FACTORS
PUBLIC UTILITY ISSUES
The majority of the Bonds in the Trust are obligations of public utility
issuers. In general, public utilities are regulated monopolies engaged in
the business of supplying light, water, power, gas, heat, transportation or
means of communication. Historically, the utilities industry has provided
investors in securities issued by companies in this industry with high
levels of reliability, stability and relative total return on their
investments. While each of the Bonds in the Trust are insured and "AAA"
rated, an investment in the Trust should nevertheless be made with an
understanding of the characteristics of such issuers and the risks which
such an investment may entail. General problems of such issuers would
include the difficulty in financing large construction programs in an
inflationary period, the limitations on operations and increased costs and
delays attributable to environmental considerations, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining fuel
at reasonable prices and the effect of energy conservation. All of such
issuers have been experiencing certain of these problems in varying
degrees. In addition, federal, state and municipal governmental authorities
may from time to time review existing, and impose additional, regulations
governing the licensing, construction and operation of nuclear power
plants, which may adversely affect the ability of the issuers of certain of
the Bonds in the portfolios to make payments of principal and/or interest
on such Bonds. For additional information concerning the risks associated
with an investment in bonds of utility issuers see "Trust Information -
Risk Factors - Public Utility Issues" and "Trust Information - Risk Factors
- - Corporate Bonds."
ZERO COUPON U.S. TREASURY OBLIGATIONS
Certain of the Bonds in the Trust may be "zero coupon" U.S. Treasury bonds.
See footnote (6) to the "Portfolio." Zero coupon bonds are purchased at a
deep discount because the buyer receives only the right to receive a final
payment at the maturity of the bond and does not receive any periodic
interest payments. The effect of owning deep discount bonds which do not
make current interest payments (such as the zero coupon bonds) is that a
fixed yield is earned not only on the original investment but also, in
effect, on all earnings during the life of the discount obligation. The
implicit reinvestment of earnings at the same rate eliminates the risk of
being unable to reinvest the income on such obligations at a rate as high
as the implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the future.
For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than
are securities of comparable quality which make regular interest payments.
See "Trust Information - Risk Factors - U.S. Treasury Obligations" and
"Trust Information - Risk Factors - General" for additional information
concerning the risks of investing in zero coupon U.S. Treasury bonds.
INVESTMENT GRADE SERIES 1, INTERMEDIATE INSURED UTILITY PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JUNE 7, 1996
RATING(2)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AGGREGAT NAME OF ISSUER COUPO MATURIT MOODY STANDARD REDEMPTI COST OF
E (1)(5) N Y 'S & POORS ON BONDS TO
PRINCIPAL PROVISION TRUST (4)
S (3)
$ 250,00 PECO Energy 6.625 3/1/03 Aaa AAA Non-ca $ 245,56
0 Company % llable 3
250,000 Pacific Gas and 6.250 3/1/04 Aaa AAA Non-ca 237,988
Electric Company % llable
250,000 Pacific Bell 6.250 3/1/05 Aaa AAA Non-ca 237,700
Company % llable
250,000 Southern 6.375 1/15/0 Aaa AAA Non-ca 235,880
California Edison % 6 llable
Company
250,000 Public Service 6.250 1/1/07 Aaa AAA Non-ca 231,065
Electronic and % llable
Gas Company
$ 1,250,0 $ 1,188,1
00 90
</TABLE>
All Bonds in the Trust except for the U.S. Treasury Obligations are insured
only by MBIA. The insurance was obtained either directly by the issuer of
the Bonds or by the Sponsor.
(1) Contracts to acquire Bonds were entered into by the Sponsor on May 28
and June 3, 1996. All Bonds are represented by regular way contracts,
unless otherwise indicated, for the performance of which an irrevocable
letter of credit has been deposited with the Trustee.
(2) All the Bonds in the Trust except for any U.S. Treasury Obligations are
insured by MBIA and therefore are rated AAA by Standard & Poor's and Aaa by
Moody's. See "Trust Information - Insurance on the Bonds." Also, the Units
of the Trust are rated AAA by Standard & Poor's (see "Trust Information -
Rating of Units").
(3) There is shown under this heading the year in which each issue of Bonds
is initially or currently redeemable and the redemption price for that
year; unless otherwise indicated. Each issue continues to be redeemable at
declining prices thereafter, but not below par value. The prices at which
the Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to the Trust. In addition, certain Bonds in the portfolio may be
redeemed in whole or in part other than by operation of the stated
redemption provisions under certain unusual or extraordinary circumstances
specified in the instruments setting forth the terms and provisions of such
bonds. "S.F." indicates that a sinking fund is established with respect to
that issue of Bonds.
(4) During the initial offering period, evaluations of Bonds are made on
the basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF PROFIT OR ANNUAL BID SIDE
BONDS TO (LOSS) TO INTEREST VALUE OF
SPONSOR SPONSOR INCOME BONDS
TO TRUST
Investment of Grade Series 1 $ 1,183,4 $ 4,727 $ 79,375 $1,185,0
69 70
</TABLE>
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
certain carrying costs and the cost of insurance obtained by the Sponsor
for individual Bonds, if any, prior to the date such Bonds are deposited in
the Trust.
"#" indicates that such bond was issued at an original issue discount. The
tax effect of Bonds issued at an original issue discount is described in
"Trust Information - Tax Status - Grantor Trust."
INVESTMENT GRADE SERIES 2, CORPORATE PORTFOLIO
THE TRUST PORTFOLIO
Investment Grade Series 2, Corporate Portfolio was formed for the purpose
of providing a high level of current income through investment in a fixed
portfolio consisting of investment grade, corporate debt obligations issued
after July 18, 1984. For foreign investors who are not United States
citizens or residents, interest income from the Corporate Portfolio may not
be subject to federal withholding taxes if certain conditions are met. See
"Trust Information - Tax Status - Grantor Trust."
The Trust may be an appropriate investment vehicle for investors who desire
to participate in a portfolio of intermediate term taxable fixed income
securities issued by corporate obligors with greater diversification than
investors might be able to acquire individually. Diversification of the
Trust assets will not eliminate the risk of loss always inherent in the
ownership of securities. In addition, Bonds of the type deposited in the
Trust often are not available in small amounts.
The selection of Bonds for the Trust was based largely upon the experience
and judgment of the Sponsor. In making such selections the Sponsor
considered the following factors: (a) the price of the Bonds relative to
other issues of similar quality and maturity; (b) the present rating and
credit quality of the issuers of the Bonds and the potential improvement in
the credit quality of such issuers; (c) the diversification of the Bonds as
to location of issuer; (d) the income to the Unitholders of the Trust; (e)
whether the Bonds were issued after July 18, 1984; and (f) the stated
maturity of the Bonds.
As of the Initial Date of Deposit, all of the Bonds in the Trust are rated
"A" or better by Moody's, Standard & Poor's or Duff & Phelps. See "Trust
Information - Description of Ratings" and "Portfolio" below. Subsequent to
the Initial Date of Deposit, a Bond may cease to be so rated. If this
should occur, the Trust would not be required to eliminate the Bond from
the Trust, but such event may be considered in the Sponsor's determination
to direct the Trustee to dispose of such investment. See "Trust Information
- - Investment Supervision."
TAX STATUS
Investment Grade Series 2, Corporate Portfolio has been created as a
grantor trust for federal tax reasons. For information concerning the
Trust's status as a grantor trust see "Trust Information - Tax Status -
Grantor Trust."
RISK FACTORS
An investment in Units of the Trust should be made with an understanding of
the risks that an investment in fixed rate, corporate debt obligations may
entail, including credit risks and the risk that the value of the Units
will decline, and may decline precipitously, with increases in interest
rates. In recent years there have been wide fluctuations in interest rates
and thus in the value of fixed-rate, debt obligations generally. The
Sponsor cannot predict future economic policies or their consequences or,
therefore, the course or extent of any similar market fluctuations in the
future. The portfolio consists of Bonds that, in many cases, do not have
the benefit of covenants that would prevent the issuer from engaging in
capital restructurings or borrowing transactions in connection with
corporate acquisitions, leveraged buyouts or restructurings that could have
the effect of reducing the ability of the issuer to meet its obligations
and might result in the ratings of the Bonds and the value of the
underlying portfolio being reduced. See "Trust Information - Risk Factors -
Corporate Securities" for additional risk factors concerning corporate debt
obligations.
INVESTMENT GRADE SERIES 2, CORPORATE PORTFOLIO
AS OF THE INITIAL DATE OF DEPOSIT: JUNE 7, 1996
RATING(2)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AGGREGATE NAME OF ISSUER COUPO MATURIT MOODY'S STANDAR REDEMPTIO COST OF
PRINCIPAL (1) (5) N Y D & N BONDS TO
POORS PROVISIONS TRUST (4)
(3)
$ 250,00 BankAmerica 2/15/0 A2 A Non-Callab $ 229,81
0 6.200 6 le 8
%
250,000 Bankers Trust 7.375 5/1/08 A3 A- Non-Callab 246,578
% le
250,000 Chase 6.750 8/15/0 A2 A- Non-Callab 236,305
Manhattan % 8 le
250,000 Citicorp 6.750 8/15/0 A2 A Non-Callab 240,080
% 5 le
250,000 Walt Disney 6.750 3/30/0 A2 A Non-Callab 242,150
Corp. % 6 le
250,000 First Union 7.000 3/15/0 A2 A- Non-Callab 242,590
Corp % 6 le
250,000 Fleet Financial 7.125 4/15/0 A3 BBB Non-Callab 244,198
% 6 + le
250,000 Ford Motor 6.750 8/15/0 A1 A+ Non-Callab 236,495
Credit % 8 le
250,000 General 6.625 10/15/0 A3 A- Non-Callab 237,385
Motors % 5 le
250,000 Household 7.650 5/15/0 A2 A Non-Callab 254,983
Financial % 7 le
250,000 Lehman 8.500 5/1/07 Baa1 A Non-Callab 263,965
Brothers % le
250,000 Mellon 6.700 3/1/08 A3 A- Non-Callab 236,030
Financial % le
250,000 Merrill Lynch 7.375 5/15/0 A1 A+ Non-Callab 249,198
% 6 le
250,000 NationsBank 6.500 3/15/0 A3 A- Non-Callab 234,353
Corp. % 6 le
250,000 Wells Fargo 6.875 4/1/06 A2 BBB Non-Callab 240,758
% + le
$3,750,0 $3,634,8
00 86
</TABLE>
(1) Contracts to acquire Bonds were entered into by the Sponsor on June 5,
1996. All Bonds are represented by regular way contracts, unless otherwise
indicated, for the performance of which an irrevocable letter of credit has
been deposited with the Trustee.
(2) A brief description of the applicable Standard & Poor's, Moody's and
Duff & Phelps rating symbols and their meanings is set forth under "Trust
Information - Description of Ratings." "N.R." indicates that the issue has
not been rated by that rating agency.
(3) There is shown under this heading the year in which each issue of Bonds
is initially or currently redeemable and the redemption price for that
year. Unless otherwise indicated, each issue continues to be redeemable at
declining prices thereafter but not below par value. The prices at which
the Bonds may redeemed or called prior to maturity may or may not include a
premium and, in certain cases, may be less than the cost of the Bonds to
Trust. In addition, certain bonds in the portfolio may be redeemed in whole
or in part other than by operation of the stated redemption provisions
under certain unusual or extraordinary circumstances specified in the
instruments setting forth the terms and provisions of such Bonds.
(4) During the initial offering period, evaluations of Bonds are made on
the basis of current offering side evaluations of the Bonds. The aggregate
offering price is greater than the aggregate bid price of the Bonds, which
is the basis on which the Redemption Price will be determined for purposes
of redemption of Units after the initial offering period.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Initial Date of Deposit, is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
COST OF PROFIT OR ANNUAL BID SIDE
SECURITIES (LOSS) TO INTEREST VALUE OF
TO SPONSOR SPONSOR INCOME BONDS
TO TRUST
Investment Grade Series 2 $ 3,611,24 $ 23,639 $ 262,31 $ 3,625,5
7 3 11
</TABLE>
The Cost of Bonds to Sponsor and Profit or (Loss) to Sponsor reflect
portfolio hedging transaction costs, hedging gains or losses, and certain
other carrying costs.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
FIDELITY DEFINED TRUSTS SERIES 2
We have audited the accompanying statements of condition and the related
portfolios of Fidelity Defined Trusts Series 2 (Rolling Government Series
2, GNMA Portfolio, Investment Grade Series 1, Intermediate Insured Utility
Portfolio and Investment Grade Series 2, Corporate Portfolio) as of the
opening of business, June 7, 1996. The statements of condition and
portfolios are the responsibility of the Trustee. Our responsibility is to
express an opinion on such financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of Securities owned at
June 7, 1996 and a letter of credit deposited to purchase Securities by
correspondence with The Chase Manhattan Bank, N.A., the Trustee. An audit
also includes assessing the accounting principles used and significant
estimates made by the Sponsor, as well as evaluating the overall financial
statement presentation. We believe 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
Series 2 (Rolling Government Series 2, GNMA Portfolio, Investment Grade
Series 1, Intermediate Insured Utility Portfolio and Investment Grade
Series 2, Corporate Portfolio) as of the opening of business, June 7, 1996,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 7, 1996
FIDELITY DEFINED TRUSTS SERIES 2
1.STATEMENTS OF CONDITION AT THE OPENING OF BUSINESS ON JUNE 7, 1996, THE
INITIAL DATE OF DEPOSIT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ROLLING INVESTMENT INVESTMENT
GOVERNMENT GRADE GRADE
SERIES 2 SERIES 1 SERIES 2
INVESTMENT IN SECURITIES
Contracts to purchase Securities (1) $ 492,500 $ 1,188,196( $ 3,634,88
2) 6
Organizational Costs (3) 30,359 44,719 43,719
Accrued interest to Initial Date of Deposit on 625 21,901 50,130
underlying Securities (1) (4)
Total $ 523,484 $ 1,254,816 $ 3,728,73
5
Number of Units 49,702 124,254 372,763
LIABILITIES AND INTEREST OF
UNITHOLDERS
Liabilities -
Payment of deferred sales charge $ 2,987 $ 7,468 $ 22,403
Accrued Organizational Costs (3) 30,359 44,719 43,719
Accrued interest payable to Sponsor (1) (4) 625 21,901 50,130
Interest of Unitholders -
Cost to investors (5) 510,363 1,231,291 3,766,721
Less: Gross underwriting commission (5) (20,850) (50,563) (154,238)
Net interest to Unitholders (1) (4) (5) $ 489,513 $ 1,180,728 $3,612,48
3
Total $ 523,484 $ 1,254,816 $ 3,728,73
5
</TABLE>
__________
NOTES:
(1) The aggregate value of the Securities listed in each "Portfolio" and
their cost to the Trust are the same. The value of the Securities is
determined by Muller Data Corporation on the bases set forth under "Trust
Information - Public Offering of Units - Public Offering Price" based on
prices as of the opening of business on June 7, 1996. The contracts to
purchase Securities are collateralized by an irrevocable letter of credit
of $5,500,000 which has been deposited with the Trustee. Of this amount,
$5,315,582 relates to the offering price of Securities to be purchased and
$78,650 relates to accrued interest on such Securities to the expected
dates of delivery.
