<PAGE>
FILE NO. 333-60569
40 ACT FILE NO. 811-2271
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on
Form N-8B-2
<TABLE>
<S> <C> <C>
A. Exact name of Trust: NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
B. Name of Depositor: JOHN NUVEEN & CO. INCORPORATED
C. Complete address of Depositor's principal executive offices:
333 West Wacker Drive
Chicago, Illinois 60606
D. Name and complete address of agents for service:
JOHN NUVEEN & CO. INCORPORATED
Attn: Alan G. Berkshire
333 West Wacker Drive
Chicago, Illinois 60606
CHAPMAN AND CUTLER
Attn: Eric F. Fess
111 West Monroe Street
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on August 14, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on August 14, 1998 pursuant to paragraph (a) of rule 485 or 486
E. Title of securities being registered: Units of undivided fractional beneficial
interest.
F. Approximate date of proposed sale to the public: As soon as practicable after the
effective date of the Registration Statement.
/X/ Check box if it is proposed that this filing will become effective on August 14,
1998 at 1:30 P.M. pursuant to Rule 487.
</TABLE>
<PAGE>
NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
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)
<TABLE>
<C> <S> <C> <C> <C>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust ) Prospectus Part A -- Cover Page
(b) Title of securities issued )
2. Name and address of Depositor ) Information About the Sponsor
3. Name and address of Trustee ) Information About the Trustee
4. Name and address of principal Underwriter ) Information About the Sponsor
5. Organization of trust ) What Is The Nuveen Tax-Free Unit Trust?
6. Execution and termination of Trust Agreement ) What Is The Nuveen Tax-Free Unit Trust?
) Information About The Trustee
) Other Information
7. Changes of Name ) *
8. Fiscal Year )
9. Litigation )
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. General Information regarding trust's securities ) Summary of Portfolios
) Why and How are the Bonds Insured?
) When Are Distributions Made to Unitholders?
) Ownership and Transfer of Units
) How Units May Be Redeemed Without Charge?
) How Bonds May Be Removed From The Trusts?
) Information About the Trustee
) Information About the Sponsor
) Other Information
) What Is The Tax Status of Unitholders?
11. Type of securities comprising units ) What Is The Nuveen Tax-Free Unit Trust?
) Summary of Portfolios
) Composition of Trusts
) What Are The Objectives Of The Trusts?
) Why and How are the Bonds Insured?
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, expenses, etc. ) Part A -- Essential Information
) How Is The Public Offering Price Determined?
) Market For Units
) What Is Accrued Interest?
) What Are Estimated Long Term Return
) And Estimated Current Return?
) How Was The Price Of The Bonds
) Determined At The Date of Deposit?
) What Are Normal Trust Operating Expenses?
) When Are Distributions Made To Unitholders?
) Summary Of Portfolios
) How Detailed Are Reports To Unitholders?
(b) Certain information regarding ) *
periodic payment certificates )
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
(c) Certain percentages ) How Is The Public Offering Price Determined?
) Market For Units
) What Are Estimated Long Term Return
) And Estimated Current Return?
) How Was The Price Of The Bonds
) Determined At The Date Of Deposit?
) What Is Accrued Interest?
(d) Certain other fees, etc. payable by holders ) How Was The Price Of The Bonds Determined
) At The Date Of Deposit?
) What Are Normal Trust Operating Expenses?
) Ownership And Transfer Of Units
(e) Certain profits receivable by depositor, ) Composition Of Trusts
principal underwriter, trustee or )
affiliated persons )
) How Units May Be Purchased By The Sponsor
(f) Ratio of annual charges to income ) *
14. Issuance of trust's securities ) Summary of Portfolios
) When Are Distributions Made To Unitholders?
) Ownership and Transfer of Units
) How Units May Be Redeemed Without Charge
15. Receipt and handling of payments ) *
from purchasers )
16. Acquisition and Disposition of ) What Is The Nuveen Tax-Free Unit Trust?
Underlying Securities )
) Summary of Portfolios
) Composition of Trusts
) Why and How are the Bonds Insured?
) How Units May Be Redeemed Without Charge
) How Bonds May Be Removed From The Trusts
) Other Information
17. Withdrawal or redemption ) Market For Units
) How Units May Be Redeemed Without Charge
) How Units May Be Purchased By The Sponsor
18. (a) Receipt and disposition of income ) Summary of Portfolios
) When Are Distributions Made To Unitholders?
) How Detailed Are Reports To Unitholders?
(b) Reinvestment of distributions ) Accumulation Plan
(c) Reserves or special funds ) Summary of Portfolios
) When Are Distributions Made To Unitholders?
(d) Schedule of distributions ) *
19. Records, accounts and reports ) When Are Distributions Made To Unitholders?
) How Detailed Are Reports To Unitholders?
20. Certain miscellaneous provisions of ) Information About the Trustee
Trust Agreement )
) Information About the Sponsor
) Other Information
21. Loans to security holders ) *
22. Limitations on liability ) Summary of Portfolios
) Composition of Trusts
) Information About The Trustee
23. Bond arrangements ) *
24. Other material provisions of Trust Agreement. ) *
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of Depositor ) Information About the Sponsor
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
26. Fees received by Depositor ) *
27. Business of Depositor ) Information About the Sponsor
28. Certain information as to officials ) *
and affiliated persons of Depositor )
29. Voting Securities of Depositor ) Information About the Sponsor
30. Persons controlling Depositor )
31. Payments by Depositor for certain )
services rendered to trust )
32. Payments by Depositor for certain ) *
other services rendered to trust )
33. Remuneration of employees of Depositor )
for certain services rendered to trust )
34. Remuneration of other persons for )
certain services rendered to trust )
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of trust's securities by states ) *
36. Suspension of sales of trust's securities )
37. Revocation of authority to distribute )
38. (a) Method of distribution )
(b) Underwriting agreements ) How Units of The Trusts Are
) Distributed To The Public
(c) Selling agreement )
39. (a) Organization of principal underwriter ) Information About The Sponsor
(b) NASD membership of principal underwriter )
40. Certain fees received by principal underwriter ) *
41. (a) Business of principal underwriter )
(b) Branch offices of principal underwriter ) *
(c) Salesmen of principal underwriter )
42. Ownership of trust's securities by ) *
certain persons )
43. Certain brokerage commissions received ) *
by principal underwriter )
44. (a) Method of valuation ) Part A -- Essential Information
) How Is The Public Offering Price Determined?
) How Was The Price Of The Bonds
) Determined At The Date of Deposit?
) What Are Normal Trust Operating Expenses?
(b) Schedule as to offering price ) *
(c) Variation in offering price to ) How Is the Public Offering Price
certain persons ) Determined?
) What Is Accrued Interest?
) How Was The Price Of The Bonds
) Determined At The Date of Deposit?
45. Suspension of redemption rights ) *
46. (a) Redemption valuation ) Unit Value and Evaluation
) How Units May Be Redeemed Without Charge
) How Units May Be Purchased By The Sponsor
(b) Schedule as to redemption price ) *
47. Maintenance of position in underlying ) How Is the Public Offering Price
securities ) Determined?
) How Units May Be Purchased By The Sponsor
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of Trustee ) Information About The Trustee
49. Fees and expenses of Trustee ) Part A -- Essential Information
) What Are Normal Trust Operating Expenses?
50. Trustee's lien ) What Are Normal Trust Operating Expenses?
) When Are Distributions Made To Unitholders?
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of trust's securities ) *
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with ) What Are Normal Trust Operating
respect to selection or elimination ) Expenses?
of underlying securities )
) How Units May Be Redeemed Without Charge
) How Bonds May Be Removed From The Trusts
(b) Transactions involving elimination ) *
of underlying securities )
(c) Policy regarding substitution or ) Summary of Portfolios
elimination of underlying securities )
) Composition of Trusts
) How Bonds May Be Removed From The Trusts
(d) Fundamental policy not otherwise covered ) *
53. Tax status of trust ) What Is The Tax Status Of Unitholders?
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years ) *
55. )
56. Certain information regarding ) *
periodic payment certificate )
57. )
58. )
</TABLE>
- ---------
* Inapplicable, omitted, answer negative or not required.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers 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 these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
AUGUST 14, 1998
SUBJECT TO COMPLETION
A
NUVEEN NUVEEN CALIFORNIA INSURED TRUST 308
(NUVEEN TAX-FREE UNIT TRUST, SERIES 1020)
CUSIP NUMBERS:
Monthly: 67065H 376
Quarterly: 67065H 384
Semi-Annually: 67065H 392
PROSPECTUS--PART A (SPECIFIC TERMS) -- AUGUST 14, 1998
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY THE
PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS DATED JULY 8, 1997, TO WHICH SUCH
REFERENCE
HEREIN APPLIES. BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
California Insured Trust 308 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of California,
certain United States Territories or authorities and political subdivisions
thereof which, in the opinion of recognized bond counsel to the issuing
authorities, provide income which is exempt from Federal income tax and
California income tax, to the extent indicated below.
The objectives of the Trust are income exempt from Federal and state income
taxes, and conservation of capital. The objectives are, of course, dependent
upon the continuing ability of the issuers, obligors and/or insurers to meet
their respective obligations.
The Portfolio of the Trust consists of 8 obligations issued by entities
located in California. The Bonds in the Trust are either general obligations of
the governmental entity issuing them and are backed by the taxing power thereof
or are payable as to principal and interest from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
The sources of payment for the Bonds are divided as follows:
<TABLE>
<CAPTION>
NUMBER OF PORTFOLIO
ISSUES PURPOSE OF ISSUE PERCENTAGE
--------------- ----------------------------------------------------
<C> <S> <C>
3 Education Revenue 42.8 %
2 Power Revenue 22.3
1 Health Care Facility Revenue 14.9
1 General Obligation 14.3
1 Dedicated-Tax Supported Revenue 5.7
</TABLE>
Approximately 5.7% of the aggregate principal amount of the Bonds in the
Trust (accounting for approximately 1.6% of the aggregate offering price of the
Bonds) are original issue discount obligations. Certain of these original issue
discount obligations, amounting to 5.7% of the aggregate principal amount and
1.6% of the aggregate offering price of the Bonds in the Trust, are "zero
coupon" bonds. See "RISK FACTORS" in Part B of this Prospectus for a discussion
of the characteristics of such obligations and of the risks associated
therewith.
All of the Bonds in the Trust are covered by policies of insurance obtained
from the MBIA Insurance Corporation guaranteeing payment of principal and
interest when due. As a result of such insurance, the Bonds in the Trust have
received a rating of "Aaa" by Moody's, "AAA" by Fitch, and/or "AAA" by Standard
& Poor's. Insurance does not guarantee the market value of the Bonds or of Trust
Units.
The Trust is considered to be concentrated in Bonds of Education Revenue
Issuers whose revenues are subject to certain risks including declines in
"college age" individuals and the possible inability to raise tuition and fees.
For a discussion of the risks associated with investments in the bonds of
various issuers, see "RISK FACTORS" in Part B of this Prospectus.