(2) Insurance coverage providing for the timely payment of principal and
interest on the Securities in an Insured Trust Fund has been obtained
directly by the issuer of such Securities or by the Sponsor from MBIA
Insurance Corporation or other insurers.
(3) Each Trust (and therefore Unitholders) will bear all or a portion of
its organizational costs which will be deferred and amortized over five
years or over the life of the Trust if the term of such Trust is less than
five years. Organizational costs have been estimated based on a projected
size of $30,000,000 for each Trust. To the extent a Trust is larger or
smaller, the estimate will vary.
(4) The Trustee will advance to each Trust the amount of net interest
accrued to the First Settlement Date for distribution to the Sponsor as the
Unitholder of Record.
(5) The aggregate public offering price includes a sales charge for the
Trust as set forth under "Essential Information", assuming all single
transactions involve less than 50,000 Units. For single transactions
involving 50,000 or more Units the sales charge is reduced (see "Trust
Information - Public Offering of Units - Public Offering Price") resulting
in an equal reduction in both the Cost to investors and the Gross
underwriting commission while the Net interest to Unitholders remains
unchanged.
TRUST INFORMATION
GENERAL INFORMATION
Because certain of the Securities in certain Trusts may from time to time
under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will
be distributed to Unitholders and will not be reinvested, no assurance can
be given that a Trust will retain for any length of time its present size
and composition. Neither the Sponsor nor the Trustee shall be liable in any
way for any default, failure or defect in any Security. In the event of a
failure to deliver any Security that has been purchased for a Trust under a
contract, including those securities purchased on a "when, as and if
issued" basis ("Failed Securities"), the Sponsor is authorized under the
Trust Agreement to direct the Trustee to acquire other securities
("Replacement Securities") to make up the original corpus of such Trust.
Securities in certain of the Trusts may have been purchased on a "when, as
and if issued" or delayed delivery basis with delivery expected to take
place after the First Settlement Date. See "Portfolio" for each Trust.
Accordingly, the delivery of such Securities may be delayed or may not
occur. Interest on these Securities begins accruing to the benefit of
Unitholders on their respective dates of delivery. Unitholders will be "at
risk" with respect to any "when, as and if issued" or "delayed delivery"
Securities included in their respective Trust Portfolio (i.e., may derive
either gain or loss from fluctuations in the evaluation of such Securities)
from the date they commit for Units.
Replacement Securities must be purchased within 20 days after the Sponsor
receives notice that a contract to deliver a Security will not be honored
and the purchase price of such securities may not exceed the amount of
funds reserved for the purchase of the Failed Securities. The Replacement
Securities (i) must be payable in United States currency, (ii) must be
purchased at a price that results in a yield to maturity and a current
return at least equal to that of the Failed Securities as of the Initial
Date of Deposit, (iii) shall not be "when, as and if issued" or restricted
securities, (iv) must satisfy any rating criteria for Securities originally
included in such Trust, (v) must not cause the Units of such Trust to cease
to be rated AAA by the appropriate rating agency if the Units were so rated
on the Initial Date of Deposit and (vi) in the case of an Insured Trust,
must be insured prior to acquisition by a Trust. In connection with an
Insured Utility Portfolio only, Replacement Securities also must (i) be
intermediate or long-term, as applicable, corporate bonds, debentures,
notes or other straight debt obligations (whether secured or unsecured and
whether senior or subordinated) without equity or other conversion
features, with fixed maturity dates substantially the same as those of the
Failed Securities having no warrants or subscription privileges attached
and (ii) be issued after July 18, 1984 if interest thereon is United States
source income. Whenever a Replacement Security is acquired, the Trustee
shall, within five days thereafter, notify all Unitholders of the Trust of
the acquisition of the Replacement Security and shall, on the next monthly
distribution date which is more than 30 days thereafter, make a pro rata
distribution of the amount, if any, by which the cost to the Trust of the
Failed Security exceeded the cost of the Replacement Security. With the
exception of a Rolling Government Series, once all of the Securities in a
Trust are acquired, the Trustee will have no power to vary the investments
of such Trust, i.e., the Trustee will have no managerial power to take
advantage of market variations to improve a Unitholder's investment.
If the right of limited substitution described in the preceding paragraphs
is not utilized to acquire Replacement Securities, the Sponsor will refund
the principal and accrued interest attributable to such Failed Securities
and the pro rata portion of the sales charge attributable to such Failed
Securities not more than 30 days after the date on which the Trustee would
have been required to purchase a Replacement Security. Unitholders should
be aware that, at the time of receipt of such principal, they may not be
able to reinvest such proceeds in other securities at a yield equal to or
in excess of the yield which such proceeds would have earned for
Unitholders of such Trusts.
Whether or not a Replacement Security is acquired, an amount equal to the
accrued interest (at the coupon rate of the Failed Securities) will be paid
to Unitholders of the Trust to the date the Sponsor removes the Failed
Securities from the Trust or to the date of substitution if a Replacement
Security is purchased. All such interest paid to Unitholders which accrued
after the date of settlement for a purchase of Units will be paid by the
Sponsor. In the event a Replacement Security could not be acquired by a
Trust, the net annual interest income per Unit for such Trust would be
reduced and the Estimated Current Return and Estimated Long-Term Return
might be lowered.
Subsequent to the Initial Date of Deposit, a Security may cease to be rated
or its rating may be reduced below any minimum required as of the 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 investment. See "Trust Information -
Investment Supervision."
The Sponsor may not alter the portfolio of a Trust except upon the
occurrence of certain extraordinary circumstances or, in the case of the
Rolling Government Series, in connection with a reinvestment of principal.
See "Trust Information - Investment Supervision." Certain of the Securities
may be subject to optional call or mandatory redemption pursuant to sinking
fund provisions, in each case prior to their stated maturity. See
"Portfolio" for each Trust for a description of applicable redemption
provisions. 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 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" for
each Trust. Redemption pursuant to optional call provisions is more likely
to occur, and redemption pursuant to special or extraordinary redemption
provisions may occur, when the Securities have an offering side evaluation
which represents a premium over par. The proceeds from any such call or
redemption pursuant to sinking fund provisions, as well as proceeds from
the sale of Securities and from Securities which mature in accordance with
their terms 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 Securities for such Trust. See "Trust Information -
Interest, Estimated Long-Term Return and Estimated Current Return." The
call, redemption, sale or maturity of Securities also may have tax
consequences to a Unitholder. See "Trust Information - Tax Status."
Each Unit of a Trust represents an undivided fractional interest in the
Securities deposited therein, in the ratio shown under "Essential
Information." Units may be purchased and certificates, if requested, will
be issued in denominations of one Unit or any multiple or fraction thereof,
subject to each Trust's minimum investment requirement of one Unit.
Fractions of Units will be computed to three decimal points. To the extent
that Units of a Trust are redeemed, the principal amount of Securities in
such Trust will be reduced and the undivided fractional interest
represented by each outstanding Unit of such Trust will increase. See
"Trust Information - Redemption."
RISK FACTORS
U.S. TREASURY OBLIGATIONS. U.S. Treasury Obligations are direct obligations
of the United States and are backed by its full faith and credit although
the Units are not so backed. The U.S. Treasury Obligations are not rated
but in the opinion of the Sponsor have credit characteristics comparable to
those of securities rated "AAA" by nationally recognized rating agencies.
An investment in Units of a Trust which contains U.S. Treasury Obligations
should be made with an understanding of the risks which an investment in
fixed rate debt obligations may entail, including the risk that the value
of the Securities and hence the Units will decline with increases in
interest rates. The high inflation of prior years, together with the fiscal
measures adopted to attempt to deal with it, have resulted in wide
fluctuations in interest rates and, thus, in the value of fixed rate debt
obligations generally. The Sponsor cannot predict whether such fluctuations
will continue in the future.
GNMA SECURITIES. An investment in Units of the GNMA Portfolio should be
made with an understanding of the risks inherent therein, including the
risk that the value of the portfolio and hence of the Units will decline
with increases in interest rates. The value of the underlying Securities
will fluctuate inversely with changes in interest rates. In addition, the
potential for appreciation of the underlying Securities, which might
otherwise be expected to occur as a result of a decline in interest rates,
may be limited or negated by increased principal prepayments in respect of
the underlying mortgages. The high inflation of prior years, together with
the fiscal measures adopted to attempt to deal with it, have resulted in
wide fluctuations in interest rates and, thus, in the value of fixed rate
long term obligations generally. The Sponsor cannot predict whether such
fluctuations will continue in the future.
The Ginnie Maes are backed by the indebtedness secured by underlying
mortgage pools of long-term mortgages on 1- to 4- family dwellings. The
pool of mortgages which is to underlie a particular new issue of Ginnie
Maes is assembled by the proposed issuer of such Ginnie Maes. The issuer is
typically a mortgage banking firm, and in every instance must be a
mortgagee approved by and in good standing with the Federal Housing
Administration ("FHA"). In addition, GNMA imposes its own criteria on the
eligibility of issuers, including a net worth requirement.
During the Reinvestment Period for the GNMA Portfolio, the Sponsor will
direct the Trustee to reinvest principal payments and prepayments into
additional securities. While precise duplication of the Ginnie Maes to be
purchased with reinvested principal is the goal of the Sponsor, this may
not be possible because fractions of Ginnie Maes may not be purchased and
substantially similar securities may not be available. Principal amounts
which cannot be reinvested will be distributed to Unitholders of such Trust
semiannually unless the amount available for distribution is less than
$0.01 per Unit. After the Reinvestment Period, principal will not be
reinvested and will be distributed monthly (subject to amount limitations)
to Unitholders.
The mortgages underlying a Ginnie Mae may be prepaid at any time without
any significant premium or penalty at the option of the mortgagors. It has
been the experience of the mortgage industry that the average life of
mortgages comparable to those contained in the GNMA Portfolio, owing to
prepayments, refinancings and payments from foreclosures is considerably
less than the stated maturity set forth in "Essential Information." A lower
or higher return on Units may occur depending on (i) whether the price at
which the respective Ginnie Maes were acquired by the Trust is lower or
higher than par (which represents the price at which such Ginnie Maes will
be redeemed upon prepayment), (ii) whether principal is reinvested or
distributed to Unitholders and (iii) if reinvestment occurs, whether the
Ginnie Maes purchased by the Trustee with reinvested principal are
purchased at a premium or discount from par. During periods of declining
interest rates, prepayments of Ginnie Maes may occur with increasing
frequency because, among other reasons, mortgagors may be able to refinance
their outstanding mortgages at lower interest rates. In such a case, (i)
the reinvestment of principal may be at prices which result in a lower
return on Units or (ii) principal will be distributed to Unitholders who
cannot reinvest such principal distributions in other securities at an
attractive yield.
The Ginnie Maes in the GNMA Portfolio are guaranteed as to timely payment
of principal and interest by GNMA. Funds received by the issuers on account
of the mortgages backing the Ginnie Maes in the GNMA Portfolio are intended
to be sufficient to make the required payments of principal of and interest
on such Ginnie Maes but, if such funds are insufficient for that purpose,
the guaranty agreements between the issuers and GNMA require the issuers to
make advances sufficient for such payments. If the issuers fail to make
such payments, GNMA will do so. Any statement in this Prospectus that a
particular Security is backed by the full faith and credit of the United
States is based upon the opinion of an Assistant Attorney General of the
United States and should be so construed.
THE GNMA GUARANTIES REFERRED TO HEREIN RELATE ONLY TO PAYMENT OF PRINCIPAL
OF AND INTEREST ON THE GINNIE MAES IN THE PORTFOLIO AND NOT THE UNITS
OFFERED HEREBY.
A number of factors, including homeowners' mobility, change in family size
and mortgage market interest rates will affect the average life of the
Ginnie Maes in the trust. For example, Ginnie Maes issued during a period
of high interest rates will be backed by a pool of mortgage loans bearing
similarly high rates. In general, during a period of declining interest
rates, new mortgage loans with interest rates lower than those charged
during periods of high rates will become available. To the extent a
homeowner has an outstanding mortgage with a high rate, he may refinance
his mortgage at a lower interest rate or he may rapidly repay his old
mortgage. Should this happen, a Ginnie Mae issued with a high interest rate
may experience a rapid prepayment of principal as the underlying mortgage
loans prepay in whole or in part. Accordingly, there can be no assurance
that the prepayment levels which will be actually realized will conform to
the experience of the FHA, other mortgage lenders or other Ginnie Mae
investors. It is not possible to meaningfully predict prepayment levels
regarding the Ginnie Maes in the Trust. Therefore, the termination of the
Trust might be accelerated as a result of prepayments made as described
herein.
PUBLIC UTILITY ISSUES. Certain of the Bonds in an Insured Utility Portfolio
are obligations of public utility issuers. In general, public utilities are
regulated monopolies engaged in the business of supplying light, water,
power, heat, transportation or means of communication. Historically, the
utilities industry has provided investors with high levels of reliability,
stability and relative total return on their investments. However, an
investment in an Insured Utility Portfolio should be made with an
understanding of the characteristics of such issuers and the risks which
such an investment may entail. General problems of such issuers include the
difficulty in financing large construction programs in an inflationary
period, the limitations on operations and increased costs and delays
attributable to environmental considerations, the difficulty of the capital
markets in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of such
issuers have been experiencing certain of these problems in varying
degrees. In addition, federal, state and municipal governmental authorities
may from time to time review existing, and impose additional, regulations
governing the licensing, construction and operation of nuclear power
plants, which may adversely affect the ability of the issuers of certain of
the Bonds in an Insured Utility Portfolio to make payments of principal
and/or interest on such Bonds.
Utilities are generally subject to extensive regulation by state utility
commissions which, for example, establish the rates which may be charged
and the appropriate rate of return on an approved asset base, which must be
approved by the state commissions. Certain utilities have had difficulty
from time to time in persuading regulators, who are subject to political
pressures, to grant rate increases necessary to maintain an adequate return
on investment and voters in many states have the ability to impose limits
on rate adjustments (for example, by initiative or referendum). Any
unexpected limitations could negatively affect the profitability of
utilities whose budgets are planned far in advance. Also, changes in
certain accounting standards currently under consideration by the Federal
Accounting Standards Board could cause significant write-downs of assets
and reductions in earnings for many investor-owned utilities. In addition,
gas pipeline and distribution companies have had difficulties in adjusting
to short and surplus energy supplies, enforcing or being required to comply
with long-term contracts and avoiding litigation from their customers, on
the one hand, or suppliers, on the other hand.
Certain of the issuers of the Bonds in an Insured Utility Portfolio may own
or operate nuclear generating facilities. Governmental authorities may from
time to time review existing, and impose additional, requirements governing
the licensing, construction and operation of nuclear power plants. Nuclear
generating projects in the electric utility industry have experienced
substantial cost increases, construction delays and licensing difficulties.
These have been caused by various factors, including inflation, high
financing costs, required design changes and rework, allegedly faulty
construction, objections by groups and governmental officials, limits on
the ability to finance, reduced forecasts of energy requirements and
economic conditions. This experience indicates that the risk of significant
cost increases, delays and licensing difficulties remains present through
completion and achievement of commercial operation of any nuclear project.
Also, nuclear generating units in service have experienced unplanned
outages or extensions of scheduled outages due to equipment problems or new
regulatory requirements sometimes followed by a significant delay in
obtaining regulatory approval to return to service. A major accident at a
nuclear plant anywhere could cause the imposition of limits or prohibitions
on the operation, construction or licensing of nuclear units in the United
States.
In view of the uncertainties discussed above, there can be no assurance
that any bond issuer's share of the full cost of nuclear units under
construction ultimately will be recovered in rates or of the extent to
which a bond issuer could earn an adequate return on its investment in such
units. The likelihood of a significantly adverse event occurring in any of
the areas of concern described above varies, as does the potential severity
of any adverse impact. It should be recognized, however, that one or more
of such adverse events could occur and individually or collectively could
have a material adverse impact on the financial condition or the results of
operations or on a bond issuer's ability to make interest and principal
payments on its outstanding debt.
Other general problems of the gas, water, telephone and electric utility
industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement
facilities during an inflationary period, rising costs of rail
transportation to transport fossil fuels, the uncertainty of transmission
service costs for both interstate and intrastate transactions, changes in
tax laws which adversely affect a utility's ability to operate profitably,
increased competition in service costs, reductions in estimates of future
demand for electricity and gas in certain areas of the country,
restrictions on operations and increased cost and delays attributable to
environmental considerations, uncertain availability and increased cost of
capital, unavailability of fuel for electric generation at reasonable
prices, including the steady rise in fuel costs and the costs associated
with conversion to alternate fuel sources such as coal, availability and
cost of natural gas for resale, technical and cost factors and other
problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive
materials and the disposal of radioactive wastes, and the effects of energy
conservation. Each of the problems referred to could adversely affect the
ability of the issuers of any utility Bonds in a Trust to make payments due
on these Bonds.
In addition, the ability of state and local joint action power agencies to
make payments on bonds they have issued is dependent in large part on
payments made to them pursuant to power supply or similar agreements.
Courts in Washington and Idaho have held that certain agreements between
Washington Public Power Supply System ("WPPSS") and the WPPSS participants
are unenforceable because the participants did not have the authority to
enter into the agreements. While these decisions are not specifically
applicable to agreements entered into by public entities in other states,
they may cause a reexamination of the legal structure and economic
viability of certain projects financed by joint action power agencies,
which might exacerbate some of the problems referred to above and possibly
lead to legal proceedings questioning the enforceability of agreements upon
which payment of these bonds may depend.
CORPORATE BONDS. An investment in Units of a Corporate Portfolio or an
Insured Utility Portfolio should be made with an understanding of the risks
that an investment in fixed rate, investment grade corporate debt
obligations may entail, including the risk that the value of the Units will
decline with increases in interest rates. In recent years there have been
wide fluctuations in interest rates and thus in the value of fixed-rate,
debt obligations generally. Generally, bonds with longer maturities will
fluctuate in value more than bonds with shorter maturities. A slowdown in
the economy, or a development adversely affecting an issuer's
creditworthiness, may result in the issuer being unable to maintain
earnings or sell assets at the rate and at the prices, respectively, that
are required to produce sufficient cash flow to meet its interest and
principal requirements. The Sponsor cannot predict future economic policies
or their consequences or, therefore, the course or extent of any similar
market fluctuations in the future.
Should the issuer of any Bond default in the payment of principal or
interest, a Trust may incur additional expenses seeking payment on the
defaulted Bond. Because amounts (if any) recovered by a Trust in payment
under the defaulted Bond may not be reflected in the value of the Units
until actually received by a Trust, and depending upon when a Unitholder
purchases or sells his Units, it is possible that a Unitholder would bear a
portion of the cost of recovery without receiving any portion of the
payment recovered.
GENERAL. Certain of the Securities in certain of the Trusts may have been
acquired at a market discount from par value at maturity. The coupon
interest rates on the discount securities at the time they were purchased
and deposited in the Trusts were lower than the current market interest
rates for newly issued bonds of comparable rating and type. If such
interest rates for newly issued comparable securities increase, the market
discount of previously issued securities will become greater, and if such
interest rates for newly issued comparable securities decline, the market
discount of previously issued securities will be reduced, other things
being equal. Investors should also note that the value of securities
purchased at a market discount will increase in value faster than
securities purchased at a market premium if interest rates decrease.
Conversely, if interest rates increase, the value of securities purchased
at a market discount will decrease faster than securities purchased at a
market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium securities and the prepayment benefit for lower
yielding, discount securities will be reduced. See "Trust Information - Tax
Status." Market discount attributable to interest changes does not indicate
a lack of market confidence in the issue.
Certain of the Securities in the Trusts may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the
premium securities at the time they were purchased and deposited in the
Trusts were higher than the current market interest rates for newly issued
securities of comparable rating and type. If such interest rates for newly
issued and otherwise comparable securities decrease, the market premium of
previously issued securities will be increased, and if such interest rates
for newly issued comparable securities increase, the market premium of
previously issued securities will be reduced, other things being equal. The
current returns of securities trading at a market premium are initially
higher than the current returns of comparable securities of a similar type
issued at currently prevailing interest rates because premium securities
tend to decrease in market value as they approach maturity. Because part of
the purchase price is thus returned not at maturity but through current
income payments, early redemption of a premium bond at par or early
prepayments of principal will result in a reduction in yield. Redemption
pursuant to call provisions generally will, and redemption pursuant to
sinking fund provisions may, occur at times when the redeemed Securities
have an offering side valuation which represents a premium over par or, for
original issue discount Securities, a premium over the accreted value. To
the extent that the Securities were deposited in the Trusts at a price
higher than the price at which they are redeemed, this will represent a
loss of capital when compared to the original Public Offering Price of the
Units. Because premium securities generally pay a higher rate of interest
than securities priced at or below par, the effect of the redemption of
premium securities would be to reduce Estimated Net Annual Unit Income by a
greater percentage than the par amount of such securities bears to the
total par amount of Securities in a Trust. Although the actual impact of
any such redemptions that may occur will depend upon the specific
Securities that are redeemed, it can be anticipated that the Estimated Net
Annual Unit Income will be significantly reduced after the dates on which
such Securities are eligible for redemption. See "Portfolio" for each Trust
for the earliest scheduled call date and the initial redemption price for
each Security.
Certain of the Securities in certain of the Trusts may be "zero coupon"
bonds, i.e., an original issue discount bond that does not provide for the
payment of current interest. Zero coupon bonds are purchased at a deep
discount because the buyer receives only the right to receive a final
payment at the maturity of the bond and does not receive any periodic
interest payments. The effect of owning deep discount bonds which do not
make current interest payments is that a fixed yield is earned not only on
the original investment but also, in effect, on all discount earned during
the life of such obligation. This implicit reinvestment of earnings at the
same rate eliminates the risk of being unable to reinvest the income on
such obligation at a rate as high as the implicit yield on the discount
obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds
are subject to substantially greater price fluctuations during periods of
changing market interest rates than are securities of comparable quality
which pay interest currently. A Trust may be required to sell zero coupon
bonds prior to maturity (at their current market price which is likely to
be less than their par value) in the event that all the Securities in the
portfolio other than the zero coupon bonds are called or redeemed in order
to pay expenses of a Trust or in case a Trust is terminated. For the
Federal tax consequences of original issue discount securities such as the
zero coupon bonds, see "Trust Information - Tax Status."
LITIGATION. To the best of the Sponsor's knowledge, there is no litigation
pending as of the Initial Date of Deposit in respect of any Security which
might reasonably be expected to have a material adverse effect on the
Trusts. At any time after the Initial Date of Deposit, litigation may be
instituted on a variety of grounds with respect to the Securities. The
Sponsor is unable to predict whether any such litigation may be instituted,
or if instituted, whether such litigation might have a material adverse
effect on the Trusts.
RATING OF UNITS
Standard & Poor's has rated the Units of the GNMA Portfolio and the Insured
Utility Portfolio "AAA." This is the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is very strong.
Standard & Poor's has been compensated by the Sponsor for its services in
rating Units of the Trusts.
A Standard & Poor's rating (as described by Standard & Poor's) on the units
of an investment trust (hereinafter referred to collectively as "units" or
"trust") is a current assessment of creditworthiness with respect to the
investments held by such trust. This assessment takes into consideration
the financial capacity of the issuers and of any guarantors, insurers,
lessees, or mortgagors with respect to such investments. The assessment,
however, does not take into account the extent to which trust expenses or
portfolio asset sales for less than the trust's purchase price will reduce
payment to the Unitholder of the interest and principal required to be paid
on the portfolio assets. In addition, the rating is not a recommendation to
purchase, sell, or hold units, inasmuch as the rating does not comment as
to market price of the units or suitability for a particular investor.
Trusts rated "AAA" are composed exclusively of assets that are rated "AAA"
by Standard & Poor's or have, in the opinion of Standard & Poor's, credit
characteristics comparable to assets rated "AAA," or certain short-term
investments. Standard & Poor's defines its "AAA" rating for such assets as
the highest rating assigned by Standard & Poor's to a debt obligation.
Capacity to pay interest and repay principal is very strong.
Securities in an Insured Utility Portfolio for which insurance has been
obtained by the issuer or the Sponsor (all of which were rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's Investors Service, Inc.
("Moody's")) may or may not have a higher yield than uninsured Securities
rated "AAA" by Standard & Poor's or "Aaa" by Moody's. In selecting
Securities for an Insured Utility Portfolio, the Sponsor has applied the
criteria hereinbefore described.