ESSENTIAL INFORMATION
REGARDING THE NUVEEN CALIFORNIA INSURED TRUST 308
ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT, AUGUST 13, 1998
Sponsor and Evaluator.......... John Nuveen & Co. Incorporated
Trustee.............................. The Chase Manhattan Bank
------------------------------------------------
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<S> <C>
Principal Amount of Bonds in Trust.................. $ 1,750,000
Number of Units..................................... 17,500
Fractional Undivided Interest in Trust Per Unit..... 1/17,500
Public Offering Price--Less than 500 Units
Aggregate Offering Price of Bonds in Trust...... $ 1,660,633
Divided by Number of Units...................... $ 94.89
Plus Sales Charge 4.9% (5.152% of the Aggregate
Offering Price of the Bonds per Unit).......... $ 4.89
Public Offering Price Per Unit(1)............... $ 99.78
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 94.50
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 94.89
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.28
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.89
Average Maturity of Bonds in the Trust(2)........... 26.3 years
</TABLE>
- ----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 of 7
<PAGE>
ESSENTIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.7971 $ 4.7971 $ 4.7971
Less Estimated Annual Expense........ $ .2573 $ .2253 $ .2063
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.5398 $ 4.5718 $ 4.5908
Daily Rate of Accrual Per Unit........... $ .01261 $ .01269 $ .01275
ESTIMATED CURRENT RETURN(5).............. 4.55% 4.58 % 4.60 %
ESTIMATED LONG TERM RETURN(5)............ 4.58% 4.62 % 4.64 %
Trustee's Annual Fees(6)................. $ 1.4918 $ 1.1718 $ 0.9818
Date of Deposit................................................................................August 14, 1998
Settlement Date................................................................................August 19, 1998
Mandatory Termination Date................................See "OTHER INFORMATION" in Part B of this Prospectus
Minimum Value of Each Trust...............................See "OTHER INFORMATION" in Part B of this Prospectus
Sponsor's Annual Evaluation Fee(7)..................................$0.17 per $1,000 principal amount of Bonds
Estimated Annual Offering Expenses(8).........................................................$.02857 per Unit
- ----------
</TABLE>
The evaluation time for purpose of sale, purchase or redemption of Units is 4
p.m. Eastern time or as of any earlier time at which the New York Stock Exchange
closes. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of this
Prospectus.)
(1) Units are offered at the Public Offering Price plus accrued interest from
the preceding Record Date to, but not including, the date of settlement
(normally three business days after purchase). The Date of Deposit of the
Fund has been designated as the First Record Date for all plans of
distribution of the Trust and, accordingly, for Units purchased on the Date
of Deposit, $.06 of accrued interest to the Settlement Date will be added to
the Public Offering Price. (See "WHAT IS ACCRUED INTEREST?" in Part B of
this Prospectus.)
(2) The Average Maturity of Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds on
a stated call date, based upon such call date). The Average Maturity of
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) Assumes delivery of all Bonds. (See "COMPOSITION OF TRUSTS" appearing in
Part B of this Prospectus.) Interest income does not include accretion of
original issue discount on "zero coupon" Bonds, Stripped Obligations or
other original issue discount Bonds. (See "RISK FACTORS" in Part B of this
Prospectus.)
(4) The amount and timing of interest distributions from the Trust under the
various plans of distribution are set forth below. It is anticipated that
the amount of interest to be distributed per Unit in each year under each
plan of distribution will initially be substantially equal to the Estimated
Net Annual Interest Income per Unit for that plan. The amount of interest to
be distributed annually per Unit, will generally change as Bonds are
redeemed, mature or are sold or as fees and expenses increase or decrease.
(5) Estimated Long Term Return for the Trust represents the average of the
yields to maturity (or call) of the Bonds in the Trust's portfolio
calculated in accordance with accepted bond practices and adjusted to
reflect a compounding factor, expenses and sales charges. Estimated Current
Return is computed by dividing the 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 more information see "WHAT ARE ESTIMATED LONG TERM RETURN AND
ESTIMATED CURRENT RETURN?" in Part B of this Prospectus.
(6) Each Trustee annual fee is per $1,000 principal amount of the underlying
Bonds in the Trust for that portion of the Trust that represents a
particular plan of distribution.
(7) The Sponsor's Annual Evaluation Fee may, from time to time, be adjusted
provided that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent"
or if such index no longer exists, a comparable index. The consent or
concurrence of any Unitholder shall not be required for any such adjustment
or increase.
(8) Notwithstanding anything to the contrary contained in Part B of the
Prospectus regarding expenses incurred by the Trust for the establishment of
the Trust, the Trust (and therefore Unitholders) will bear all or a portion
of its offering costs (including, among others, costs of registering Units
with the Securities and Exchange Commission and states, and legal fees but
not including the expenses incurred in the printing of preliminary and final
prospectuses, and expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses) as
is common for mutual funds. Total offering costs will be amortized over a
five year period.
2 of 7
<PAGE>
INTEREST DISTRIBUTION
Details of interest distributions per Unit of the Trust under the various
plans appear in the following table based upon estimated Net Annual Interest
Income at the Date of Deposit:
<TABLE>
<CAPTION>
Normal
Distributions
1998 1999 per Year
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 9/1 11/1 2/1 5/1
Distribution Date..................... 9/15 11/15 2/15 5/15
- --------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .2143(1) $ 4.5398
-------- $.3783 every month --------
Quarterly Distribution Plan........... $ .2143(1) $ .7614(2) $ 1.1421 $ 1.1421 $ 4.5718
Semi-Annual Distribution Plan......... $ .2143(1) $ .7650(3) $ 2.2950 $ 4.5908
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Record Dates for semi-annual distributions are May 1 and November 1; for
quarterly distributions, they are February 1, May 1, August 1 and November 1.
Record Dates for monthly distributions are the first day of each month.
Distribution Dates under each distribution plan are the fifteenth day of the
month in which the respective Record Date occurred. For additional
information see "WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?" in Part B of
this Prospectus.
(1) The first distribution will be paid to all Unitholders, regardless of the
distribution plan selected. Such distribution may be more or less than a
regular monthly distribution.
(2) The second distribution under the quarterly distribution plan represents a
2-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
2-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
CALIFORNIA RISK FACTORS
The financial condition of the State of California is affected by various
national, economic, social and environmental policies and conditions.
Additionally, limitations imposed by constitutional amendments, legislative
measures, or voter initiatives on the State and its local governments concerning
taxes, bond indebtedness and other matters may constrain the revenue-generating
capacity of the State and its local governments and, therefore, the ability of
the issuers of the Bonds to satisfy their obligations. The State faces a
structural imbalance in its budget with the largest programs supported by the
General Fund (education, health, welfare and corrections) growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds, are
affected by numerous factors, such as natural disasters and cutbacks in federal
defense spending. The California economy continues to show weakness in
manufacturing, particularly aerospace, construction, services and trade.
California's population increase has resulted in traffic congestion, school
overcrowding and high housing costs which have caused an increase demand for
government services and which may impede future economic growth.
The State is a party to numerous lawsuits in which an adverse final decision
could materially affect the State's governmental operations and consequently its
ability to pay debt service on its obligations. On December 7, 1994, Orange
County, California, together with its pooled investment fund (the "POOLED FUND")
filed for protection under Chapter 9 of the federal Bankruptcy Code. Many
governmental entities kept moneys in the Pooled Fund.
All outstanding general obligations bonds of the State are rated "A+" by
Standard and Poor's and "A1" by Moody's.
Further information concerning California risk factors may be obtained upon
written or telephonic request to the Trustee as described in "OTHER INFORMATION
- -- Supplemental Information" appearing in Part B of this Prospectus.
YEAR 2000 PROBLEM. Like other investment companies, financial and business
organizations and individuals around the world a Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to such Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by a Trust's other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to a Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the Bonds contained in a Trust, to varying degrees
based upon various factors, including, but not limited to, their industry sector
and degree of technological sophistication. The Sponsor is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the Bonds
contained in a Trust.
TAX STATUS
For a discussion of the Federal tax status of income earned on Trust Units,
see "WHAT IS THE TAX STATUS OF UNITHOLDERS?" in Part B of this Prospectus.
Investors should be aware that recent legislative changes provide that for
3 of 7
<PAGE>
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year)
realized from property (with certain exclusions) is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period for the
asset is one year or less. The date on which a Unit is acquired (i.e., the
"trade date") is excluded for purposes for determining the holding period of the
Unit. The legislation is generally effective retroactively for amounts properly
taken into account on or after January 1, 1998. Capital gains realized from
assets held for one year or less are taxed at the same rates as ordinary income.
The Legislation also includes provisions that would treat certain transactions
designed to reduce or eliminate risk of loss and opportunities for gain (e.g.,
short sales, offsetting notional principal contracts, futures or forward
contracts, or similar transactions) as constructive sales for purposes of
recognition of gain (and not loss) and for purposes of determining the holding
period. Potential investors should consult their own tax advisors regarding the
potential effect of the Legislation on their investment in Units.
In the opinion of Orrick, Herrington & Sutcliffe, L.L.P. special California
counsel to the Trust, under existing California income and property tax law
applicable to individuals who are California residents:
The Trust is not an association taxable as a corporation and the income
of the Trust will be treated as the income of the Unitholders under the
income tax laws of California.
Interest on the underlying securities (which may include bonds or other
obligations issued by the governments of Puerto Rico, the Virgin Islands,
Guam or the Northern Mariana Islands) which is exempt from tax under
California personal income tax and property tax laws when received by the
Trust will, under such laws, retain its status as tax-exempt interest when
distributed to Unitholders. However, interest on the underlying securities
attributed to a Unitholder which is a corporation subject to the California
franchise tax laws may be includable in its gross income for purposes of
determining its California franchise tax.
Under California income tax law, each Unitholder in the Trust will have
a taxable event when the Trust disposes of a security (whether by sale,
exchange, redemption or payment at maturity) or when the Unitholder redeems
or sells Units. Because of the requirement that tax cost basis be reduced to
reflect amortization of bond premium, under some circumstances a Unitholder
may realize taxable gain when Units are sold or redeemed for an amount equal
to, or less than, their original cost. The total tax cost of each Unit to a
Unitholder is allocated among each of the bond issues held in the Trust (in
accordance with the proportion of the Trust comprised by each bond issue) in
order to determine his per unit tax cost for each bond issue; and the tax
cost reduction requirements relating to amortization of bond premium will
apply separately to the per unit cost of each bond issue. Unitholders' bases
in their Units, and the bases for their fractional interest in each Trust
asset, may have to be adjusted for their pro rata share of accrued interest
received, if any, on securities delivered after the Unitholders' respective
settlement dates.
Under the California personal property tax laws, bonds (including the
bonds in the Trust as well as "regular-way" and "when-issued" contracts for
the purchase of bonds) or any interest therein is exempt from such tax.
Any proceeds paid under the insurance policy issued to the Trustee of
the fund with respect to the bonds in the Trust as well as "regular-way" and
"when-issued" contracts for the purchase of bonds which represent maturing
interest on defaulted obligations held by the Trustee will be exempt from
California personal income tax if, and to the same extent as, such interest
would have been so exempt if paid by the issuer of the defaulted
obligations.
Under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units of
the Trust is not deductible for the purposes of the California personal
income tax. While there presently is no California authority interpreting
this provision, Section 17280(b)(2) directs the California Franchise Tax
Board to prescribe regulations determining the proper allocation and
apportionment of interest costs for this purpose. The Franchise Tax Board
has not yet proposed or prescribed such regulations. In interpreting the
generally similar Federal provision, the Internal Revenue Service has taken
the position that such indebtedness need not be directly traceable to the
purchase or carrying of Units (although the Service has not contended that a
deduction for interest on indebtedness incurred to purchase or improve a
personal residence or to purchase goods or services for personal consumption
will be disallowed). In the absence of conflicting regulations or other
California authority, the California Franchise Tax Board generally has
interpreted California statutory tax provisions in accord with Internal
Revenue Service interpretations of similar Federal provisions.
4 of 7
<PAGE>
NUVEEN CALIFORNIA INSURED TRUST 308
(NUVEEN Tax-Free Unit Trust, Series 1020)
Schedule of Investments at the Date of Deposit, August 14, 1998
<TABLE>
<CAPTION>
Ratings(3) Trustee's
Optional --------------------- Determination
Aggregate Name of Issuer and Title of Issue Represented Redemption Standard of Offering
Principal by Sponsor's Contracts to Purchase Bonds(1) Provisions(2) & Poor's Moody's Price
<C> <C> <S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
$ 250,000 California Educational Facilities Authority, 2007 at 102 AAA Aaa $ 245,025
Revenue Bonds (California Western School of
Law), Series 1998, 5.00% Due 10/1/28.
250,000 California State University, Hayward 2008 at 101 AAA Aaa 252,068
Foundation, Inc., Auxiliary Organization
Revenue Refunding Bonds, Series 1998, 5.25%
Due 8/1/25.