INSURANCE ON THE BONDS
All Bonds in an Insured Utility Portfolio except for any U.S. Treasury
obligations are insured as to the scheduled payment of interest and
principal either by the issuer of the Bonds or by the Sponsor under a
financial guaranty insurance policy obtained from MBIA Insurance
Corporation ("MBIA"). The premium for each such insurance policy has been
paid in advance by such issuer or the Sponsor and each such policy is
non-cancellable and will remain in force so long as the Bonds are
outstanding and MBIA remains in business. No premiums for such insurance
are paid by an Insured Utility Portfolio. If MBIA is unable to meet its
obligations under its policy or if the rating assigned to the claims-paying
ability of MBIA deteriorates, no other insurer has any obligation to insure
any issue adversely affected by either of these events.
The aforementioned insurance guarantees the scheduled payment of principal
and interest on all of the Bonds in an Insured Utility Portfolio except for
any U.S. Treasury obligations. It does not guarantee the market value of
the Bonds or the value of the Units of the Trust. This insurance is
effective so long as the Bond is outstanding, whether or not held by a
Trust. Therefore, any such insurance may be considered to represent an
element of market value in regard to the Bonds, but the exact effect, if
any, of this insurance on such market value cannot be predicted.
MBIA, formerly known as Municipal Bond Investors Insurance Corporation, is
the principal operating subsidiary of MBIA, Inc., a New York Stock Exchange
listed company. MBIA, Inc. is not obligated to pay the debts of or claims
against MBIA. MBIA is domiciled in the State of New York and licensed to do
business in all 50 states, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin
Islands of the United States and the Territory of Guam. MBIA has one
European branch in the Republic of France.
As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital
and surplus of $1.3 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of March 31, 1996, MBIA had admitted assets of
$4.0 billion (unaudited), total liabilities of $2.7 billion (unaudited),
and total capital and surplus of $1.3 billion (unaudited) determined in
accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities. Copies of MBIA Corporation's financial
statements prepared in accordance with statutory accounting practices are
available from MBIA Corporation. The address of MBIA Corporation is 113
King Street, Armonk, New York 10504.
Moody's rates all bond issues insured by MBIA "Aaa" and short term loans
"MIG l," both designated to be of the highest quality. Standard & Poor's
rates all new issues by MBIA "AAA".
Because the Bonds in an Insured Utility Portfolio (other than U.S. Treasury
Obligations) are insured as to the scheduled payment of principal and
interest and on the basis of the financial condition and the method of
operation of MBIA, Standard & Poor's has assigned to Units in an Insured
Utility Portfolio its "AAA" investment rating. This is the highest rating
assigned to securities by such rating agency. These ratings should not be
construed as an approval of the offering of the Units by Standard & Poor's
or as a guarantee of the market value of a Trust or the Units thereof.
Bonds in a Trust for which insurance has been obtained by the issuer
thereof or by the Sponsor from MBIA (all of which were rated "Aaa" by
Moody's) may or may not have a higher yield than uninsured bonds rated
"Aaa" by Moody's. In selecting Bonds for the portfolio of a Trust, the
Sponsor has applied the criteria hereinbefore described.
RETIREMENT PLANS
Units of the Trusts may be suitable for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other qualified retirement plans.
Generally, capital gains and income received under each of the foregoing
plans are deferred from federal taxation. All distributions from such plans
are generally treated as ordinary income but may, in some cases, be
eligible for special income averaging or tax-deferred rollover treatment.
Investors considering placing an investment in a Trust on account of any
such plan should review specific tax laws related thereto and should
consult their attorneys or tax advisor. The Trusts will waive the $5,000
minimum investment requirement for qualified retirement plans. The minimum
investment is $250 for tax-deferred plans such as IRA accounts. Fees and
charges with respect to such plans may vary. Consult your financial Adviser
regarding eligibility requirements.
TAX STATUS
GRANTOR TRUST
The following discussion applies only to Investment Grade Series 1,
Intermediate Insured Utility Portfolio and Investment Grade Series 2,
Corporate Portfolio, each of which are organized as grantor trusts for
federal tax purposes. In the opinion of Chapman and Cutler, special counsel
for the Sponsor, under existing law:
1. Each Trust is not an association taxable as a corporation for federal
income tax purposes.
2. Each Unitholder will be considered the owner of a pro rata portion of
each of the Trust assets for federal income tax purposes under Subpart E,
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the
"Code"); and the income of the Trust will be treated as income of the
Unitholders. Each Unitholder will be considered to have received his pro
rata share of income derived from each Trust asset when such income is
considered to be received by a Trust. Each Unitholder will also be required
to include in taxable income for federal income tax purposes, original
issue discount with respect to his interest in any Securities held by a
Trust at the same time and in the same manner as though the Unitholder were
the direct owner of such interest.
3. Each Unitholder will have a taxable event when a Security is disposed of
(whether by sale, exchange, liquidation, redemption, or payment at
maturity) or when the Unitholder redeems or sells his Units. A Unitholder's
tax basis in his or her Units will equal his tax basis in his or her pro
rata portion of all the assets of the Trust. Such basis is determined
(before the adjustments described below) by apportioning the tax basis for
the Units among each of the Trust assets according to value as of the
valuation date nearest the date of acquisition of the Units. Unitholders
must reduce the tax basis of their Units for their share of accrued
interest received, if any, on Securities delivered after the date on which
the Unitholders pay for their Units to the extent that such interest
accrued on such Securities during the period from the Unitholder's
settlement date to the date such Securities are delivered to the Trust,
and, consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or loss
upon the sale or redemption of Units is measured by comparing the proceeds
of such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Securities, gain or loss is recognized to the
Unitholder (subject to various non-recognition provisions of the Code). The
amount of any such gain or loss is measured by comparing the Unitholder's
pro rata share of the total proceeds from such disposition with his basis
for his fractional interest in the asset disposed of. The basis of each
Unit and of each Security which was issued with original issue discount (or
which has market discount) must be increased by the amount of accrued
original issue discount (and market discount, if the Unitholder elects to
include market discount in income as it accrues) and the basis of each Unit
and of each Security which was purchased by a Trust at a premium must be
reduced by the annual amortization of bond premium which the Unitholder has
properly elected to amortize under Section 171 of the Code. The tax basis
reduction requirements of the Code relating to amortization of bond premium
may, under some circumstances, result in the Unitholder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to or less
than his original cost. Original issue discount is effectively treated as
interest for federal income tax purposes, and the amount of original issue
discount in this case is generally the difference between the bond's
purchase price and its stated redemption price at maturity. A Unitholder
will be required to include in gross income for each taxable year the sum
of his daily portions of original issue discount attributable to the
Securities held by a Trust as such original issue discount accrues for such
year even though the income is not distributed to the Unitholders during
such year unless a Securities original issue discount is less than a DE
MINIMIS amount as determined under the Code. To the extent that the amount
of such discount is less than the respective DE MINIMIS amount, such
discount shall be treated as zero. In general, original issue discount
accrues daily under a constant interest rate method which takes into
account the semi-annual compounding of accrued interest. Unitholders should
consult their advisors regarding the federal income tax consequences and
accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders - Each
Unitholder's pro rata share of each expense paid by a Trust is deductible
by the Unitholder to the same extent as though the expense had been paid
directly by him. It should be noted as a result of the Tax Reform Act of
1986 certain miscellaneous itemized deductions, such as investment
expenses, tax return preparation fees and employee business expenses may be
deductible by an individual only to the extent they exceed 2% of such
individual's adjusted gross income. Unitholders may be required to treat
some or all of the expenses paid by a Trust as miscellaneous itemized
deductions subject to this limitation.
Premium - If a Unitholder's tax basis of his pro rata portion in any
Securities held by a Trust exceeds the amount payable by the issuer of the
Security with respect to such pro rata interest upon the maturity of the
Security, such excess would be considered "premium" which may be amortized
by the Unitholder at the Unitholder's election as provided in Section 171
of the Code. Unitholders should consult with their tax advisors regarding
whether such election should be made and the manner of amortizing premium.
Original Issue Discount - Certain of the Securities in a Trust may have
been acquired with "original issue discount." In the case of any Securities
in a Trust acquired with "original issue discount" that exceeds a "de
minimis" amount as specified in the Code, such discount is includable in
taxable income of the Unitholders on an accrual basis computed daily,
without regard to when payments of interest on such Securities are
received. The Code provides a complex set of rules regarding the accrual of
original issue discount. These rules provide that original issue discount
generally accrues on the basis of a constant compound interest rate over
the term of the Securities. Unitholders should consult their tax advisers
as to the amount of original issue discount which accrues.
Special original issue discount rules apply if the purchase price of the
Security by a Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). Similarly, these special rules
would apply to a Unitholder if the tax basis of his pro rata portion of a
Security issued with original issue discount exceeds his pro rata portion
of its adjusted issue price. Unitholders should also consult their tax
advisers regarding these special rules.
Market Discount - If a Unitholder's tax basis in his pro rata portion of
Securities is less than the allocable portion of such Security's stated
redemption price at maturity (or, if issued with original issue discount,
the allocable portion of its "revised issue price"), such difference will
constitute market discount unless the amount of market discount is "de
minimis" as specified in the Code. Market discount accrues daily computed
on a straight line basis, unless the Unitholder elects to calculate accrued
market discount under a constant yield method. Unitholders should consult
their own tax advisers regarding whether an election should be made and as
to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Securities, on the sale, maturity or
disposition of such Securities by a Trust, and on the sale by a Unitholder
of Units, unless a Unitholder elects to include the accrued market discount
in taxable income as such discount accrues. If a Unitholder does not elect
to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by the Unitholder
which is incurred to purchase or carry his Units will be reduced by such
accrued market discount. In general, the portion of any interest expense
which would ultimately be deductible when the accrued market discount is
included in income. Unitholders should consult their tax advisors regarding
whether an election should be made to include market discount in income as
it accrues and as to the amount of interest expense which may not be
currently deductible.
Computation of the Unitholder's Tax Basis - The tax basis of a Unitholder
with respect to his interest in a Security is increased by the amount of
original issue discount (and market discount, if the Unitholder elects to
include market discount, if any, on the Securities held by a Trust in
income as it accrues) thereon properly included in the Unitholder's gross
income as determined for Federal income tax purposes and reduced by the
amount of any amortized premium which the Unitholder has properly elected
to amortize under Section 171 of the Code. A Unitholder's tax basis in his
Units will equal his tax basis in his pro rata portion of all of the assets
of a Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by a
Trust or Disposition of Unit - A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in a Security is
disposed of in a taxable transaction for an amount greater (or less) than
his tax basis therefor. As previously discussed, gain realized on the
disposition of the interest of a Unitholder in any Security deemed to have
been acquired with market discount will be treated as ordinary income to
the extent the gain does not exceed the amount of accrued market discount
not previously taken into income. Any capital gain or loss arising from the
disposition of a Security by a Trust or the disposition of Units by a
Unitholder will be short-term capital gain (or loss) unless the Unitholder
has held his Units for more than one year in which case such capital gain
or loss will generally be long-term. For taxpayers other than corporations,
net capital gains are subject to a maximum marginal stated tax rate of 28
percent. However, it should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect
relative differences at which ordinary income and capital gains are taxed.
The tax basis reduction requirements of the Code relating to amortization
of bond premium may under some circumstances, result in the Unitholder's
realizing taxable gain when his Units are sold or redeemed for an amount
equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed
of his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Securities represented by the Unit. This may result
in a portion of the gain, if any, on such sale being taxable as ordinary
income under the market discount rules (assuming no election was made by
the Unitholder to include market discount in income as it accrues) as
previously discussed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates
on ordinary income while capital gains remain subject to a 28 percent
maximum stated rate for taxpayers other than corporations. Because some or
all capital gains are taxed at a comparatively lower rate under the Tax
Act, the Tax Act includes a provision that recharacterizes capital gains as
ordinary income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after
April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on
their investment in Units.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident of a U.S. corporation,
partnership, estate or trust) will not be subject to United States federal
income taxes, including withholding taxes, on interest income (including
any original issue discount) on, or any gain from the sale or other
disposition of, his pro rata interest in any Security or the sale of his
Units provided that all of the following conditions are met: (i) the
interest income or gain is not effectively connected with the conduct by
the foreign investor of a trade or business within the United States, (ii)
with respect to any gain, the foreign investor (if an individual) is not
present in the United States for 183 days or more during his taxable year,
(iii) the foreign investor provides all certification which may be required
of his or her status (foreign investors may contact the Sponsor to obtain a
Form W-8 which must be filed with the Trustee and refiled every three
calendar years thereafter) and (iv) if the interest is United States source
income (which is the case for most securities issued by United States
issuers), the Security is issued after July 18, 1984, the foreign investor
does not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of voting stock of the issuer of the Security
and the foreign investor is not a controlled foreign corporation related
(within the meaning of Section 864(d)(4) of the Code) to the issuer of the
Security. Foreign investors should consult their tax advisers with respect
to United States tax consequences of ownership of Units. On December 7,
1995 the U.S. Treasury Department released proposed legislation that, if
adopted, could affect the United States federal income taxation of such
non-United States Unitholders and the portion of the Trust's income
allocable to non-United States Unitholders. Similar language, which would
be effective on the date of enactment, was included in the Health Insurance
Reform Bill proposed by the U.S. Senate on April 23, 1996.
In the opinion of Carter, Ledyard & Milburn, special counsel to the Trusts
for New York tax matters 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 under the existing income tax laws of the State and City of
New York.
General - Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide
the Unitholder's taxpayer identification number to the Trustee and to
certify that the Unitholder has not been notified that payments to the
Unitholder are subject to back-up withholding. If the proper taxpayer
identification number and appropriate certification are not provided when
requested, distributions by a Trust to such Unitholder (including amounts
received upon the redemption of the Units) will be subject to back-up
withholding.
The foregoing discussion relates only to United States federal income taxes
and applies only to the Investment Grade Series which are described in this
Prospectus; Unitholders may be subject to state and local taxation in other
jurisdictions (including a foreign investor's country of residence).
Unitholders should consult their tax advisers regarding potential state,
local, or foreign taxation with respect to the Units. Because each Trust
receives interest and makes monthly distributions based upon each
respective Trust's expected total collections of interest and anticipated
expenses, certain tax reporting consequences may arise. Each Trust is
required to report Unitholder information to the Internal Revenue Service
("IRS"), based upon the actual collection of interest by such Trust on the
Securities in such Trust, without regard to such Trust's expenses or to
such Trust's payments to Unitholders during the year. If distributions to
Unitholders exceed interest collected, the difference will be reported as a
return of principal which will reduce a Unitholder's cost basis in his or
her Units (and his or her pro rata interest in the Securities in the
Trust). A Unitholder must include in taxable income the amount of income
reported by such Trust to the IRS regardless of the amount distributed to
such Unitholder. If a Unitholder's share of taxable income exceeds income
distributions made by a Trust to such Unitholder, such excess is in all
likelihood attributable to the payment of miscellaneous expenses of such
Trust which will not be deductible by an individual Unitholder as an
itemized deduction except to the extent that the total amount of certain
itemized deductions such as investment expenses (which would include the
Unitholder's share of Trust expenses), tax return preparation fees and
employee business expenses, exceeds 2% of such Unitholder's adjusted gross
income. Alternatively, in certain cases, such excess may represent an
increase in the Unitholder's tax basis in the Units owned. Investors with
questions regarding these issues should consult with their tax advisors.
REGULATED INVESTMENT COMPANY
The following discussion applies only to the Rolling Government Series,
which is structured to qualify as a regulated investment company for
federal tax purposes. In the opinion of Chapman and Cutler, counsel or the
Sponsor, under existing law:
The Rolling Government Series Trust is an association taxable as a
corporation under the Code and intends to qualify on a continuing basis for
and elect tax treatment as a "regulated investment company" under the Code.
If the Trust so qualifies and timely distributes to Unitholders 90% or more
of its taxable income (without regard to its net capital gain, i.e., the
excess of its net long-term capital gain over its net short-term capital
loss), it will not be subject to federal income tax on the portion of its
taxable income (including any net capital gain) that it distributes to
Unitholders. In addition, to the extent the Trust timely distributes to
Unitholders at least 98% of its taxable income (including any net capital
gain), it will not be subject to the 4% excise tax on certain undistributed
income of "regulated investment companies." The Trust intends to timely
distribute its taxable income (including any net capital gain) to avoid the
imposition of federal income tax or the excise tax. Distributions of the
entire net investment income of the Trust is required by the Indenture.
Distributions from the Trust (other than its net capital gain), to the
extent of the earnings and profits of such Trust, will be taxable as
ordinary income to Unitholders. To the extent that distributions to a
Unitholder in any year exceed the Trust's current and accumulated earnings
and profits, they will be treated as a return of capital and will reduce
the Unitholder's basis in his or her Units and, to the extent that they
exceed his or her basis, will be treated as a gain from the sale of his or
her Units as discussed below. Distributions from the Trust will not be
eligible for the 70% dividends received deduction for corporations.
Although distributions generally will be treated as distributed when paid,
distributions declared in October, November or December, payable to
Unitholders of record on a specified date in one of those months and paid
during January of the following year will be treated as having been
distributed by the Trust (and received by the Unitholders) on December 31
of the year such distributions are declared. Under the Code, certain
miscellaneous itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses, will be deductible by
individuals only to the extent they exceed 2% of adjusted gross income.
Miscellaneous itemized deductions subject to this limitation under present
law do not include expenses incurred by the Trust as long as the Units of
such Trust are held by or for 500 or more persons at all times during the
taxable year or another exception is met. In the event the Units of the
Trust are held by fewer than 500 persons, additional taxable income may be
realized by the individual (and other noncorporate) Unitholders in excess
of the distributions received from the Trust.
Distributions of the Trust's net capital gain which the Trust properly
designates as capital gain dividends will be taxable to Unitholders thereof
as long-term capital gains, regardless of the length of time the Units have
been held by a Unitholder. However, if a Unitholder receives a long-term
capital gain dividend (or is allocated a portion of a Trust's undistributed
long-term capital gain) and sells his or her Units at a loss prior to
holding them for 6 months, such loss will be recharacterized as long-term
capital loss to the extent of such long-term capital gain received as a
dividend or allocated to a Unitholder. Distributions in partial
liquidation, reflecting the proceeds of prepayments, redemptions,
maturities or sales of Securities from the Trust (exclusive of net capital
gain) will not be taxable to Unitholders of such Trust to the extent that
they represent a return of capital for tax purposes. The portion of
distributions which represents a return of capital will, however, reduce a
Unitholder's basis in his Units, and to the extent they exceed the basis of
his Units will be taxable as a capital gain. A Unitholder may recognize a
taxable gain (or loss) when his or her Units are sold or redeemed. Such
gain or loss generally will constitute either a long-term or short-term
capital gain or loss depending upon the length of time the Unitholder has
held his Units. Any loss of Units held six months or less will be treated
as long-term capital loss to the extent of any long-term capital gains
dividends received (or deemed to have been received) by the Unitholder with
respect to such Units during the six month period or less that the
Unitholder owns the Units. For taxpayers other than corporations, net
capital gains are presently subject to a maximum stated marginal rate of
28%. However, it should be noted that legislative proposals are introduced
from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed. A capital
loss is long-term if the asset is held for more than one year and
short-term if held for one year or less.
The Tax Act raised tax rates on ordinary income while capital gains remain
subject to a 28% maximum stated rate for taxpayers other than corporations.
Because some or all capital gains are taxed at a comparatively lower rate
under the Act, the Act includes a provision that recharacterizes capital
gains as ordinary income in the case of certain financial transactions that
are "conversion transactions" effective for transactions entered into after
April 30, 1993. Unitholders and prospective investors should consult with
their tax advisors regarding the potential effect of this provision on
their investment in Units.
If a Security has been purchased by the Trust at a market discount (i.e.,
for a purchase price less than its stated redemption price at maturity (or
if issued with original issue discount, its "revised issue price")) unless
the amount of market discount is "de minimis" as specified in the Code,
each payment of principal on the Security will generally constitute
ordinary income to the Trust to the extent of any accrued market discount
unless the Trust elects to include the accrued market discount in taxable
income as it accrues. The amount of market discount that is deemed to
accrue each month shall generally be the amount of discount that bears the
same ratio to the total amount of remaining market discount that the amount
of interest paid during the accrual period bears to the total amount of
interest remaining in the Ginnie Mae as of the beginning of the accrual
period.
Additional Units of the Trust may be issued after the Initial Date of
Deposit in respect of additional Securities deposited in the Trust by the
Sponsor. Because of possible market interest rate fluctuations, the
purchase price to the Trust of the additional Securities may differ from
the purchase price of the Securities in the Trust on the Initial Date of
Deposit. If interest rates decline and such additional Securities are
purchased at a higher price than the Securities originally deposited, then
the amounts includable in the taxable income of the Trust in proportion to
the asset value of the Trust will be reduced for all Unitholders thereof,
not just the Unitholders of such additional Units. Conversely, if interest
rates rise and such additional Securities are purchased at a lower price
than the Securities originally deposited, then the amounts includable in
the taxable income of the Trust in proportion to the asset value of the
Trust will be increased for all Unitholders thereof, not just the
Unitholders of such additional Units.
Each Unitholder will be requested to provide the Unitholder's taxpayer
identification number to the Trustee and to certify that the Unitholder has
not been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by the Trust
to such Unitholder (including amounts received upon the redemption of
Units) will be subject to back-up withholding.
Each Unitholder of the Trust shall receive an annual statement describing
the tax status of the distributions paid by the Trust. The forgoing
discussion relates only to the federal income tax status of the Trust and
to the tax treatment of distributions by the Trust to United States
Unitholders.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a United States citizen or resident or a United States
corporation, partnership, estate or trust) should be aware that, generally,
subject to applicable tax treaties, distributions from the Trust, which
constitute dividends for Federal income tax purposes (other than dividends
which the Trust designates as capital gain dividends) will be subject to
United States income taxes, including withholding taxes. However,
distributions received by a foreign investor from the Trust that are
designated by the Trust as capital gain dividends should not be subject to
United States Federal income taxes, including withholding taxes, if all of
the following conditions are met (i) the capital gain dividend is not
effectively connected with the conduct by the foreign investor in a trade
or business within the United States, (ii) the foreign investor (if an
individual) is not present in the United States for 183 days or more during
his or her taxable year, and (iii) the foreign investor provides all
certification which may be required of his status (foreign investors may
contact the Sponsor to obtain a Form W-8 which must be filed with the
Trustee and refiled every three calendar years thereafter). Foreign
investors should consult their tax advisors with respect to United States
tax consequences of ownership of Units. Units in the Trust and Trust
distributions may also be subject to state and local taxation and
Unitholders should consult their tax advisors in this regard.
Distributions reinvested into additional Units of the Trust will be taxed
to a Unitholder in the manner described above (i.e., as ordinary income,
long-term capital gain or as a return of capital).
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 "Trust
Information - Unitholders - Distributions to Unitholders."
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the opening of business on the Initial Date of Deposit, the Estimated
Long-Term Return and the Estimated Current Return, if applicable, for each
Trust were as set forth in the "Essential Information." Estimated Current
Return is calculated by dividing the estimated net annual interest income
per Unit by the Public Offering Price. The estimated net annual interest
income per Unit will vary with changes in fees and expenses of the Trustee,
the Sponsor and the Evaluator and with principal/prepayment and
reinvestment (in the case of the Rolling Government Series), redemption (in
the case of an Investment Grade Series), maturity, exchange or sale of the
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities and accrued interest;
therefore, there is no assurance that the present Estimated Current Return
will be realized in the future. Estimated Long-Term Return is calculated
using a formula which (i) considers the relative weighting, the market
values, yields (which take into account the amortization of premiums and
the accretion of discounts) and estimated retirements or average life of
all of the Securities in a Trust, and (ii) takes into account a compounding
factor and the expenses and sales charge associated with each Trust Unit.
Since the market values and estimated retirements of the Securities and the
expenses of a Trust will change, there is no assurance that the present
Estimated Long-Term Return will be realized in the future. Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of Estimated Long-Term Return reflects the
estimated date and amount of principal returned while Estimated Current
Return calculations include only net annual interest income and Public
Offering Price.
In order to acquire certain of the Securities contracted for by a Trust, it
may be necessary for the Sponsor or Trustee to pay on the dates for
delivery of such Securities amounts covering accrued interest on such
Securities which exceed the amount which will be made available in the
letter of credit furnished by the Sponsor on the Initial Date of Deposit.
The Trustee has agreed to pay any amounts necessary to cover any such
excess and will be reimbursed therefor, without interest, when funds become
available from interest payments on the Securities deposited in that Trust.
Payments received in respect of mortgages underlying Ginnie Maes in the
GNMA Portfolio will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made
by the obligor on each mortgage remains constant (aside from optional
prepayments of principal), in the early years most of each such payment
will represent interest, while in later years, the proportion representing
interest will decline and the proportion representing principal will
increase. However, by reason of optional prepayments, principal payments in
the earlier years on mortgages underlying Ginnie Maes may be substantially
in excess of those required by the amortization schedules of such
mortgages. Therefore, principal payments in later years may be
substantially less since the aggregate unpaid principal balances of such
underlying mortgages may have been greatly reduced. To the extent that the
underlying mortgages bearing higher interest rates in the GNMA Portfolio
are prepaid faster than the other underlying mortgages, the net annual
interest rate per Unit and the Estimated Current Return on the Units of the
GNMA Portfolio can be expected to decline. Monthly payments to the
Unitholders of the GNMA Portfolio will reflect all of these factors.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of a Trust are offered at the Public Offering
Price thereof. During the initial offering period, the Public Offering
Price per Unit is equal to the aggregate of the offering side evaluations
of the Securities in a Trust, plus or minus a pro rata share of cash, if
any, in the Principal Account held or owned by such Trust plus accrued
interest and an initial sales charge with respect to each Trust equal to
the difference between the maximum sales charge for each Trust (as set
forth in the table below) and the maximum remaining deferred sales charge
(initially $6.01 per 100 Units for each Trust) and a deferred sales charge
as hereinafter set forth divided by the number of outstanding Units of such
Trust. In addition, commencing in January of 1997 and monthly on each
Trust's respective Record Date, through December of 1999, a deferred sales
charge of $.167 will be assessed per 100 Units per month. Units purchased
subsequent to the initial deferred sales charge payment will also be
subject to the initial sales charge and the remaining deferred sales charge
payments. For each Trust, the deferred sales charge will be paid from funds
in the Principal Account, if sufficient, or from the periodic sale of
Securities. The total maximum sales charge assessed to Unitholders on a per
Unit basis is set forth in the table below. The Public Offering Price for
secondary market transactions, on the other hand, is based on the aggregate
bid side evaluations of the Securities in a Trust, plus or minus cash, if
any, in the Principal Account held or owned by such Trust, plus accrued
interest and only an initial sales charge based upon the dollar weighted
average maturity of such Trust.
The applicable sales charge per Unit for each Trust will be as set forth in
the following table:
Amount Invested PERCENT OF PERCENT OF
OFFERING NET
PRICE AMOUNT
INVESTED
Less than $100,000 4.101% 4.276%
$100,000 to $249,999 3.851% 4.005%
$250,000 to $499,999 3.601% 3.736%
$500,000 to $999,999 3.351% 3.467%
$1,000,000 and up 3.101% 3.200%
As indicated above, in connection with secondary market transactions the
sales charge is based upon the dollar weighted average maturity of a Trust
and is determined in accordance with the tables set forth below. For
purposes of this computation, Securities will be deemed to mature on their
expressed maturity dates unless: (a) the Securities have been called for
redemption or funds or securities have been placed in escrow to redeem them
on an earlier call date, in which case such call date will be deemed to be
the date upon which they mature; or (b) such Securities are subject to a
"mandatory tender," in which case such mandatory tender will be deemed to
be the date upon which they mature. The effect of this method of sales
charge computation will be that different sales charge rates will be
applied to a Trust based upon the dollar weighted average maturity of such
Trust's portfolio, in accordance with the following schedules.
In connection with secondary market transactions, the sales charge per Unit
for each Trust will be set forth in the following table:
DOLLAR WEIGHTED AVERAGE DOLLAR WEIGHTED AVERAGE
MATURITY LESS THAN 5 YEARS MATURITY GREATER THAN 5
YEARS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Invested PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET OFFERING NET
PRICE* AMOUNT PRICE* AMOUNT
INVESTED* INVESTED*
Less than $100,000 2.500% 2.564% 3.500% 4.276%
$100,000 to $249,999 2.250% 2.302% 3.250% 4.005%
$250,000 to $499,999 2.000% 2.041% 3.000% 3.736%
$500,000 to $999,999 1.750% 1.781% 2.750% 3.467%
$1,000,000 and up 1.500% 1.523% 2.500% 3.200%
</TABLE>
* In addition, a deferred sales load of approximately .601% may be
applicable.
The reduced sales charges resulting from quantity discounts as shown on the
tables above will apply to all purchases of Units on any one day by the
same purchaser from the same broker or dealer and for this purpose
purchases of Units of a Trust will be aggregated with concurrent purchases
of Units of any other unit investment trust that may be offered by the
Sponsor. Additionally, Units purchased in the name of a spouse or child
(under 21) of such purchaser will be deemed to be additional purchases by
such purchaser. The reduced sales charges will also be applicable to a
trust or other fiduciary purchasing for a single trust estate or single
fiduciary account. The Sponsor intends to permit officers, directors and
employees of the Sponsor and at the discretion of the Sponsor registered
representatives of selling firms to purchase Units of a Trust without a
sales charge, although a transaction processing fee may be imposed on such
trades. In addition, investors who purchase Units through registered
brokers or dealers who charge periodic fees for financial planning,
investment advisory or asset management services, or provide such services
in connection with the establishment of an investment account for which a
comprehensive "wrap fee" charge is imposed may purchase Units in the
primary market, subject only to the deferred portion of the sales charge,
or during the secondary market at the Public Offering Price less the
concession the Sponsor typically would allow such broker-dealer. See "Trust
Information - Public Offering of Units - Public Distribution of Units"
below. In addition, investors who purchase Units of a Trust for deposit in
a Fidelity sponsored 401k or other retirement plan may purchase such Units
subject only to the deferred portion of the sales charge.
Had Units of a Trust been available for sale at the opening of business on
the Initial Date of Deposit, the Public Offering Price would have been as
shown under "Essential Information." The Public Offering Price per Unit of
a Trust on the date of this Prospectus or on any subsequent date will vary
from the amount stated under "Essential Information" in accordance with
fluctuations in the prices of the underlying Securities and the amount of
accrued interest on the Units. The aggregate bid and offering side
evaluations of the Securities shall be determined (i) on the basis of
current bid or offering prices of the Securities, (ii) if bid or offering
prices are not available for any particular Security, on the basis of
current bid or offering prices for comparable bonds, (iii) by determining
the value of Securities on the bid or offer side of the market by
appraisal, or (iv) by any combination of the above.
The foregoing evaluations and computations shall be made as of the
evaluation time stated under "Essential Information," on each business day
commencing with the Initial Date of Deposit of the Securities, effective
for all sales made during the preceding 24-hour period.
The interest on the Securities deposited in a Trust, less the related
estimated fees and expenses, is estimated to accrue in the annual amounts
per Unit set forth under "Essential Information." The amount of net
interest income which accrues per Unit may change as Securities mature or
are redeemed, exchanged or sold, or as the expenses of a Trust change or
the number of outstanding Units of a Trust changes.
Although payment is normally made three business days following the order
for purchase (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 on
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.
ACCRUED INTEREST. Accrued interest is the accumulation of unpaid interest
on a security from the last day on which interest thereon was paid.
Interest on Securities generally is paid semi-annually (monthly in the case
of Ginnie Maes), although a Trust accrues such interest daily. Because of
this, a Trust always has an amount of interest earned but not yet collected
by the Trustee. For this reason, with respect to sales settling subsequent
to the First Settlement Date, the Public Offering Price of Units will have
added to it the proportionate share of accrued interest to the date of
settlement. Unitholders will receive on the next distribution date of a
Trust the amount, if any, of accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid in addition to the Public Offering Price in the sale of
Units to the public, the Trustee will advance the amount of accrued
interest as of the First Settlement Date and the same will be distributed
to the Sponsor as the Unitholder of record as of the First Settlement Date.
Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only accrued interest from the First
Settlement Date to the date of settlement, less any distributions from the
Interest Account subsequent to the First Settlement Date.
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trusts and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the
value of the Units. If a Unitholder sells or redeems all or a portion of
his 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 non-interest-bearing to Unitholders,
the Trustee benefits thereby.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the Initial
Public Offering Price of Units will be determined on the basis of the
current offering prices of the Securities in a Trust, the redemption price
per Unit (see "Trust Information - Redemption") will be determined on the
basis of the current bid prices of the Securities. As of the opening of
business on the Initial Date of Deposit, the Public Offering Price per Unit
(based on the offering prices of the Securities in a Trust and including
the sales charge) exceeded the redemption price at which Units could have
been redeemed (based upon the current bid prices of the Securities in a
Trust) by the amount shown under "Essential Information." In the past, bid
prices on securities similar to those in the Trusts have been lower than
the offering prices thereof by as much as 1% or more of principal amount in
the case of inactively traded bonds or as little as 1/8 to 1/4 of 1% in the
case of actively traded bonds, but the difference between such offering and
bid prices may be expected to average approximately 1/2 of 1% of principal
amount. For this reason, among others (including fluctuations in the market
prices of the Securities and the fact that the Public Offering Price
includes a sales charge), the amount realized by a Unitholder upon any
redemption of Units may be less than the price paid for such Units.
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units for
sale in a number of states. Units will be sold through dealers who are
members of the National Association of Securities Dealers, Inc. and through
others. Sales may be made to or through dealers and others at prices which
represent discounts or agency commissions from the Public Offering Price as
set forth below. Certain commercial banks are making Units of the Trusts
available to their customers on an agency basis. A portion of the sales
charge paid by their customers is retained by or remitted to the banks in
the amount shown in the tables below. Under the Glass-Steagall Act, banks
are prohibited from underwriting Trust Units; however, the Glass-Steagall
Act does permit certain agency transactions and the banking regulators have
indicated that these particular agency transactions are permitted under
such Act. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Sponsor reserves the right to change the discounts and agency
commissions set forth below from time to time. In addition to such
discounts and agency commissions, the Sponsor may, from time to time, pay
or allow an additional discount or agency commission, in the form of cash
or other compensation, to dealers and others employing registered
representatives who sell, during a specified time period, a minimum dollar
amount of Units of a Trust and other unit investment trusts created by the
Sponsor. From time to time the Sponsor, pursuant to objective criteria
which it has established, may pay fees to qualifying dealers, banks or
others for certain services or activities which are primarily intended to
result in sales of Units of a Trust. The difference between the discount or
agency commission and the sales charge will be retained by the Sponsor.
The primary and secondary market concessions and agency commissions for
each Trust are as follows:
PRIMARY SECONDARY MARKET
MARKET
DOLLAR WEIGHTED AVERAGE DOLLAR WEIGHTED AVERAGE
MATURITY LESS THAN 5 YEARS MATURITY GREATER THAN 5
YEARS
Less than $100,000 3.000% 1.750% 3.000%
$100,000 to 2.750% 1.500% 2.750%
$249,999
$250,000 to 2.600% 1.350% 2.600%
$499,999
$500,000 to 2.400% 1.150% 2.400%
$999,999
$1,000,000 and up 2.200% 0.950% 2.200%
* In addition, a deferred sales load of approximately .601% may be
applicable.
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units.
From time to time the Sponsor may implement programs under which dealers of
a Trust may receive nominal awards from the Sponsor for each of their
registered representatives who have sold a minimum number of unit
investment trust units during a specified time period. In addition, at
various times the Sponsor may implement other programs under which the
sales force of a dealer may be eligible to win other nominal awards for
certain sales efforts, or under which the Sponsor will reallow to any such
dealer that sponsors sales contests or recognition programs conforming to
the criteria established by the Sponsor, or participates in sales programs
sponsored by the Sponsor, an amount not exceeding the total applicable
sales charges on the sales generated by such person at the public offering
price during such programs. Also, the Sponsor in its discretion may from
time to time pursuant to objective criteria established by the Sponsor pay
fees to qualifying dealers or others for certain services or activities
which are primarily intended to result in sales of Units of the Trusts.
Such payments are made by the Sponsor out of its own assets, and not out of
the assets of a Trust. These programs will not change the price Unitholders
pay for their Units or the amount that a Trust will receive from the Units
sold.
PROFITS OF SPONSOR. In addition to receiving the difference between the
gross sales charge on Units of a Trust and the applicable dealer
concessions, the Sponsor may also realize a profit or a loss resulting from
the difference between the purchase prices of the Securities to the Sponsor
and the cost of such Securities to a Trust, which is based on the offering
side evaluation of the Securities. See "Portfolio" for each Trust. The
Sponsor may also realize profits or losses with respect to Securities
deposited in a Trust which were acquired from underwriting syndicates of
which the Sponsor was a member. An underwriter or underwriting syndicate
purchases securities from the issuer on a negotiated or competitive bid
basis, as principal, with the motive of marketing such securities to
investors at a profit. The Sponsor may realize additional profits or losses
during the initial offering period on unsold Units as a result of changes
in the daily evaluation of the Securities in a Trust.
MARKET FOR UNITS
You can sell your Units at any time without a fee. While not obligated to
do so, the Sponsor intends to, and certain of the dealers may, maintain a
market for Units of the Trusts offered hereby and buy any Units offered for
sale at prices, based on the aggregate bid prices of the underlying
Securities in such Trusts, together with accrued interest to the expected
dates of settlement. To the extent that a market is maintained during the
initial offering period, the prices at which Units will be repurchased will
be based upon the aggregate offering side evaluation of the Securities in
the Trusts. ACCORDINGLY, UNITHOLDERS WHO WISH TO DISPOSE OF THEIR UNITS
SHOULD INQUIRE OF THEIR BANK OR BROKER AS TO CURRENT MARKET PRICES IN ORDER
TO DETERMINE WHETHER THERE IS IN EXISTENCE ANY PRICE IN EXCESS OF THE
REDEMPTION PRICE AND, IF SO, THE AMOUNT THEREOF. The Sponsor may suspend or
discontinue purchases of Units of any Trust if the supply of Units exceeds
demand, or for other business reasons.
REDEMPTION
A Unitholder may redeem all or a portion of his or her Units by tendering
to the Trustee certificates representing the Units to be redeemed, or in
the case of uncertificated Units, delivery of a request for redemption,
properly endorsed or accompanied by a written instrument or instruments of
transfer in a form satisfactory to the Trustee. Unitholders must sign the
request, and such certificate or transfer instrument, exactly as their
names appear on the records of the Trustee and on any certificate
representing the Units to be redeemed. If the amount of the redemption is
$25,000 or less and the proceeds are payable to the Unitholder(s) of record
at the address of record, no signature guarantee is necessary for
redemptions by individual account owners (including joint owners).
Additional documentation may be requested, and a signature guarantee is
always required, from corporations, executors, administrators, trustees,
guardians or associations. The signatures must be guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("STAMP")
or such other guarantee program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee. Certificates should be sent by
registered or certified mail for the protection of the Unitholder. Since
tender of the certificate is required for redemption when one has been
issued, Units represented by a certificate cannot be redeemed until the
certificate representing such Units has been received by the purchasers.
Units tendered for redemption prior to such time as the entire deferred
sales charge on such Units has been collected will be assessed the amount
of the remaining deferred sales charge at the time of redemption.