260,000 California Statewide Communities Development 2007 at 102 AAA Aaa 258,401
Authority, Certificates of Participation,
John Muir/Mt. Diablo Health System, 5.125%
Due 8/15/22.
250,000 The Regents of the University of California, 2007 at 101 AAA Aaa 249,173
Refunding Revenue Bonds (Multiple Purpose
Projects), Series E, 5.125% Due 9/1/20.
240,000 Anaheim Public Financing Authority, Revenue 2008 at 101 AAA Aaa 235,440
Bonds, Series 1998 (City of Anaheim,
California, Electric System Distribution
Facilities), 5.00% Due 10/1/25.
150,000 Sacramento Municipal Utility District 2007 at 102 AAA Aaa 149,478
(California), Electric Revenue Refunding
Bonds, 1997 Series L, 5.125% Due 7/1/22.
250,000 San Mateo-Foster City School District (San 2006 at 102 AAA Aaa 245,120
Mateo County, California), General Obligation
Bonds, Election of 1997, Series 1997, 5.00%
Due 8/1/27.
100,000 Yorba Linda Redevelopment Agency (Orange No Optional Call AAA Aaa 25,928
County, California), Yorba Linda
Redevelopment Project, 1998 Tax Allocation
Parity Refunding Bonds, Series A 0.00% Due
9/1/24. (Original issue discount bonds
delivered on or about June 18, 1998 at a
price of 25.071% of principal amount.)
- ----------- ---------------
$ 1,750,000 $ 1,660,633
- ----------- ---------------
- ----------- ---------------
</TABLE>
- ------------
(1) The Sponsor's contracts to purchase Bonds were entered into on August
13, 1998. Other information regarding the Bonds in the Trust on the Date of
Deposit is as follows:
<TABLE>
<CAPTION>
Profit (or
Cost to loss) Annual Interest Bid Price
Trust Sponsor to Sponsor Income to Trust of Bonds
---------------------------------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
California Insured Trust 308............ $ 1,654,089 $ 6,544 $ 83,950 $ 1,653,783
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .39%. Neither cost
to Sponsor nor profit (or loss) to Sponsor reflects underwriting profits or
losses received or incurred by the Sponsor through its participation in
underwriting syndicates. The Sponsor did not participate as either the sole
underwriter or as a manager or member of a syndicate that acted as the original
underwriter of any of the Bonds.
(2) The Bonds are first subject to optional redemption in the years, and at
the prices, shown. Unless otherwise indicated, the Bonds, except for Bonds
issued at a substantial original issue discount, are redeemable at declining
prices (but not below par value) in subsequent years. Original issue discount
bonds, including zero coupon bonds, are generally redeemable at prices based on
the issue price plus the amount of original issue discount accreted to
redemption plus, if applicable, some premium, the amount of which will decline
in subsequent years. The Bonds may also be subject to sinking fund redemption
without premium prior to the dates shown. Certain Bonds may be subject to
redemption without premium prior to the date shown pursuant to special or
mandatory call provisions specified in the instruments setting forth the terms
and provisions of such Bonds. See "COMPOSITION OF TRUSTS", "WHAT IS THE TAX
STATUS OF UNITHOLDERS?" and "RISK FACTORS" in Part B of this Prospectus.
(3) All the Bonds in the Insured Trusts, as insured by the Insurer, are
rated AAA by Standard & Poor's, AAA by Fitch and/or Aaa by Moody's. The
insurance obtained by the Trust guarantees the payment of interest and principal
on the Bonds when due but does not cover certain market risks associated with
fixed income securities such as accelerated payments, premiums payable on
mandatory redemptions or interest rate risks. (See "WHY AND HOW ARE THE BONDS
INSURED?" in Part B of this Prospectus and "Description of Ratings" in the
Information Supplement.)
5 of 7
<PAGE>
Statement of Condition
NUVEEN CALIFORNIA INSURED TRUST 308
(Nuveen Tax-Free Unit Trust, Series 1020)
AS OF AUGUST 14, 1998
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase Bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,660,633
Accrued interest to August 14, 1998 on underlying
Bonds(1)........................................ 22,322
Offering costs(3)................................. 2,500
--------------
Total................................. $ 1,685,455
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities:
Accrued interest to August 14, 1998 on
underlying Bonds(4).......................... $ 22,322
Accrued offering costs(3)..................... 2,500
--------------
Total................................. $ 24,822
--------------
--------------
Interest of Unitholders:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,746,189
Less: Gross underwriting commission(6).... (85,556)
--------------
Net amount applicable to investors............ $ 1,660,633
--------------
Total................................. $ 1,685,455
--------------
--------------
- ------------
</TABLE>
(1) Represented by contracts to purchase Bonds which include "when issued" or
"regular way" or "delayed delivery" contracts for which an irrevocable
letter of credit issued by a major commercial bank has been deposited with
the Trustee on the Date of Deposit. The amount of such letter of credit and
any cash deposited exceeds the amount necessary for the purchase of the
Bonds plus accrued interest to the Date of Deposit. At the Date of Deposit,
Bonds may have been delivered to the Sponsor pursuant to certain of these
contracts; the Sponsor has assigned to the Trustee all of its rights, title
and interest in and to such Bonds.
(2) Aggregate value (at offering prices) as of the Date of Deposit of the Bonds
listed under "Schedule of Investments" herein, and their aggregate cost to
the Trust are the same. Such offering prices were determined by Kenny S&P
Evaluation Services, a division of J. J. Kenny Co., Inc., as of the close of
business on the business day prior to the Date of Deposit. (See "HOW WAS THE
PRICE OF THE BONDS DETERMINED AT THE DATE OF DEPOSIT?" in Part B of this
Prospectus.) Insurance coverage providing for the timely payment, when due,
of all principal of and interest on the Bonds in an Insured Trust has been
obtained by the Sponsor or by the issuers of such Bonds. Such insurance does
not guarantee the market value of the Bonds or the value of the Units. Both
the bid and the offering prices of the underlying Bonds and of the Units may
include value attributable to such policies of insurance.
(3) The Trust (and therefore Unitholders) will bear all or a portion of its
estimated offering costs which will be deferred and amortized over five
years from the Date of Deposit.
(4) Representing, as set forth in "WHAT IS ACCRUED INTEREST?" in Part B of this
Prospectus, advancement by the Trustee of an amount equal to the accrued
Bond interest as of the Date of Deposit.
(5) Aggregate Public Offering Price (exclusive of accrued interest) computed as
set forth under "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of
this Prospectus.
(6) The gross underwriting commission of 4.90% of the Public Offering Price has
been calculated on the assumption that the Units sold are not subject to a
reduction of sales charge for quantity purchases. In single transactions
involving 500 Units or more, the sales charge is reduced. (See "HOW IS THE
PUBLIC OFFERING PRICE DETERMINED?" in Part B of this Prospectus.)
6 of 7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
CALIFORNIA INSURED TRUST 308:
We have audited the accompanying statement of condition and the schedule of
investments at date of deposit (included in Part A of this Prospectus) of
California Insured Trust 308 (contained in Nuveen Tax-Free Unit Trust, Series
1020), as of August 14, 1998. These financial statements are the responsibility
of the Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the irrevocable letter of credit arrangement for the purchase of
securities, described in Note (1) to the statement of condition, by
correspondence with 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 that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of condition and the schedule of investments
at date of deposit referred to above present fairly, in all material respects,
the financial position of California Insured Trust 308 as of August 14, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 14, 1998
7 of 7
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers 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 these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
AUGUST 14, 1998
SUBJECT TO COMPLETION
A
NUVEEN NUVEEN COLORADO INSURED TRUST 73
(NUVEEN TAX-FREE UNIT TRUST, SERIES 1020)
CUSIP NUMBERS:
Monthly: 6706E9 705
Quarterly: 6706E9 713
Semi-Annually: 6706E9 721
PROSPECTUS--PART A (SPECIFIC TERMS) -- AUGUST 14, 1998
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY THE
PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS DATED JULY 8, 1997, TO WHICH SUCH
REFERENCE
HEREIN APPLIES. BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
Colorado Insured Trust 73 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of Colorado,
certain United States Territories or authorities and political subdivisions
thereof which, in the opinion of recognized bond counsel to the issuing
authorities, provide income which is exempt from Federal income tax and Colorado
income tax, to the extent indicated below.
The objectives of the Trust are income exempt from Federal and state income
taxes, and conservation of capital. The objectives are, of course, dependent
upon the continuing ability of the issuers, obligors and/or insurers to meet
their respective obligations.
The Portfolio of the Trust consists of 8 obligations issued by entities
located in Colorado. The Bonds in the Trust are either general obligations of
the governmental entity issuing them and are backed by the taxing power thereof
or are payable as to principal and interest from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
The sources of payment for the Bonds are divided as follows:
<TABLE>
<CAPTION>
NUMBER OF PORTFOLIO
ISSUES PURPOSE OF ISSUE PERCENTAGE
--------------- ----------------------------------------------------
<C> <S> <C>
2 Municipal Lease Revenue 28.6 %
2 General Obligation 28.5
1 Health Care Facility Revenue 14.3
1 Transportation 14.3
2 Bridge and Toll Road Revenue 14.3
</TABLE>
Approximately 5.7% of the aggregate principal amount of the Bonds in the
Trust (accounting for approximately 2.5% of the aggregate offering price of the
Bonds) are original issue discount obligations. Certain of these original issue
discount obligations, amounting to 5.7% of the aggregate principal amount and
2.5% of the aggregate offering price of the Bonds in the Trust, are "zero
coupon" bonds. See "RISK FACTORS" in Part B of this Prospectus for a discussion
of the characteristics of such obligations and of the risks associated
therewith.
All of the Bonds in the Trust are covered by policies of insurance obtained
from the MBIA Insurance Corporation guaranteeing payment of principal and
interest when due. As a result of such insurance, the Bonds in the Trust have
received a rating of "Aaa" by Moody's, "AAA" by Fitch, and/or "AAA" by Standard
& Poor's. Insurance does not guarantee the market value of the Bonds or of Trust
Units.
The Trust is considered to be concentrated in Bonds of Municipal Lease
Revenue Issuers whose revenues are subject to certain risks including the lack
of annual budget appropriations of the leasing governmental entity. For a
discussion of the risks associated with investments in the bonds of various
issuers, see "RISK FACTORS" in Part B of this Prospectus.
ESSENTIAL INFORMATION
REGARDING THE NUVEEN COLORADO INSURED TRUST 73
ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT, AUGUST 13, 1998
Sponsor and Evaluator.......... John Nuveen & Co. Incorporated
Trustee.............................. The Chase Manhattan Bank
------------------------------------------------
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<S> <C>
Principal Amount of Bonds in Trust.................. $ 1,750,000
Number of Units..................................... 17,500
Fractional Undivided Interest in Trust Per Unit..... 1/17,500
Public Offering Price--Less than 500 Units
Aggregate Offering Price of Bonds in Trust...... $ 1,685,484
Divided by Number of Units...................... $ 96.31
Plus Sales Charge 4.9% (5.152% of the Aggregate
Offering Price of the Bonds per Unit).......... $ 4.96
Public Offering Price Per Unit(1)............... $ 101.27
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 95.96
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 96.31
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.31
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.96
Average Maturity of Bonds in the Trust(2)........... 22.1 years
</TABLE>
- ----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 of 7
<PAGE>
ESSENTIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.7377 $ 4.7377 $ 4.7377
Less Estimated Annual Expense........ $ .2534 $ .2214 $ .2024
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.4843 $ 4.5163 $ 4.5353
Daily Rate of Accrual Per Unit........... $ .01245 $ .01254 $ .01259
ESTIMATED CURRENT RETURN(5).............. 4.43% 4.46% 4.48 %
ESTIMATED LONG TERM RETURN(5)............ 4.50% 4.53% 4.55 %
Trustee's Annual Fees(6)................. $ 1.4421 $ 1.1221 $ 0.9321
Date of Deposit....................................................................................August 14, 1998
Settlement Date....................................................................................August 19, 1998
Mandatory Termination Date....................................See "OTHER INFORMATION" in Part B of this Prospectus
Minimum Value of Each Trust...................................See "OTHER INFORMATION" in Part B of this Prospectus
Sponsor's Annual Evaluation Fee(7)......................................$0.17 per $1,000 principal amount of Bonds
Estimated Annual Offering Expenses(8).............................................................$.02971 per Unit
- ----------
BECAUSE CERTAIN OF THE BONDS IN THE TRUST WILL NOT BE DELIVERED TO THE TRUSTEE UNTIL AFTER THE SETTLEMENT DATE FOR
A PURCHASE OF UNITS MADE ON THE DATE OF DEPOSIT, INTEREST THAT ACCRUES ON THOSE BONDS BETWEEN THE DATE OF DEPOSIT
AND SUCH DELIVERY DATE WILL BE TREATED AS A RETURN OF PRINCIPAL RATHER THAN AS TAX-EXEMPT INCOME. THE AMOUNT OF
ANY SUCH RETURN OF PRINCIPAL IS NOT INCLUDED IN THE ANNUAL INTEREST INCOME SHOWN ABOVE. FOR THE TRUST, THE
FOLLOWING SETS FORTH THE LATEST SCHEDULED BOND DELIVERY DATE, THE AMOUNT PER UNIT THAT WILL BE TREATED AS A RETURN
OF PRINCIPAL TO UNITHOLDERS WHO PURCHASE ON THE DATE OF DEPOSIT, AND THE ESTIMATED CURRENT RETURN UNDER THE
MONTHLY DISTRIBUTION PLAN AFTER THE FIRST YEAR, ASSUMING THE PORTFOLIO AND ESTIMATED ANNUAL EXPENSES DO NOT VARY
FROM THAT SET FORTH ABOVE (SEE "WHAT ARE NORMAL TRUST OPERATING EXPENSES?" IN PART B OF THIS PROSPECTUS AND THE
"SCHEDULE OF INVESTMENTS"). THE ESTIMATED CURRENT RETURN AFTER THE FIRST YEAR WILL ALSO BE HIGHER UNDER THE
QUARTERLY AND SEMI-ANNUAL DISTRIBUTION PLANS:
LATEST SCHEDULED PER UNIT ESTIMATED CURRENT RETURN
DELIVERY DATE RETURN OF PRINCIPAL AFTER THE FIRST YEAR
------------------ -------------------- -------------------------
COLORADO INSURED TRUST........ AUGUST 27, 1998 $ .03 4.46 %
</TABLE>
The evaluation time for purpose of sale, purchase or redemption of Units is 4
p.m. Eastern time or as of any earlier time at which the New York Stock Exchange
closes. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of this
Prospectus.)
(1) Units are offered at the Public Offering Price plus accrued interest from
the preceding Record Date to, but not including, the date of settlement
(normally three business days after purchase). The Date of Deposit of the
Fund has been designated as the First Record Date for all plans of
distribution of the Trust and, accordingly, for Units purchased on the Date
of Deposit, $.06 of accrued interest to the Settlement Date will be added to
the Public Offering Price. (See "WHAT IS ACCRUED INTEREST?" in Part B of
this Prospectus.)
(2) The Average Maturity of Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds on
a stated call date, based upon such call date). The Average Maturity of
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) Assumes delivery of all Bonds. (See "COMPOSITION OF TRUSTS" appearing in
Part B of this Prospectus.) Interest income does not include accretion of
original issue discount on "zero coupon" Bonds, Stripped Obligations or
other original issue discount Bonds. (See "RISK FACTORS" in Part B of this
Prospectus.)
(4) The amount and timing of interest distributions from the Trust under the
various plans of distribution are set forth below. It is anticipated that
the amount of interest to be distributed per Unit in each year under each
plan of distribution will initially be substantially equal to the Estimated
Net Annual Interest Income per Unit for that plan. The amount of interest to
be distributed annually per Unit, will generally change as Bonds are
redeemed, mature or are sold or as fees and expenses increase or decrease.
(5) Estimated Long Term Return for the Trust represents the average of the
yields to maturity (or call) of the Bonds in the Trust's portfolio
calculated in accordance with accepted bond practices and adjusted to
reflect a compounding factor, expenses and sales charges. Estimated Current
Return is computed by dividing the 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 more information see "WHAT ARE ESTIMATED LONG TERM RETURN AND
ESTIMATED CURRENT RETURN?" in Part B of this Prospectus.
(6) Each Trustee annual fee is per $1,000 principal amount of the underlying
Bonds in the Trust for that portion of the Trust that represents a
particular plan of distribution.
(7) The Sponsor's Annual Evaluation Fee may, from time to time, be adjusted
provided that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent"
or if such index no longer exists, a comparable index. The consent or
concurrence of any Unitholder shall not be required for any such adjustment
or increase.
(8) Notwithstanding anything to the contrary contained in Part B of the
Prospectus regarding expenses incurred by the Trust for the establishment of
the Trust, the Trust (and therefore Unitholders) will bear all or a portion
of its offering costs (including, among others, costs of registering Units
with the Securities and Exchange Commission and states, and legal fees but
not including the expenses incurred in the printing of preliminary and final
prospectuses, and expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses) as
is common for mutual funds. Total offering costs will be amortized over a
five year period.
2 of 7
<PAGE>
INTEREST DISTRIBUTION
Details of interest distributions per Unit of the Trust under the various
plans appear in the following table based upon estimated Net Annual Interest
Income at the Date of Deposit:
<TABLE>
<CAPTION>
Normal
Distributions
1998 1999 per Year
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 9/1 11/1 2/1 5/1
Distribution Date..................... 9/15 11/15 2/15 5/15
- --------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .2111(1) $ 4.5145
-------- $.3762 every month --------
Quarterly Distribution Plan........... $ .2111(1) $ .7572(2) $ 1.1358 $ 1.1358 $ 4.5465
Semi-Annual Distribution Plan......... $ .2111(1) $ .7608(3) $ 2.2824 $ 4.5655
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Record Dates for semi-annual distributions are May 1 and November 1; for
quarterly distributions, they are February 1, May 1, August 1 and November 1.
Record Dates for monthly distributions are the first day of each month.
Distribution Dates under each distribution plan are the fifteenth day of the
month in which the respective Record Date occurred. For additional
information see "WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?" in Part B of
this Prospectus.
(1) The first distribution will be paid to all Unitholders, regardless of the
distribution plan selected. Such distribution may be more or less than a
regular monthly distribution.
(2) The second distribution under the quarterly distribution plan represents a
2-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
2-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
COLORADO RISK FACTORS
The financial condition of the State of Colorado is affected by various
national, economic, social and environmental policies and conditions.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has experienced significant revenue
shortfalls. A recently passed, but somewhat ambiguous Constitutional Amendment
requires voter approval prior to tax increases, creation of debt, or until levy
or valuation for assessment ratio increases. The Amendment also limits increases
in government spending and property tax revenues to specified percentages.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds, are
affected by numerous factors. The economy of the State continues to be dependent
on tourism and its position as a transportation hub. These sectors tend to be
cyclical.
The State is a party to numerous lawsuits in which an adverse final decision
could materially affect the State's governmental operations and consequently its
ability to pay debt service on its obligations.
Further information concerning Colorado risk factors may be obtained upon
written or telephonic request to the Trustee as described in "OTHER INFORMATION
- -- Supplemental Information" appearing in Part B of this Prospectus.
YEAR 2000 PROBLEM. Like other investment companies, financial and business
organizations and individuals around the world a Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to such Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by a Trust's other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to a Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the Bonds contained in a Trust, to varying degrees
based upon various factors, including, but not limited to, their industry sector
and degree of technological sophistication. The Sponsor is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the Bonds
contained in a Trust.
TAX STATUS
For a discussion of the Federal tax status of income earned on Trust Units,
see "WHAT IS THE TAX STATUS OF UNITHOLDERS?" in Part B of this Prospectus.
Investors should be aware that recent legislative changes provide that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year)
realized from property (with certain exclusions) is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period for the
asset is one year or less. The date on which a Unit is acquired (i.e., the
"trade date") is excluded for purposes for determining the holding period of the
Unit. The legislation is generally effective retroactively for amounts properly
taken into account on or after January 1, 1998.
3 of 7
<PAGE>
Capital gains realized from assets held for one year or less are taxed at the
same rates as ordinary income. The Legislation also includes provisions that
would treat certain transactions designed to reduce or eliminate risk of loss
and opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts, or similar transactions) as
constructive sales for purposes of recognition of gain (and not loss) and for
purposes of determining the holding period. Potential investors should consult
their own tax advisors regarding the potential effect of the Legislation on
their investment in Units.
In the opinion of Sherman & Howard L.L.C., special Colorado counsel to the
Trust, under existing law:
A Trust will consist of obligations which were issued by the State of
Colorado or its political subdivisions or by the United States or
possessions of the United States including Puerto Rico, the Virgin Islands
and Guam ("Colorado Bonds").
Because Colorado income tax law is based upon the Federal law and in
light of the opinion of Chapman and Cutler, the Trust is not an association
taxable as a corporation for purposes of Colorado income taxation.
With respect to Colorado Unitholders, in view of the relationship
between Federal and Colorado tax computations described above and the
opinion of Chapman and Cutler referred to above:
Each Colorado Unitholder will be treated as owning a share of each asset
of the Trust for Colorado income tax purposes, in the proportion that the
number of Units of such Trust held by him bears to the total number of
outstanding Units of the Trust, and the income of the Trust will therefore
be treated as the income of each Colorado Unitholder under Colorado law in
the proportion described.
Interest on Colorado Bonds that would not be subject to Colorado income
tax or Colorado alternative minimum tax when paid directly to a Colorado
Unitholder will not be subject to Colorado income tax or alternative minimum
tax when received by the Trust and attributed to such Colorado Unitholder
and when distributed to such Colorado Unitholder.
Any proceeds paid under an insurance policy issued to the issuer of the
Colorado Bonds involved, to the Depositor prior to deposit of the Colorado
Bonds in the Trust, or to the Trust, which proceeds represent maturing
interest on defaulted Colorado Bonds and which proceeds would not be subject
to Colorado income tax or alternative minimum tax when paid directly to a
Colorado Unitholder will not be subject to Colorado income and alternative
minimum tax when received by the Trust and attributed to such Colorado
Unitholder and when distributed to such Colorado Unitholder.
Each Colorado Unitholder will realize gain or loss taxable in Colorado
when the Trust disposes of a Colorado Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Colorado Unitholder redeems
or sells Units at a price that differs from original cost as adjusted for
amortization of bond discount or premium and other basis adjustments
(including any basis reduction that may be required to reflect a Colorado
Unitholder's share of interest, if any, accruing on Colorado Bonds during
the interval between the Colorado Unitholder's settlement date and the date
such Colorado Bonds are delivered to the Trust, if later).
Tax cost reduction requirements relating to amortization of bond premium
may, under some circumstances, result in Colorado Unitholders realizing gain
taxable in Colorado when their Units are sold or redeemed for an amount
equal to or less than their original cost.
If interest on indebtedness incurred or continued by a Colorado
Unitholder to purchase Units in the Trust is not deductible for Federal
income tax purposes, it will not be deductible for Colorado income tax
purposes.
4 of 7
<PAGE>
NUVEEN COLORADO INSURED TRUST 73
(NUVEEN Tax-Free Unit Trust, Series 1020)
Schedule of Investments at the Date of Deposit, August 14, 1998
<TABLE>
<CAPTION>
Ratings(3) Trustee's
Optional --------------------- Determination
Aggregate Name of Issuer and Title of Issue Represented Redemption Standard of Offering
Principal by Sponsor's Contracts to Purchase Bonds(1) Provisions(2) & Poor's Moody's Price
<C> <C> <S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
$ 250,000 Colorado Health Facilities Authority, Revenue 2008 at 101 AAA Aaa $ 245,000
Bonds, Series 1998 (Sisters of Charity of
Leavenworth Health Services Corporation),
5.00% Due 12/1/25.
250,000 * City of Fort Collins, Colorado, Lease 2008 at 100 AAA Aaa 251,470
Certificates of Participation (Civic Center
Facilities Project), Series 1998, 5.125% Due
12/1/18. (When issued.)
250,000 City and County of Denver, Colorado, Airport 2007 at 101 AAA Aaa 253,160
System Revenue Bonds, Series 1997E, 5.25% Due
11/15/23.
100,000 E-470 Public Highway Authority (Colorado), No Optional Call AAA Aaa 42,733
Senior Revenue Bonds, Series 1997B, 0.00% Due
9/1/15. (Original issue discount bonds
delivered on or about August 27, 1997 at a
price of 38.30% of principal amount.)
150,000 E-470 Public Highway Authority (Colorado), 2007 at 101 AAA Aaa 147,771
Senior Revenue Bonds, Series 1997A, 5.00% Due
9/1/26.
250,000 Jefferson County School District No. R-1 2008 at 101 AAA Aaa 248,450
(Jefferson County, Colorado), General
Obligation Bonds, Series 1998A, 5.00% Due
12/15/17.
250,000 * Poudre School District R-1, Larimer County, 2008 at 100 AAA Aaa 248,450
Colorado, Lease Certificates of
Participation, Series 1998, 5.00% Due
12/1/17. (When issued.)
250,000 Steamboat Springs School District No. Re-2, 2007 at 100 AAA Aaa 248,450
Routt County, Colorado, General Obligation
Bonds, Series 1997, 5.00% Due 12/1/17.
- ----------- ---------------
$ 1,750,000 $ 1,685,484
- ----------- ---------------
- ----------- ---------------
</TABLE>
* These Bonds, or a portion thereof, have delivery dates beyond the normal
settlement date. Their expected delivery dates range from August 26, 1998 to
August 27, 1998. Contracts relating to Bonds with delivery dates after the
date of settlement for purchase made on the Date of Deposit constitute
approximately 29% of the aggregate principal amount of the Trust. (See
"COMPOSITION OF TRUSTS" in Part B of this Prospectus.)
- ------------
(1) The Sponsor's contracts to purchase Bonds were entered into during the
period from August 12, 1998 to August 13, 1998. Other information regarding the
Bonds in the Trust on the Date of Deposit is as follows:
<TABLE>
<CAPTION>
Profit (or
Cost to loss) Annual Interest Bid Price
Trust Sponsor to Sponsor Income to Trust of Bonds
---------------------------------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Colorado Insured Trust 73............... $ 1,680,960 $ 4,524 $ 83,438 $ 1,679,384
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .35%. Neither cost
to Sponsor nor profit (or loss) to Sponsor reflects underwriting profits or
losses received or incurred by the Sponsor through its participation in
underwriting syndicates. The Sponsor did not participate as either the sole
underwriter or as a manager or member of a syndicate that acted as the original
underwriter of any of the Bonds.
(2) The Bonds are first subject to optional redemption in the years, and at
the prices, shown. Unless otherwise indicated, the Bonds, except for Bonds
issued at a substantial original issue discount, are redeemable at declining
prices (but not below par value) in subsequent years. Original issue discount
bonds, including zero coupon bonds, are generally redeemable at prices based on
the issue price plus the amount of original issue discount accreted to
redemption plus, if applicable, some premium, the amount of which will decline
in subsequent years. The Bonds may also be subject to sinking fund redemption
without premium prior to the dates shown. Certain Bonds may be subject to
redemption without premium prior to the date shown pursuant to special or
mandatory call provisions specified in the instruments setting forth the terms
and provisions of such Bonds. See "COMPOSITION OF TRUSTS", "WHAT IS THE TAX
STATUS OF UNITHOLDERS?" and "RISK FACTORS" in Part B of this Prospectus.
(3) All the Bonds in the Insured Trusts, as insured by the Insurer, are
rated AAA by Standard & Poor's, AAA by Fitch and/or Aaa by Moody's. The
insurance obtained by the Trust guarantees the payment of interest and principal
on the Bonds when due but does not cover certain market risks associated with
fixed income securities such as accelerated payments, premiums payable on
mandatory redemptions or interest rate risks. (See "WHY AND HOW ARE THE BONDS
INSURED?" in Part B of this Prospectus and "Description of Ratings" in the
Information Supplement.)
5 of 7
<PAGE>
Statement of Condition
NUVEEN COLORADO INSURED TRUST 73
(Nuveen Tax-Free Unit Trust, Series 1020)
AS OF AUGUST 14, 1998
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase Bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,685,484
Accrued interest to August 14, 1998 on underlying
Bonds(1)........................................ 17,832
Offering costs(3)................................. 2,600
--------------
Total................................. $ 1,705,916
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities:
Accrued interest to August 14, 1998 on
underlying Bonds(4).......................... $ 17,832
Accrued offering costs(3)..................... 2,600
--------------
Total................................. $ 20,432
--------------
--------------
Interest of Unitholders:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,772,320
Less: Gross underwriting commission(6).... (86,836)
--------------
Net amount applicable to investors............ $ 1,685,484
--------------
Total................................. $ 1,705,916
--------------
--------------
- ------------
</TABLE>
(1) Represented by contracts to purchase Bonds which include "when issued" or
"regular way" or "delayed delivery" contracts for which an irrevocable
letter of credit issued by a major commercial bank has been deposited with
the Trustee on the Date of Deposit. The amount of such letter of credit and
any cash deposited exceeds the amount necessary for the purchase of the
Bonds plus accrued interest to the Date of Deposit. At the Date of Deposit,
Bonds may have been delivered to the Sponsor pursuant to certain of these
contracts; the Sponsor has assigned to the Trustee all of its rights, title
and interest in and to such Bonds.
(2) Aggregate value (at offering prices) as of the Date of Deposit of the Bonds
listed under "Schedule of Investments" herein, and their aggregate cost to
the Trust are the same. Such offering prices were determined by Kenny S&P
Evaluation Services, a division of J. J. Kenny Co., Inc., as of the close of
business on the business day prior to the Date of Deposit. (See "HOW WAS THE
PRICE OF THE BONDS DETERMINED AT THE DATE OF DEPOSIT?" in Part B of this
Prospectus.) Insurance coverage providing for the timely payment, when due,
of all principal of and interest on the Bonds in an Insured Trust has been
obtained by the Sponsor or by the issuers of such Bonds. Such insurance does
not guarantee the market value of the Bonds or the value of the Units. Both
the bid and the offering prices of the underlying Bonds and of the Units may
include value attributable to such policies of insurance.
(3) The Trust (and therefore Unitholders) will bear all or a portion of its
estimated offering costs which will be deferred and amortized over five
years from the Date of Deposit.
(4) Representing, as set forth in "WHAT IS ACCRUED INTEREST?" in Part B of this
Prospectus, advancement by the Trustee of an amount equal to the accrued
Bond interest as of the Date of Deposit.
(5) Aggregate Public Offering Price (exclusive of accrued interest) computed as
set forth under "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of
this Prospectus.
(6) The gross underwriting commission of 4.90% of the Public Offering Price has
been calculated on the assumption that the Units sold are not subject to a
reduction of sales charge for quantity purchases. In single transactions
involving 500 Units or more, the sales charge is reduced. (See "HOW IS THE
PUBLIC OFFERING PRICE DETERMINED?" in Part B of this Prospectus.)
6 of 7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
COLORADO INSURED TRUST 73:
We have audited the accompanying statement of condition and the schedule of
investments at date of deposit (included in Part A of this Prospectus) of
Colorado Insured Trust 73 (contained in Nuveen Tax-Free Unit Trust, Series
1020), as of August 14, 1998. These financial statements are the responsibility
of the Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the irrevocable letter of credit arrangement for the purchase of
securities, described in Note (1) to the statement of condition, by
correspondence with 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 that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of condition and the schedule of investments
at date of deposit referred to above present fairly, in all material respects,
the financial position of Colorado Insured Trust 73 as of August 14, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 14, 1998
7 of 7
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers 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 these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
AUGUST 14, 1998
SUBJECT TO COMPLETION
A
NUVEEN NUVEEN MICHIGAN INSURED TRUST 75
(NUVEEN TAX-FREE UNIT TRUST, SERIES 1020)
CUSIP NUMBERS:
Monthly: 67095E 765
Quarterly: 67095E 773
Semi-Annually: 67095E 781
PROSPECTUS--PART A (SPECIFIC TERMS) -- AUGUST 14, 1998
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY THE
PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS DATED JULY 8, 1997, TO WHICH SUCH
REFERENCE
HEREIN APPLIES. BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
Michigan Insured Trust 75 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of Michigan,
certain United States Territories or authorities and political subdivisions
thereof which, in the opinion of recognized bond counsel to the issuing
authorities, provide income which is exempt from Federal income tax and Michigan
income, intangible and local taxes, to the extent indicated below.
The objectives of the Trust are income exempt from Federal income tax, state
income taxes and state intangible taxes, and conservation of capital. The
objectives are, of course, dependent upon the continuing ability of the issuers,
obligors and/or insurers to meet their respective obligations.
The Portfolio of the Trust consists of 8 obligations issued by entities
located in Michigan. The Bonds in the Trust are either general obligations of
the governmental entity issuing them and are backed by the taxing power thereof
or are payable as to principal and interest from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
The sources of payment for the Bonds are divided as follows:
<TABLE>
<CAPTION>
NUMBER OF PORTFOLIO
ISSUES PURPOSE OF ISSUE PERCENTAGE
--------------- ----------------------------------------------------
<C> <S> <C>
3 General Obligation 37.1 %
2 Health Care Facility Revenue 28.6
1 Education Revenue 14.3
1 Water and/or Sewer Revenue 14.3
1 Miscellaneous Revenue 5.7
</TABLE>
Approximately 34.3% of the aggregate principal amount of the Bonds in the
Trust (accounting for approximately 31.7% of the aggregate offering price of the
Bonds) are original issue discount obligations. Certain of these original issue
discount obligations, amounting to 5.7% of the aggregate principal amount and
2.0% of the aggregate offering price of the Bonds in the Trust, are "zero
coupon" bonds. See "RISK FACTORS" in Part B of this Prospectus for a discussion
of the characteristics of such obligations and of the risks associated
therewith.
All of the Bonds in the Trust are covered by policies of insurance obtained
from the MBIA Insurance Corporation guaranteeing payment of principal and
interest when due. As a result of such insurance, the Bonds in the Trust have
received a rating of "Aaa" by Moody's, "AAA" by Fitch, and/or "AAA" by Standard
& Poor's. Insurance does not guarantee the market value of the Bonds or of Trust
Units.
The Trust is considered to be concentrated in Bonds of Health Care Facility
Revenue Issuers whose revenues are subject to certain risks including increased
governmental regulation, fluctuating occupancy levels and increased competition.
For a discussion of the risks associated with investments in the bonds of
various issuers, see "RISK FACTORS" in Part B of this Prospectus.
ESSENTIAL INFORMATION
REGARDING THE NUVEEN MICHIGAN INSURED TRUST 75
ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT, AUGUST 13, 1998
Sponsor and Evaluator.......... John Nuveen & Co. Incorporated
Trustee.............................. The Chase Manhattan Bank
------------------------------------------------
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<S> <C>
Principal Amount of Bonds in Trust.................. $ 1,750,000
Number of Units..................................... 17,500
Fractional Undivided Interest in Trust Per Unit..... 1/17,500
Public Offering Price--Less than 500 Units
Aggregate Offering Price of Bonds in Trust...... $ 1,660,245
Divided by Number of Units...................... $ 94.87
Plus Sales Charge 4.9% (5.152% of the Aggregate
Offering Price of the Bonds per Unit).......... $ 4.89
Public Offering Price Per Unit(1)............... $ 99.76
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 94.48
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 94.87
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.28
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.89
Average Maturity of Bonds in the Trust(2)........... 27.3 years
</TABLE>
- ----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 of 7
<PAGE>
ESSENTIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.7893 $ 4.7893 $ 4.7893
Less Estimated Annual Expense........ $ .2566 $ .2246 $ .2056
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.5327 $ 4.5647 $ 4.5837
Daily Rate of Accrual Per Unit........... $ .01259 $ .01267 $ .01273
ESTIMATED CURRENT RETURN(5).............. 4.54% 4.58% 4.59 %
ESTIMATED LONG TERM RETURN(5)............ 4.62% 4.66% 4.68 %
Trustee's Annual Fees(6)................. $ 1.4737 $ 1.1537 $ 0.9637
Date of Deposit....................................................................................August 14, 1998
Settlement Date....................................................................................August 19, 1998
Mandatory Termination Date....................................See "OTHER INFORMATION" in Part B of this Prospectus
Minimum Value of Each Trust...................................See "OTHER INFORMATION" in Part B of this Prospectus
Sponsor's Annual Evaluation Fee(7)......................................$0.17 per $1,000 principal amount of Bonds
Estimated Annual Offering Expenses(8).............................................................$.02971 per Unit
- ----------
</TABLE>
The evaluation time for purpose of sale, purchase or redemption of Units is 4
p.m. Eastern time or as of any earlier time at which the New York Stock Exchange
closes. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of this
Prospectus.)
(1) Units are offered at the Public Offering Price plus accrued interest from
the preceding Record Date to, but not including, the date of settlement
(normally three business days after purchase). The Date of Deposit of the
Fund has been designated as the First Record Date for all plans of
distribution of the Trust and, accordingly, for Units purchased on the Date
of Deposit, $.06 of accrued interest to the Settlement Date will be added to
the Public Offering Price. (See "WHAT IS ACCRUED INTEREST?" in Part B of
this Prospectus.)
(2) The Average Maturity of Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds on
a stated call date, based upon such call date). The Average Maturity of
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) Assumes delivery of all Bonds. (See "COMPOSITION OF TRUSTS" appearing in
Part B of this Prospectus.) Interest income does not include accretion of
original issue discount on "zero coupon" Bonds, Stripped Obligations or
other original issue discount Bonds. (See "RISK FACTORS" in Part B of this
Prospectus.)
(4) The amount and timing of interest distributions from the Trust under the
various plans of distribution are set forth below. It is anticipated that
the amount of interest to be distributed per Unit in each year under each
plan of distribution will initially be substantially equal to the Estimated
Net Annual Interest Income per Unit for that plan. The amount of interest to
be distributed annually per Unit, will generally change as Bonds are
redeemed, mature or are sold or as fees and expenses increase or decrease.
(5) Estimated Long Term Return for the Trust represents the average of the
yields to maturity (or call) of the Bonds in the Trust's portfolio
calculated in accordance with accepted bond practices and adjusted to
reflect a compounding factor, expenses and sales charges. Estimated Current
Return is computed by dividing the 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 more information see "WHAT ARE ESTIMATED LONG TERM RETURN AND
ESTIMATED CURRENT RETURN?" in Part B of this Prospectus.
(6) Each Trustee annual fee is per $1,000 principal amount of the underlying
Bonds in the Trust for that portion of the Trust that represents a
particular plan of distribution.
(7) The Sponsor's Annual Evaluation Fee may, from time to time, be adjusted
provided that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent"
or if such index no longer exists, a comparable index. The consent or
concurrence of any Unitholder shall not be required for any such adjustment
or increase.
(8) Notwithstanding anything to the contrary contained in Part B of the
Prospectus regarding expenses incurred by the Trust for the establishment of
the Trust, the Trust (and therefore Unitholders) will bear all or a portion
of its offering costs (including, among others, costs of registering Units
with the Securities and Exchange Commission and states, and legal fees but
not including the expenses incurred in the printing of preliminary and final
prospectuses, and expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses) as
is common for mutual funds. Total offering costs will be amortized over a
five year period.
2 of 7
<PAGE>
INTEREST DISTRIBUTION
Details of interest distributions per Unit of the Trust under the various
plans appear in the following table based upon estimated Net Annual Interest
Income at the Date of Deposit:
<TABLE>
<CAPTION>
Normal
Distributions
1998 1999 per Year
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 9/1 11/1 2/1 5/1
Distribution Date..................... 9/15 11/15 2/15 5/15
- --------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .2140(1) $ 4.5327
-------- $.3777 every month --------
Quarterly Distribution Plan........... $ .2140(1) $ .7602(2) $ 1.1403 $ 1.1403 $ 4.5647
Semi-Annual Distribution Plan......... $ .2140(1) $ .7638(3) $ 2.2914 $ 4.5837
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Record Dates for semi-annual distributions are May 1 and November 1; for
quarterly distributions, they are February 1, May 1, August 1 and November 1.
Record Dates for monthly distributions are the first day of each month.
Distribution Dates under each distribution plan are the fifteenth day of the
month in which the respective Record Date occurred. For additional
information see "WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?" in Part B of
this Prospectus.
(1) The first distribution will be paid to all Unitholders, regardless of the
distribution plan selected. Such distribution may be more or less than a
regular monthly distribution.
(2) The second distribution under the quarterly distribution plan represents a
2-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
2-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
MICHIGAN RISK FACTORS
The financial condition of the State of Michigan is affected by various
national, economic, social and environmental policies and conditions.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. The State's Constitution limits the amount of total State revenues
that may be raised from taxes and other sources. State revenues (excluding
federal aid and revenues used for payment of principal of and interest on
general obligation bonds) in any fiscal year are limited to a specified
percentage of State personal income in the prior calendar year or the average
thereof in the prior three calendar years, whichever is greater. The State may
raise taxes in excess of the limit in emergency situations.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds, are
affected by numerous factors. The economy of the State continues to be dependent
on manufacturing, tourism, and agriculture. These sectors tend to be cyclical
and are facing increasing competition from foreign producers.
The State is a party to numerous lawsuits in which an adverse final decision
could materially affect the State's governmental operations and consequently its
ability to pay debt service on its obligations.
As of May 20, 1998 all outstanding general obligation bonds of the State
were rated "AA+" by Standard and Poor's, "Aa1" by Moody's, and "AA+" by Fitch
Investors Service, Inc.
Further information concerning Michigan risk factors may be obtained upon
written or telephonic request to the Trustee as described in "OTHER INFORMATION
- -- Supplemental Information" appearing in Part B of this Prospectus.
YEAR 2000 PROBLEM. Like other investment companies, financial and business
organizations and individuals around the world a Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to such Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by a Trust's other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to a Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the Bonds contained in a Trust, to varying degrees
based upon various factors, including, but not limited to, their industry sector
and degree of technological sophistication. The Sponsor is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the Bonds
contained in a Trust.
TAX STATUS
For a discussion of the Federal tax status of income earned on Trust Units,
see "WHAT IS THE TAX STATUS OF UNITHOLDERS?" in Part B of this Prospectus.
Investors should be aware that recent legislative changes provide that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year)
realized from property (with certain exclusions) is subject to a maximum
marginal stated tax
3 of 7
<PAGE>
rate of 20% (10% in the case of certain taxpayers in the lowest tax bracket).
Capital gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is one year
or less. The date on which a Unit is acquired (i.e., the "trade date") is
excluded for purposes for determining the holding period of the Unit. The
legislation is generally effective retroactively for amounts properly taken into
account on or after January 1, 1998. Capital gains realized from assets held for
one year or less are taxed at the same rates as ordinary income. The Legislation
also includes provisions that would treat certain transactions designed to
reduce or eliminate risk of loss and opportunities for gain (e.g., short sales,
offsetting notional principal contracts, futures or forward contracts, or
similar transactions) as constructive sales for purposes of recognition of gain
(and not loss) and for purposes of determining the holding period. Potential
investors should consult their own tax advisors regarding the potential effect
of the Legislation on their investment in Units.
In the opinion of Dickinson, Wright, Moon, Van Dusen & Freeman, special
Michigan counsel to the Trust, under existing law:
The assets of a Michigan Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Michigan, and counties,
municipalities, authorities and political subdivisions thereof, and, in
limited instances, bonds issued by Puerto Rico, the Virgin Islands, Guam,
the Northern Mariana Islands or possessions of the United States (the
"Michigan Bonds").
Under the Michigan income tax act, the Michigan single business tax act,
the Michigan intangibles tax act, the Michigan city income tax act (which
authorizes the only income tax ordinance that may be adopted by cities in
Michigan), and under the law which authorizes a "first class" school
district to levy an excise tax upon income, the Trust is not subject to tax.
The income of the Trust will be treated as the income of the Unitholders and
be deemed to have been received by them when received by the Trust.
Interest on the Michigan Bonds in the Trust which is exempt from Federal
income tax is exempt from Michigan state and local income taxes and from the
Michigan single business tax. Further, any amounts paid under the insurance
representing maturing interest on defaulted obligations held by the Trustee
will be excludable from Michigan state and local income taxes and from the
Michigan single business tax if, and to the same extent as, such interest
would have been excludable if paid by the respective issuer.
For purposes of the foregoing Michigan tax laws (corporations and
financial institutions are not subject to the Michigan income tax), each
Unitholder will be considered to have received his pro rata share of
Michigan Bond interest when it is received by the Trust, and each Unitholder
will have a taxable event when the Trust disposes of a Michigan Bond
(whether by sale, exchange, redemption or payment at maturity) or when the
Unitholder redeems or sells Units. Due to the requirement that tax cost be
reduced to reflect amortization of bond premium, under some circumstances a
Unitholder may realize taxable gain when Units are sold or redeemed for an
amount equal to, or less than, their original cost. The tax cost of each
Unit to a Unitholder will be allocated for purposes of these Michigan tax
laws in the same manner as the cost is allocated for Federal income tax
purposes.
Pursuant to the position of the Michigan Department of Treasury in a
bulletin dated December 19, 1986, reaffirmed in a bulletin dated March 31,
1989, the portion of the Trust represented by the Michigan Bonds will be
exempt from the Michigan Intangibles Tax. The Department of Treasury has not
indicated a position with respect to treatment of amounts paid under a
policy of insurance with respect to maturing interest on defaulted
obligations (which amounts would have been excludable if paid by the
respective issuer) for purposes of determining the income base for the
Michigan Intangibles Tax.
If a Unitholder is subject to the Michigan single business tax (i.e., is
engaged in a "business activity" as defined in the Michigan single business
tax act), and has a taxable event for Federal income tax purposes when the
Trust sells or exchanges Michigan Bonds or the Unitholder sells or exchanges
Units, such event may impact the adjusted tax base upon which the single
business tax is computed. Any capital gain or loss realized from such
taxable event which was included in the computation of the Unitholder's
Federal taxable income, plus the portion, if any, of such capital gain
excluded in such computation and minus the portion, if any, of such capital
loss not deducted in such computation for the year the loss occurred, will
be included in the adjusted tax base. The adjusted tax base of any person
other than a corporation is affected by any gain or loss realized from the
taxable event only to the extent that the resulting Federal taxable income
is derived from "business activity."
4 of 7
<PAGE>
NUVEEN MICHIGAN INSURED TRUST 75
(NUVEEN Tax-Free Unit Trust, Series 1020)
Schedule of Investments at the Date of Deposit, August 14, 1998
<TABLE>
<CAPTION>
Ratings(3) Trustee's
Optional --------------------- Determination
Aggregate Name of Issuer and Title of Issue Represented Redemption Standard of Offering
Principal by Sponsor's Contracts to Purchase Bonds(1) Provisions(2) & Poor's Moody's Price
<C> <C> <S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
$ 100,000 Michigan Municipal Bond Authority, Local No Optional Call AAA Aaa $ 33,150
Government Loan Program, Revenue Bonds,
Series 1994G, 0.00% Due 5/1/20. (Original
issue discount bonds delivered on or about
December 21, 1994 at a price of 17.043% of
principal amount.)
250,000 Clintondale Community Schools, County of 2008 at 100 AAA Aaa 248,280
Macomb, State of Michigan, 1998 School
Building and Site and Refunding Bonds
(Unlimited Tax General Obligation), 5.125%
Due 5/1/28.
250,000 City of Detroit, Michigan, Water Supply System 2007 at 101 AAA Aaa 244,380
Revenue Bonds, Series 1997-A, 5.00% Due
7/1/27. (Original issue discount bonds
delivered on or about August 14, 1997 at a
price of 93.392% of principal amount.)
250,000 Godfrey-Lee Public Schools County of Kent, 2007 at 100 AAA Aaa 249,078
State of Michigan 1997 School Building and
Site Bonds (General Obligation - Unlimited
Tax), 5.125% Due 5/1/25. (Original issue
discount bonds delivered on or about June 26,
1997 at a price of 94.407% of principal
amount.)
250,000 Michigan State Hospital Finance Authority, 2008 at 101 AAA Aaa 242,668
Revenue and Refunding Bonds, Oakwood
Obligated Group, Series 1998A, 5.00% Due
8/15/26.
250,000 Board of Control of Northern Michigan 2007 at 102 AAA Aaa 249,155
University, General Revenue Bonds, Series
1997, 5.125% Due 12/1/20.
250,000 Petoskey Hospital Finance Authority, Limited 2008 at 102 AAA Aaa 242,505
Obligation Revenue and Refunding Bonds
(Northern Michigan Hospitals Obligated
Group), Series 1998, 5.00% Due 11/15/27.
150,000 Rockford Public Schools, County of Kent, State 2007 at 100 AAA Aaa 151,029
of Michigan, 1997 School Building and Site
Bonds (General Obligation--Unlimited Tax),
5.25% Due 5/1/27.
- ----------- ---------------
$ 1,750,000 $ 1,660,245
- ----------- ---------------
- ----------- ---------------
</TABLE>
- ------------
(1) The Sponsor's contracts to purchase Bonds were entered into on August
12, 1998. Other information regarding the Bonds in the Trust on the Date of
Deposit is as follows:
<TABLE>
<CAPTION>
Profit (or
Cost to loss) Annual Interest Bid Price
Trust Sponsor to Sponsor Income to Trust of Bonds
---------------------------------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Michigan Insured Trust 75............... $ 1,654,447 $ 5,798 $ 83,813 $ 1,653,395
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .39%. Neither cost
to Sponsor nor profit (or loss) to Sponsor reflects underwriting profits or
losses received or incurred by the Sponsor through its participation in
underwriting syndicates. The Sponsor did not participate as either the sole
underwriter or as a manager or member of a syndicate that acted as the original
underwriter of any of the Bonds.
(2) The Bonds are first subject to optional redemption in the years, and at
the prices, shown. Unless otherwise indicated, the Bonds, except for Bonds
issued at a substantial original issue discount, are redeemable at declining
prices (but not below par value) in subsequent years. Original issue discount
bonds, including zero coupon bonds, are generally redeemable at prices based on
the issue price plus the amount of original issue discount accreted to
redemption plus, if applicable, some premium, the amount of which will decline
in subsequent years. The Bonds may also be subject to sinking fund redemption
without premium prior to the dates shown. Certain Bonds may be subject to
redemption without premium prior to the date shown pursuant to special or
mandatory call provisions specified in the instruments setting forth the terms
and provisions of such Bonds. See "COMPOSITION OF TRUSTS", "WHAT IS THE TAX
STATUS OF UNITHOLDERS?" and "RISK FACTORS" in Part B of this Prospectus.
(3) All the Bonds in the Insured Trusts, as insured by the Insurer, are
rated AAA by Standard & Poor's, AAA by Fitch and/or Aaa by Moody's. The
insurance obtained by the Trust guarantees the payment of interest and principal
on the Bonds when due but does not cover certain market risks associated with
fixed income securities such as accelerated payments, premiums payable on
mandatory redemptions or interest rate risks. (See "WHY AND HOW ARE THE BONDS
INSURED?" in Part B of this Prospectus and "Description of Ratings" in the
Information Supplement.)
5 of 7
<PAGE>
Statement of Condition
NUVEEN MICHIGAN INSURED TRUST 75
(Nuveen Tax-Free Unit Trust, Series 1020)
AS OF AUGUST 14, 1998
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase Bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,660,245
Accrued interest to August 14, 1998 on underlying
Bonds(1)........................................ 22,426
Offering costs(3)................................. 2,600
--------------
Total................................. $ 1,685,271
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities:
Accrued interest to August 14, 1998 on
underlying Bonds(4).......................... $ 22,426
Accrued offering costs(3)..................... 2,600
--------------
Total................................. $ 25,026
--------------
--------------
Interest of Unitholders:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,745,781
Less: Gross underwriting commission(6).... (85,536)
--------------
Net amount applicable to investors............ $ 1,660,245
--------------
Total................................. $ 1,685,271
--------------
--------------
- ------------
</TABLE>
(1) Represented by contracts to purchase Bonds which include "when issued" or
"regular way" or "delayed delivery" contracts for which an irrevocable
letter of credit issued by a major commercial bank has been deposited with
the Trustee on the Date of Deposit. The amount of such letter of credit and
any cash deposited exceeds the amount necessary for the purchase of the
Bonds plus accrued interest to the Date of Deposit. At the Date of Deposit,
Bonds may have been delivered to the Sponsor pursuant to certain of these
contracts; the Sponsor has assigned to the Trustee all of its rights, title
and interest in and to such Bonds.
(2) Aggregate value (at offering prices) as of the Date of Deposit of the Bonds
listed under "Schedule of Investments" herein, and their aggregate cost to
the Trust are the same. Such offering prices were determined by Kenny S&P
Evaluation Services, a division of J. J. Kenny Co., Inc., as of the close of
business on the business day prior to the Date of Deposit. (See "HOW WAS THE
PRICE OF THE BONDS DETERMINED AT THE DATE OF DEPOSIT?" in Part B of this
Prospectus.) Insurance coverage providing for the timely payment, when due,
of all principal of and interest on the Bonds in an Insured Trust has been
obtained by the Sponsor or by the issuers of such Bonds. Such insurance does
not guarantee the market value of the Bonds or the value of the Units. Both
the bid and the offering prices of the underlying Bonds and of the Units may
include value attributable to such policies of insurance.
(3) The Trust (and therefore Unitholders) will bear all or a portion of its
estimated offering costs which will be deferred and amortized over five
years from the Date of Deposit.
(4) Representing, as set forth in "WHAT IS ACCRUED INTEREST?" in Part B of this
Prospectus, advancement by the Trustee of an amount equal to the accrued
Bond interest as of the Date of Deposit.
(5) Aggregate Public Offering Price (exclusive of accrued interest) computed as
set forth under "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of
this Prospectus.
(6) The gross underwriting commission of 4.90% of the Public Offering Price has
been calculated on the assumption that the Units sold are not subject to a
reduction of sales charge for quantity purchases. In single transactions
involving 500 Units or more, the sales charge is reduced. (See "HOW IS THE
PUBLIC OFFERING PRICE DETERMINED?" in Part B of this Prospectus.)
6 of 7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
MICHIGAN INSURED TRUST 75:
We have audited the accompanying statement of condition and the schedule of
investments at date of deposit (included in Part A of this Prospectus) of
Michigan Insured Trust 75 (contained in Nuveen Tax-Free Unit Trust, Series
1020), as of August 14, 1998. These financial statements are the responsibility
of the Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the irrevocable letter of credit arrangement for the purchase of
securities, described in Note (1) to the statement of condition, by
correspondence with 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 that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of condition and the schedule of investments
at date of deposit referred to above present fairly, in all material respects,
the financial position of Michigan Insured Trust 75 as of August 14, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 14, 1998
7 of 7
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers 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 these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
AUGUST 14, 1998
SUBJECT TO COMPLETION
A
NUVEEN NUVEEN PENNSYLVANIA INSURED TRUST 238
(NUVEEN TAX-FREE UNIT TRUST, SERIES 1020)
CUSIP NUMBERS:
Monthly: 6706H7 581
Quarterly: 6706H7 599
Semi-Annually: 6706H7 607
PROSPECTUS--PART A (SPECIFIC TERMS) -- AUGUST 14, 1998
THIS PART A OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY THE
PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS DATED JULY 8, 1997, TO WHICH SUCH
REFERENCE
HEREIN APPLIES. BOTH PARTS OF THE PROSPECTUS SHOULD BE RETAINED FOR FUTURE
REFERENCE.
Pennsylvania Insured Trust 238 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of
Pennsylvania, certain United States Territories or authorities and political
subdivisions thereof which, in the opinion of recognized bond counsel to the
issuing authorities, provide income which is exempt from Federal income tax and
Pennsylvania state and local income taxes, to the extent indicated below.
The objectives of the Trust are income exempt from Federal and state income
taxes, and conservation of capital. The objectives are, of course, dependent
upon the continuing ability of the issuers, obligors and/or insurers to meet
their respective obligations.
The Portfolio of the Trust consists of 8 obligations issued by entities
located in Pennsylvania. The Bonds in the Trust are either general obligations
of the governmental entity issuing them and are backed by the taxing power
thereof or are payable as to principal and interest from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. The sources of payment for the Bonds are divided as follows:
<TABLE>
<CAPTION>
NUMBER OF PORTFOLIO
ISSUES PURPOSE OF ISSUE PERCENTAGE
--------------- ----------------------------------------------------
<C> <S> <C>
2 Water and/or Sewer Revenue 28.6 %
2 Health Care Facility Revenue 28.5
2 Education Revenue 22.9
1 Dedicated-Tax Supported Revenue 14.3
1 General Obligation 5.7
</TABLE>
Approximately 20.0% of the aggregate principal amount of the Bonds in the
Trust (accounting for approximately 16.9% of the aggregate offering price of the
Bonds) are original issue discount obligations. Certain of these original issue
discount obligations, amounting to 5.7% of the aggregate principal amount and
2.0% of the aggregate offering price of the Bonds in the Trust, are "zero
coupon" bonds. See "RISK FACTORS" in Part B of this Prospectus for a discussion
of the characteristics of such obligations and of the risks associated
therewith.
All of the Bonds in the Trust are covered by policies of insurance obtained
from the MBIA Insurance Corporation guaranteeing payment of principal and
interest when due. As a result of such insurance, the Bonds in the Trust have
received a rating of "Aaa" by Moody's, "AAA" by Fitch, and/or "AAA" by Standard
& Poor's. Insurance does not guarantee the market value of the Bonds or of Trust
Units.
The Trust is considered to be concentrated in Bonds of Water and/or Sewer
Revenue Issuers whose revenues are subject to certain risks including problems
obtaining timely and adequate rate increases and population decline resulting in
decreased user fees. The Trust is also considered to be concentrated in Bonds of
Health Care Facility Revenue Issuers whose revenues are subject to certain risks
including increased governmental regulation, fluctuating occupancy levels and
increased competition. For a discussion of the risks associated with investments
in the bonds of various issuers, see "RISK FACTORS" in Part B of this
Prospectus.
ESSENTIAL INFORMATION
REGARDING THE NUVEEN PENNSYLVANIA INSURED TRUST 238
ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT, AUGUST 13, 1998
Sponsor and Evaluator.......... John Nuveen & Co. Incorporated
Trustee.............................. The Chase Manhattan Bank
------------------------------------------------
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<S> <C>
Principal Amount of Bonds in Trust.................. $ 1,750,000
Number of Units..................................... 17,500
Fractional Undivided Interest in Trust Per Unit..... 1/17,500
Public Offering Price--Less than 500 Units
Aggregate Offering Price of Bonds in Trust...... $ 1,670,816
Divided by Number of Units...................... $ 95.48
Plus Sales Charge 4.9% (5.152% of the Aggregate
Offering Price of the Bonds per Unit).......... $ 4.92
Public Offering Price Per Unit(1)............... $ 100.40
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 95.09
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 95.48
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.31
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.92
Average Maturity of Bonds in the Trust(2)........... 25.9 years
</TABLE>
- ----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1 of 7
<PAGE>
ESSENTIAL INFORMATION (CONT.)
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.8500 $ 4.8500 $ 4.8500
Less Estimated Annual Expense........ $ .2579 $ .2259 $ .2069
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.5921 $ 4.6241 $ 4.6431
Daily Rate of Accrual Per Unit........... $ .01275 $ .01284 $ .01289
ESTIMATED CURRENT RETURN(5).............. 4.57% 4.61% 4.62 %
ESTIMATED LONG TERM RETURN(5)............ 4.61% 4.65% 4.67 %
Trustee's Annual Fees(6)................. $ 1.4979 $ 1.1779 $ 0.9879
Date of Deposit....................................................................................August 14, 1998
Settlement Date....................................................................................August 19, 1998
Mandatory Termination Date....................................See "OTHER INFORMATION" in Part B of this Prospectus
Minimum Value of Each Trust...................................See "OTHER INFORMATION" in Part B of this Prospectus
Sponsor's Annual Evaluation Fee(7)......................................$0.17 per $1,000 principal amount of Bonds
Estimated Annual Offering Expenses(8).............................................................$.02857 per Unit
- ----------
</TABLE>
The evaluation time for purpose of sale, purchase or redemption of Units is 4
p.m. Eastern time or as of any earlier time at which the New York Stock Exchange
closes. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of this
Prospectus.)
(1) Units are offered at the Public Offering Price plus accrued interest from
the preceding Record Date to, but not including, the date of settlement
(normally three business days after purchase). The Date of Deposit of the
Fund has been designated as the First Record Date for all plans of
distribution of the Trust and, accordingly, for Units purchased on the Date
of Deposit, $.06 of accrued interest to the Settlement Date will be added to
the Public Offering Price. (See "WHAT IS ACCRUED INTEREST?" in Part B of
this Prospectus.)
(2) The Average Maturity of Bonds in the Trust is calculated based upon the
stated maturities of the Bonds in the Trust (or, with respect to Bonds for
which funds or securities have been placed in escrow to redeem such Bonds on
a stated call date, based upon such call date). The Average Maturity of
Bonds in the Trust may increase or decrease from time to time as Bonds
mature or are called or sold.
(3) Assumes delivery of all Bonds. (See "COMPOSITION OF TRUSTS" appearing in
Part B of this Prospectus.) Interest income does not include accretion of
original issue discount on "zero coupon" Bonds, Stripped Obligations or
other original issue discount Bonds. (See "RISK FACTORS" in Part B of this
Prospectus.)
(4) The amount and timing of interest distributions from the Trust under the
various plans of distribution are set forth below. It is anticipated that
the amount of interest to be distributed per Unit in each year under each
plan of distribution will initially be substantially equal to the Estimated
Net Annual Interest Income per Unit for that plan. The amount of interest to
be distributed annually per Unit, will generally change as Bonds are
redeemed, mature or are sold or as fees and expenses increase or decrease.
(5) Estimated Long Term Return for the Trust represents the average of the
yields to maturity (or call) of the Bonds in the Trust's portfolio
calculated in accordance with accepted bond practices and adjusted to
reflect a compounding factor, expenses and sales charges. Estimated Current
Return is computed by dividing the 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 more information see "WHAT ARE ESTIMATED LONG TERM RETURN AND
ESTIMATED CURRENT RETURN?" in Part B of this Prospectus.
(6) Each Trustee annual fee is per $1,000 principal amount of the underlying
Bonds in the Trust for that portion of the Trust that represents a
particular plan of distribution.
(7) The Sponsor's Annual Evaluation Fee may, from time to time, be adjusted
provided that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent"
or if such index no longer exists, a comparable index. The consent or
concurrence of any Unitholder shall not be required for any such adjustment
or increase.
(8) Notwithstanding anything to the contrary contained in Part B of the
Prospectus regarding expenses incurred by the Trust for the establishment of
the Trust, the Trust (and therefore Unitholders) will bear all or a portion
of its offering costs (including, among others, costs of registering Units
with the Securities and Exchange Commission and states, and legal fees but
not including the expenses incurred in the printing of preliminary and final
prospectuses, and expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses) as
is common for mutual funds. Total offering costs will be amortized over a
five year period.
2 of 7
<PAGE>
INTEREST DISTRIBUTION
Details of interest distributions per Unit of the Trust under the various
plans appear in the following table based upon estimated Net Annual Interest
Income at the Date of Deposit:
<TABLE>
<CAPTION>
Normal
Distributions
1998 1999 per Year
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 9/1 11/1 2/1 5/1
Distribution Date..................... 9/15 11/15 2/15 5/15
- --------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .2167(1) $ 4.5921
-------- $.3825 every month --------
Quarterly Distribution Plan........... $ .2167(1) $ .7704(2) $ 1.1556 $ 1.1556 $ 4.6241
Semi-Annual Distribution Plan......... $ .2167(1) $ .7734(3) $ 2.3202 $ 4.6431
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Record Dates for semi-annual distributions are May 1 and November 1; for
quarterly distributions, they are February 1, May 1, August 1 and November 1.
Record Dates for monthly distributions are the first day of each month.
Distribution Dates under each distribution plan are the fifteenth day of the
month in which the respective Record Date occurred. For additional
information see "WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?" in Part B of
this Prospectus.
(1) The first distribution will be paid to all Unitholders, regardless of the
distribution plan selected. Such distribution may be more or less than a
regular monthly distribution.
(2) The second distribution under the quarterly distribution plan represents a
2-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
2-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
PENNSYLVANIA RISK FACTORS
The financial condition of the Commonwealth of Pennsylvania is affected by
various national, economic, social and environmental policies and conditions.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the Commonwealth and its local
governments and, therefore, the ability of the issuers of the Bonds to satisfy
their obligations. Historically, the Commonwealth has experienced significant
revenue shortfalls.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds, are
affected by numerous factors. The economy of the Commonwealth continues to be
dependent on heavy industry and manufacturing. These sectors tend to be cyclical
and are facing increasing competition from foreign producers.
The Commonwealth is a party to numerous lawsuits in which an adverse final
decision could materially affect the Commonwealth's governmental operations and
consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds of the Commonwealth are rated AA-
by Standard and Poor's, Aa3 by Moody's and AA by Fitch IBCA, Inc. (formerly
Fitch Investors Service).
Further information concerning Pennsylvania risk factors may be obtained
upon written or telephonic request to the Trustee as described in "OTHER
INFORMATION -- Supplemental Information" appearing in Part B of this Prospectus.
YEAR 2000 PROBLEM. Like other investment companies, financial and business
organizations and individuals around the world a Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to such Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor and Trustee are taking steps that they
believe are reasonably designed to address the Year 2000 Problem with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by a Trust's other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to a Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the Bonds contained in a Trust, to varying degrees
based upon various factors, including, but not limited to, their industry sector
and degree of technological sophistication. The Sponsor is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the Bonds
contained in a Trust.
TAX STATUS
For a discussion of the Federal tax status of income earned on Trust Units,
see "WHAT IS THE TAX STATUS OF UNITHOLDERS?" appearing in Part B of this
Prospectus. Investors should be aware that recent legislative changes provide
that for taxpayers other than corporations, net capital gain (which is defined
as net long-term capital gain over net short-term capital loss for the taxable
year) realized from property (with certain exclusions) is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period for the
asset is one year or less. The date on which a Unit is acquired (i.e., the
"trade date") is excluded for purposes for determining the
3 of 7
<PAGE>
holding period of the Unit. The legislation is generally effective retroactively
for amounts properly taken into account on or after January 1, 1998. Capital
gains realized from assets held for one year or less are taxed at the same rates
as ordinary income. The Legislation also includes provisions that would treat
certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts, or similar transactions) as
constructive sales for purposes of recognition of gain (and not loss) and for
purposes of determining the holding period. Potential investors should consult
their own tax advisors regarding the potential effect of the Legislation on
their investment in Units.
In the opinion of Dechert Price & Rhoads, special Pennsylvania counsel to
the Trust, under existing law:
Units evidencing fractional undivided interests in the Trust are not subject
to any of the personal property taxes presently in effect in Pennsylvania to the
extent of that proportion of the Trust represented by Bonds issued by the
Commonwealth of Pennsylvania, its agencies and instrumentalities, or by any
county, city, borough, town, township, school district, municipality and local
housing or parking authority in the Commonwealth of Pennsylvania or issued by
Puerto Rico, the Virgin Islands, Guam or the Northern Mariana Islands
("Pennsylvania Bonds"). The taxes referred to above include the County Personal
Property Tax, the additional personal property taxes imposed on Pittsburgh
residents by the School District of Pittsburgh and by the City of Pittsburgh.
The City of Pittsburgh, the School District of Pittsburgh and Allegheny County
cannot impose personal property taxes as of January 1, 1995. Trust Units may be
taxable under the Pennsylvania inheritance and estate taxes.
The proportion of interest income representing interest income from
Pennsylvania Bonds distributed to Unitholders of the Trust is not taxable under
the Pennsylvania Personal Income Tax or under the Corporate Net Income Tax
imposed on corporations by Article IV of the Tax Reform Code. Nor will such
interest be taxable under the Philadelphia School District Investment Income Tax
imposed on Philadelphia resident individuals.
The disposition by the Trust of a Pennsylvania Bond (whether by sale,
exchange, redemption or payment at maturity) will not constitute a taxable event
to a Unitholder under the Pennsylvania Personal Income Tax if the Pennsylvania
Bond was issued prior to February 1, 1994. Further, although there is no
published authority on the subject, counsel is of the opinion that (i) a
Unitholder of the Trust will not have a taxable event under the Pennsylvania
state and local income taxes referred to in the preceding paragraph (other than
the Corporate Net Income Tax) upon the redemption or sale of his Unit to the
extent that the Trust is then comprised of Pennsylvania Bonds issued prior to
February 1, 1994 and (ii) the dispositions by the Trust of a Pennsylvania Bond
(whether by sale, exchange, redemption or payment at maturity) will not
constitute a taxable event to a Unitholder under the Corporate Net Income Tax or
the Philadelphia School District Investment Income Tax if the Pennsylvania Bond
was issued prior to February 1, 1994. (The School District tax has no
application to gain on the disposition of property held by the taxpayer for more
than six months.)
Gains on the sale, exchange, redemption, or payment at maturity of a
Pennsylvania Bond issued on or after February 1, 1994, will be taxable under all
of these taxes, as will gains on the redemption or sale of a unit to the extent
that the Trust is comprised of Pennsylvania Bonds issued on or after February 1,
1994.
4 of 7
<PAGE>
NUVEEN PENNSYLVANIA INSURED TRUST 238
(NUVEEN Tax-Free Unit Trust, Series 1020)
Schedule of Investments at the Date of Deposit, August 14, 1998
<TABLE>
<CAPTION>
Ratings(3) Trustee's
Optional --------------------- Determination
Aggregate Name of Issuer and Title of Issue Represented Redemption Standard of Offering
Principal by Sponsor's Contracts to Purchase Bonds(1) Provisions(2) & Poor's Moody's Price
<C> <C> <S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
$ 150,000 Pennsylvania Higher Educational Facilities 2006 at 100 AAA Aaa $ 146,660
Authority, College Revenue Refunding Bonds,
Series 1998B (Allegheny College), 5.00% Due
11/1/26.
250,000 Pennsylvania Higher Educational Facilities 2008 at 101 AAA Aaa 244,235
Authority, Temple University Revenue Bonds,
First Series of 1998, 5.00% Due 4/1/29.
250,000 Pennsylvania Turnpike Commission, Oil Franchise 2008 at 101 AAA Aaa 245,000
Tax Revenue Bonds, Series A of 1998, 5.00%
Due 12/1/23.
250,000 Allegheny County Sanitary Authority, Allegheny 2007 at 102 AAA Aaa 255,180
County, Pennsylvania, Sewer Revenue Bonds,
Series of 1997, 5.375% Due 12/1/24.
100,000 County of Berks, Pennsylvania, General No Optional Call AAA Aaa 32,606
Obligation Bonds, Second