On the third business day following the day on which a tender for
redemption is received (the "Redemption Date") the Trustee shall make a
payment of cash to the redeeming Unitholder equivalent to the Redemption
Price for such Trust, determined as set forth below under "Computation of
Redemption Price," multiplied by the number of Units being redeemed. Any
Units redeemed shall be cancelled and any undivided fractional interest in
the Trust extinguished. The price received upon redemption might be more or
less than the amount paid by the Unitholder depending on the value of the
Securities in the Trust at the time of redemption.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a certain percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may
be recovered by the Unitholder only when filing a tax return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification
number from the selling broker. However, any time a Unitholder elects to
tender Units for redemption, such Unitholder should make sure that the
Trustee has been provided a certified tax identification number in order to
avoid this possible "back-up withholding."
Any amounts paid on redemption representing interest shall be withdrawn
from the Interest Account for such Trust, to the extent that funds are
available then from the Principal Account. All other amounts paid on
redemption shall be withdrawn from the Principal Account for such Trust.
The Trustee is empowered to sell Securities for a Trust in order to make
funds available for the redemption of Units of such Trust. Such sale may be
required when Securities would not otherwise be sold and might result in
lower prices than might otherwise be realized. To the extent Securities are
sold, the size and diversity of a Trust will be reduced.
Securities will be sold by the Trustee so as to maintain, as closely as
practicable, the original percentage relationship between the principal
amounts of the Securities in such Trusts. The Securities to be sold for
purposes of redeeming Units will be selected from a list supplied by the
Sponsor. The Securities will be chosen for this list by the Sponsor on the
basis of such market and credit factors as it may determine are in the best
interests of such Trusts. Provision is made under the related Trust
Agreements for the Sponsor to specify minimum face amounts in which blocks
of Securities are to be sold in order to obtain the best price available.
Due to the minimum principal amount in which certain securities may be
required to be sold, the proceeds of such sales may exceed the amount
necessary for payment of Units redeemed. To the extent not used to meet
other redemption requests in such Trusts, such excess proceeds will be
distributed pro rata to all remaining Unitholders of record of such Trusts,
unless reinvested in substitute Securities. See "Trust Information -
Investment Supervision."
If the Sponsor elects not to purchase Units tendered for redemption, the
Trustee is irrevocably authorized in its discretion, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the
account of tendering Unitholders at prices which will return to the
Unitholders amounts in cash, net after brokerage commissions, transfer
taxes and other charges, equal to or in excess of the Redemption Price for
such Units. In the event of any such sale, the Trustee shall pay the net
proceeds thereof to the Unitholders on the day they would otherwise be
entitled to receive payment of the Redemption Price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or during which (as determined by
the Securities and Exchange Commission) trading on the New York Stock
Exchange is restricted; (2) for any period during which an emergency exists
as a result of which disposal by the Trustee of Securities is not
reasonably practicable or it is not reasonably practicable to fairly
determine the value of the underlying Securities in accordance with the
Trust Agreements; or (3) for such other period as the Securities and
Exchange Commission may by order permit. The Trustee is not liable to any
person in any way for any loss or damage which may result from any such
suspension or postponement.
COMPUTATION OF REDEMPTION PRICE. The Redemption Price for Units of each
Trust is computed by the Evaluator as of the evaluation time stated under
"Essential Information" next occurring after the tendering of a Unit for
redemption and on any other business day desired by it, by:
A. adding: (1) the cash on hand in the Trust other than cash deposited in
the Trust to purchase Securities not applied to the purchase of such
Securities; (2) the aggregate value of each issue of the Securities
(including "when issued" contracts, if any) held in the Trust as determined
by the Evaluator on the basis of bid prices therefor; and (3) interest
accrued and unpaid on the Securities in the Trust as of the date of
computation;
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust and for which no deductions
have been previously made for the purpose of additions to the Reserve
Account described under "Trust Information - Trust Expenses"; (2) an amount
representing estimated accrued expenses of the Trust, including but not
limited to fees and expenses of the Trustee (including legal and auditing
fees and any insurance costs), the Evaluator, the Sponsor and bond counsel,
if any; (3) cash held for distribution to Unitholders of record, or
required for redemption of Units tendered, as of the business day prior to
the evaluation being made; and (4) other liabilities incurred by the Trust;
and
C. finally dividing the results of such computation by the number of Units
of the Trust outstanding as of the date thereof.
UNITHOLDERS
OWNERSHIP OF UNITS. Ownership of Units of a Trust will not be evidenced by
certificates unless a Unitholder, the Unitholder's registered broker/dealer
or the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation
statement sent to the Underwriter and broker.
Units may be transferred by making a written request to the Trustee and, in
the case of Units evidenced by a certificate, by presenting and
surrendering such certificate to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer. Such
request should be sent registered or certified mail for the protection of
the Unitholder. Unitholders must sign such written request, and such
certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
transferred. Such signatures must be guaranteed as provided in "Trust
Information - Redemption."
Units may be purchased and certificates, if requested, will be issued in
denominations of one Unit subject to each Trust's minimum investment
requirement and any minimum requirement established by the Sponsor from
time to time. Any certificate issued will be numbered serially for
identification, issued in fully registered form and will be transferable
only on the books of the Trustee. The Trustee may require a Unitholder to
pay a reasonable fee, to be determined in the sole discretion of the
Trustee, for each certificate re-issued or transferred and to pay any
governmental charge that may be imposed in connection with each such
transfer or interchange. The Trustee at the present time does not intend to
charge for the normal transfer or interchange of certificates. Destroyed,
stolen, mutilated or lost certificates will be replaced upon delivery to
the Trustee of satisfactory indemnity (generally amounting to 3% of the
market value of the Units), affidavit of loss, evidence of ownership and
payment of expenses incurred.
DISTRIBUTIONS TO UNITHOLDERS. Interest received by each Trust, including
any portion of the proceeds from a disposition of Securities which
represents accrued interest, is credited by the Trustee to the Interest
Account for such Trust. All other receipts are credited by the Trustee to
the Principal Account for the Trust. The Trustee normally has no cash for
distribution to Unitholders until it receives interest payments on the
Securities in the Trust. Since interest usually is paid semi-annually
(monthly in the case of the GNMA Portfolio), during the initial months of
the Trusts the Interest Account of each Trust, consisting of accrued but
uncollected interest and collected interest (cash), will be predominantly
the uncollected accrued interest that is not available for distribution. On
the dates set forth under "Essential Information" for each Trust, the
Trustee will commence distributions, in part from funds advanced by the
Trustee.
Thereafter, assuming the Trust retains its original size and composition,
after deduction of the fees and expenses of the Trustee, the Sponsor and
Evaluator and reimbursements (without interest) to the Trustee for any
amounts advanced to a Trust, the Trustee will normally make distributions
on each Interest Distribution Date (the twentieth of the month) or shortly
thereafter to Unitholders of record of such Trust on the preceding Record
Date (which is the tenth day of each month).
Unitholders of the Trusts will receive an amount substantially equal to
one-twelfth of such holders' pro rata share of the estimated net annual
interest income to the Interest Account of such Trust. Because the period
of time between the First Settlement Date and the first Interest
Distribution Date may be longer or shorter than a full period, the first
distribution may be a partial distribution. In order to eliminate
fluctuations in interest distributions resulting from variances in the
receipt by the Trusts of interest on the underlying Securities, the Trustee
is authorized by the Trust Agreements to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts.
The Trustee will be reimbursed, without interest, for any such advances
from funds available in the Interest Account for such Trust. However,
interest earned at any point in time will be greater than the amount
actually received by the Trustee and distributed to the Unitholders.
Therefore, there will always remain an item of accrued interest that is
added to the daily value of the Units. If Unitholders of a Trust sell or
redeem all or a portion of their Units, they will be paid their
proportionate share of the accrued interest of such Trust to, but not
including, the third business day after the date of a sale or to the date
of tender in the case of a redemption.
Persons who purchase Units between a Record Date and a Distribution Date
will receive their first distribution on the second Distribution Date
following their purchase of Units.
With the exception of principal amounts to be reinvested in a Rolling
Government Series during the Reinvestment Period, the Trustee will
distribute on each Distribution Date or shortly thereafter, to each
Unitholder of record of a Trust on the preceding Record Date, an amount
substantially equal to such Unitholder's pro rata share of the cash
balance, if any, in the Principal Account of such Trust computed as of the
close of business on the preceding Record Date. However, no distribution
will be required if the balance in the Principal Account is less than $1.00
per 100 Units.
STATEMENTS TO UNITHOLDERS. With each distribution, the Trustee will furnish
or cause to be furnished to each Unitholder a statement of the amount of
interest and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
The accounts of each Trust are required to be audited annually, at the
Trust's expense, by independent auditors designated by the Sponsor, unless
the Sponsor determines that such an audit would not be in the best interest
of the Unitholders of such Trust. The accountants' report will be furnished
by the Trustee to any Unitholder of such Trust upon written request. Within
a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar
year was a Unitholder of a Trust a statement, covering the calendar year,
setting forth for the applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the Securities;
2. The amount paid for purchases of New Securities;
3. The amount paid from the Interest Account representing accrued interest
of any Units redeemed;
4. The deductions from the Interest Account for applicable taxes, if any,
fees and expenses (including auditing fees) of the Trustee, the Sponsor,
the Evaluator, and, if any, of bond counsel;
5. Any amounts credited by the Trustee to the Reserve Account;
6. The net amount remaining after such payments and deductions, expressed
both as a total dollar amount and a dollar amount per Unit outstanding on
the last business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the sale, maturity, liquidation or redemption of any of the
Securities and the net proceeds received therefrom excluding any portion
credited to the Interest Account;
2. The amount paid from the Principal Account representing the principal of
any Units redeemed;
3. The amount paid for purchases of New Securities, Replacement Securities
or Reinvestment Securities;
4. The deductions from the Principal Account for payment of applicable
taxes, if any, fees and expenses (including auditing fees) of the Trustee,
the Sponsor, the Evaluator, and, if any, of bond counsel;
5. Any amounts credited by the Trustee to the Reserve Account;
6. The net amount remaining after distributions of principal and
deductions, expressed both as a dollar amount and as a dollar amount per
Unit outstanding on the last business day of the calendar year; and
C. The following information:
1. A list of the Securities as of the last business day of such calendar
year;
2. The number of Units outstanding on the last business day of such
calendar year;
3. The Redemption Price based on the last evaluation made during such
calendar year;
4. The amount actually distributed during such calendar year from the
Interest and Principal Accounts separately stated, expressed both as total
dollar amounts and as dollar amounts per Unit outstanding on the Record
Dates for each such distribution.
RIGHTS OF UNITHOLDERS. A Unitholder may at any time prior to the
termination of the Trust tender Units to the Trustee for redemption. The
death or incapacity of any Unitholder will not operate to terminate a Trust
or entitle legal representatives or heirs to claim an accounting or to
bring any action or proceeding in any court for partition or winding up of
a Trust. No Unitholder shall have the right to control the operation and
management of any Trust in any manner, except to vote with respect to the
amendment of the Trust Agreements or termination of any Trust.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trusts by the purchase,
sale or substitution of Securities, except in the circumstances noted
herein. Thus, with the exception of the redemption or maturity of
Securities in accordance with their terms (and reinvestments made in
connection with the Rolling Government Series), the assets of the Trusts
will remain unchanged under normal circumstances.
The Sponsor may direct the Trustee to dispose of Securities the value of
which has been affected by certain adverse events including institution of
certain legal proceedings or the occurrence of other market factors,
including advance refunding, so that in the opinion of the Sponsor the
retention of such Securities in a Trust would be detrimental to the
interest of the Unitholders. In addition, the Sponsor will instruct the
Trustee to dispose of certain Securities and to take such further action as
may be needed from time to time to ensure that the Rolling Government
Series continues to satisfy the qualifications of a regulated investment
company, including the requirements with respect to diversification under
Section 851 of the Internal Revenue Code. The proceeds from any such sales,
exclusive of any portion which represents accrued interest, will be
credited to the Principal Account of such Trust for distribution to the
Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made by
an issuer of Securities to issue new obligations in exchange or
substitution for any of such Securities pursuant to a refunding financing
plan, except that the Sponsor may instruct the Trustee to accept or reject
such an offer or to take any other action with respect thereto as the
Sponsor may deem proper if (i) the issuer is in default with respect to
such Securities or (ii) in the written opinion of the Sponsor the issuer
will probably default with respect to such Securities in the reasonably
foreseeable future. Any obligation so received in exchange or substitution
will be held by the Trustee subject to the terms and conditions of the
Trust Agreement to the same extent as Securities originally deposited
thereunder. Within five days after deposit of obligations in exchange or
substitution for underlying Securities, the Trustee is required to give
notice thereof to each Unitholder, identifying the Securities eliminated
and the Securities substituted therefor. The Trustee may sell Securities,
designated by the Sponsor, from a Trust for the purpose of redeeming Units
of such Trust tendered for redemption and the payment of expenses.
TRUST ADMINISTRATION
THE TRUSTEE. The Trustee is The Chase Manhattan Bank (National
Association), a national banking association with its principal executive
office at 270 Park Avenue, New York, New York 10017 and its unit investment
trust office at 770 Broadway, New York, New York 10003. Unitholders who
have questions regarding the Trusts may call the Customer Service Help Line
at 1-800-887-6926. The Trustee is subject to supervision and examination by
the Comptroller of the Currency, the Federal Deposit Insurance Corporation
and the Board of Governors of the Federal Reserve System.
The Trustee shall keep records of all transactions at its office which
shall include the name and address of, and the number of Units held by,
every Unitholder of each Trust. Such books and records shall be open to
inspection by any Unitholder of such Trust at all reasonable times during
usual business hours. The Trustee shall make such annual or other reports
as may from time to time be required under any applicable state or federal
statute, rule or regulation. The Trustee shall keep a certified copy or
duplicate original of the Trust Agreements on file in its office available
for inspection at all reasonable times during usual business hours by any
Unitholder, together with a current list of the Securities held in each
Trust. Pursuant to the Trust Agreements, the Trustee may employ one or more
agents for the purpose of custody and safeguarding of Securities comprising
the Trusts. Under the Trust Agreements, the Trustee or any successor
trustee may resign and be discharged of its duties created by the Trust
Agreements by executing an instrument in writing and filing the same with
the Sponsor.
The Trustee or successor trustee must mail a copy of the notice of
resignation to all Unitholders then of record, not less than 60 days before
the date specified in such notice when such resignation is to take effect.
The Sponsor upon receiving notice of such resignation is obligated to
appoint a successor trustee promptly. If, upon such resignation, no
successor trustee has been appointed and has accepted the appointment
within 30 days after notification, the retiring Trustee may apply to a
court of competent jurisdiction for the appointment of a successor. If the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities or shall fail to meet standards for its
performance established by the Sponsor, the Sponsor may remove the Trustee
and appoint a successor trustee as provided in the Trust Agreements. Notice
of such removal and appointment shall be mailed to each Unitholder by the
Sponsor. Upon execution of a written acceptance of such appointment by such
successor trustee, all the rights, powers, duties and obligations of the
original Trustee shall vest in the successor. The Trustee shall be a
corporation organized under the laws of the United States, or any state
thereof, which is authorized under such laws to exercise trust powers. The
Trustee shall have at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
THE EVALUATOR. Muller Data Corporation serves as Evaluator. The Evaluator
may resign or be removed by the Trustee in which event the Trustee is to
use its best efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon acceptance of appointment by the
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within 30 days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor. Notice of such resignation or removal and
appointment shall be mailed by the Trustee to each Unitholder.
AMENDMENT AND TERMINATION. The Trust Agreements may be amended by the
Trustee and the Sponsor without the consent of any of the Unitholders: (i)
to cure any ambiguity or to correct or supplement any provision which may
be defective or inconsistent; (ii) to change any provision thereof as may
be required by the Securities and Exchange Commission or any successor
governmental agency; or (iii) to make such provisions as shall not
adversely affect the interests of the Unitholders. The Trust Agreements
with respect to the Trusts may also be amended in any respect by the
Sponsor and the Trustee, or any of the provisions thereof may be waived,
with the consent of the holders of Units representing 66 2/3% of the Units
then outstanding of such Trust, provided that no such amendment or waiver
will reduce the interest of any Unitholder thereof without the consent of
such Unitholder or reduce the percentage of Units required to consent to
any such amendment or waiver without the consent of all Unitholders of such
Trust. In no event shall any Trust Agreement be amended to increase the
number of Units of a Trust issuable thereunder or to permit, except in
accordance with the provisions of such Trust Agreement, the acquisition of
any Securities in addition to or in substitution for those initially
deposited in a Trust. The Trustee shall promptly notify Unitholders of the
substance of any such amendment.
The Trust Agreements provide that the Trusts shall terminate upon the
maturity, redemption or other disposition of the last of the Securities
held in a Trust. If the value of a Trust shall be less than the applicable
minimum value stated under "Essential Information," the Trustee may, in its
discretion, and shall, when so directed by the Sponsor, terminate the
Trust. A Trust may be terminated at any time by the Unitholders
representing 66 2/3% of the Units thereof then outstanding. In the event of
termination of a Trust, written notice thereof will be sent by the Trustee
to all Unitholders of such Trust. Within a reasonable period after
termination, the Trustee will sell any Securities remaining in such Trust
and, after paying all expenses and charges incurred by the Trust, will
distribute to Unitholders thereof (upon surrender for cancellation of
certificates for Units, if issued) their pro rata share of the balances
remaining in the Interest and Principal Accounts of such Trust.
LIMITATIONS ON LIABILITY. The Sponsor: The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the
Trust Agreements, but will be under no liability to the Unitholders for
taking any action or refraining from any action in good faith pursuant to
the Trust Agreements or for errors in judgment, except in cases of its own
gross negligence, bad faith or willful misconduct. The Sponsor shall not be
liable or responsible in any way for depreciation or loss incurred by
reason of the sale of any Securities.
The Trustee: The Trust Agreements provide that the Trustee shall be under
no liability for any action taken in good faith in reliance upon prima
facie properly executed documents or for the disposition of monies,
Securities or certificates except by reason of its own gross negligence,
bad faith or willful misconduct, nor shall the Trustee be liable or
responsible in any way for depreciation or loss incurred by reason of the
sale by the Trustee of any Securities. In the event that the Sponsor shall
fail to act, the Trustee may act and shall not be liable for any such
action taken by it in good faith. The Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon or in
respect of the Securities or upon the interest thereon. In addition, the
Trust Agreements contain other customary provisions limiting the liability
of the Trustee.
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units.
The Evaluator: The Trustee and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. The Trust Agreements provide that the determinations made
by the Evaluator shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator shall be
under no liability to the Trustee or Unitholders for errors in judgment,
but shall be liable only for its gross negligence, lack of good faith or
willful misconduct.
TRUST EXPENSES
The Sponsor will charge the Trusts a surveillance fee for services
performed for the Trusts in an amount not to exceed that amount set forth
in "Essential Information" 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 Securities in the Trusts.
The Trustee receives for its services fees set forth under "Essential
Information." The Trustee fee which is calculated monthly is based on the
largest aggregate principal amount of Securities in a Trust at any time
during the period. In no event shall the Trustee be paid less than $2,000
per Trust in any one year. Funds that are available for future
distributions, redemptions and payment of expenses are held in accounts
which are non-interest bearing to Unitholders and are available for use by
the Trustee pursuant to normal trust procedures; however, the Trustee is
also authorized by the Trust Agreements to make from time to time certain
non-interest bearing advances to the Trusts.
During the first year the Trustee has agreed to lower its fees and absorb
expenses by the amount set forth under "Essential Information." The
Trustee's fee will not be increased in future years in order to make up
this reduction in the Trustee's fee. The Trustee's fee is payable on or
before each Distribution Date. The Trustee has agreed to pay the Sponsor
that portion of the Trustee's annual fee as set forth under "Essential
Information" in return for the Sponsor providing certain bookkeeping and
administrative services to its own customers.
For evaluation of Securities in each Trust, the Evaluator shall receive a
fee, payable monthly, calculated on the basis of that annual rate set forth
under "Essential Information," based upon the largest aggregate principal
amount of Securities in such Trust at any time during such monthly period.
The Trustee's and Evaluator's fees are deducted first from the Interest
Account of a Trust to the extent funds are available and then from the
Principal Account. Such fees may be increased without approval of
Unitholders by amounts not exceeding a proportionate increase in the
Consumer Price Index entitled "All Services Less Rent of Shelter,"
published by the United States Department of Labor, or any equivalent index
substituted therefor. In addition, the Trustee's fee may be periodically
adjusted in response to fluctuations in short-term interest rates
(reflecting the cost to the Trustee of advancing funds to a Trust to meet
scheduled distributions).
Expenses incurred in establishing the Trusts, including the cost of the
initial preparation of documents relating to the Trusts, federal and state
registration fees, the initial fees and expenses of the Trustee, legal
expenses and any other non-material out-of-pocket expenses, will be paid by
the Trusts and amortized over the lesser of five years or the life of the
Trusts. The following additional charges are or may be incurred by the
Trusts: (i) fees for the Trustee's extraordinary services; (ii) expenses of
the Trustee (including legal and auditing expenses (not to exceed $.50 per
100 Units) and insurance costs for an Insured Utility Portfolio, but not
including any fees and expenses charged by any agent for custody and
safeguarding of Securities) and of bond counsel, if any; (iii) various
governmental charges; (iv) expenses and costs of any action taken by the
Trustee to protect a Trust or the rights and interests of the Unitholders;
(v) indemnification of the Trustee for any loss, liability or expense
incurred by it in the administration of a Trust not resulting from gross
negligence, bad faith or willful misconduct on its part; (vi)
indemnification of the Sponsor for any loss, liability or expense incurred
in acting in that capacity without gross negligence, bad faith or willful
misconduct; and (vii) expenditures incurred in contacting Unitholders upon
termination of the Trusts. The fees and expenses set forth herein are
payable out of the appropriate Trust and, when owing to the Trustee, are
secured by a lien on such Trust. Fees or charges relating to a Trust shall
be allocated to each Trust in the same ratio as the principal amount of
such Trust bears to the total principal amount of all Trusts. Fees or
charges relating solely to a particular Trust shall be charged only to such
Trust.
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.
THE SPONSOR
NFSC is a registered broker and dealer and a member of The New York Stock
Exchange, Inc., and various other national and regional exchanges. As a
securities broker and dealer, NFSC is engaged in various securities
trading, brokerage and clearing activities serving a diverse group of
domestic corporations, institutional and individual investors, and brokers
and dealers.
NFSC is a wholly owned subsidiary of Fidelity Global Brokerage Group, Inc.
NFSC was incorporated in Massachusetts, June 3, 1981. Fidelity Global
Brokerage Group, Inc. is a wholly owned subsidiary of FMR Corp. ("FMR").
Edward C. Johnson 3d owns approximately 12% and Abigail P. Johnson owns
approximately 24.5% of the issued and outstanding shares of the Voting
Common Stock of FMR. Members of the Edward C. Johnson 3d family and trusts
for their benefit control up to 49% of the voting shares of FMR.
Fidelity Management & Research Company, a subsidiary of FMR, is the
management arm of Fidelity Investments, which was established in 1946. It
provides a number of mutual funds and other clients with investment
research and portfolio management services. It maintains a large staff of
experienced investment personnel and a full complement of related support
facilities. It is now America's largest mutual fund manager and as of
December 31, 1995, it manages more than $350 billion in assets in over 23
million individual shareholder accounts.
If at any time the Sponsor shall fail to perform any of its duties under
the Trust Agreements or shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or shall have its affairs taken over by
public authorities, then the Trustee may (a) appoint a successor sponsor at
rates of compensation deemed by the Trustee to be reasonable and not
exceeding such reasonable amounts as may be prescribed by the Securities
and Exchange Commission, or (b) terminate the Trust Agreements and
liquidate the Trusts as provided therein, or (c) continue to act as Trustee
without terminating the Trust Agreements.
The foregoing financial information with regard to the Sponsor relates to
the Sponsor only and not to these Trusts. Such information is included in
this Prospectus only for the purpose of informing investors as to the
financial responsibility of the Sponsor and its ability to carry out its
contractual obligations with respect to the Trusts. More comprehensive
financial information can be obtained upon request from the Sponsor.
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
federal tax law have been passed upon by Chapman and Cutler, 111 West
Monroe Street, Chicago, Illinois 60603, as special counsel to the Sponsor.
Carter, Ledyard & Milburn has acted as Special Counsel to the Trusts with
respect to certain New York State and City tax matters affecting the
Investment Grade Series 1 and 2.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related portfolios at the Initial Date
of Deposit included in this Prospectus have been audited by Deloitte &
Touche LLP independent certified public accountants, as set forth in their
report in the Prospectus, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
DESCRIPTION OF RATINGS*
STANDARD & POOR'S - A brief description of the applicable Standard & Poor's
rating symbols and their meanings follow:
A Standard & Poor's 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 grantors,
insurers, or lessees. 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 and 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 and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement, 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 all the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
*As described by the rating company itself.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates 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 own judgment with respect to
such likelihood and risk.
MOODY'S INVESTORS SERVICE, INC. - A brief description of the applicable
Moody's rating symbols and their meanings follow:
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 a high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Their market value is virtually
immune to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree
by economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move
in parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A1 - Bonds which are rated A1 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 marketplace.
Conditional Ratings: Bonds rated "Con(__)" are ones for which the security
depends upon the completion of some act or the fulfillment of some
condition. 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 conditions attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through B in certain areas of its bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating 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.
DUFF & PHELPS CREDIT RATING CO. - A brief description of the applicable
Duff & Phelps Credit Rating Co. rating symbols and their meanings follow:
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks
related to such factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost structure, and management
depth and expertise. The projected viability of the obligor at the trough
of the cycle is a critical determination.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA - High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A - Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB - Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB - Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B - Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Fidelity Defined Trusts, Series 4, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Boston and State of Massachusetts on the 14th day
of May, 1997.
Fidelity Defined Trusts, Series 4
(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
Registration Statement has been signed below by the following persons in
the capacities on May 14, 1997:
James H. Messenger
James H. Messenger President and Director
Timothy M. McKenna
Timothy M. McKenna Director
Robert P. Mazzarella
Robert P. Mazzarella Director
Sherif A. Nada
Sherif A. Nada Director
Shaugn Stanley
Shaugn Stanley Senior Vice President, Finance
and Chief Financial Officer
(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.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
The consents of independent public accountants, rating services
and legal counsel
The following exhibits:
1.1 Proposed form of Trust Agreement (to be filed by amendment).
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be filed by amendment).
3.2 Opinion of counsel as to Federal income tax status of securities being
registered (to be filed by amendment).
4.1 Consent of Independent Auditors (to be filed by amendment).
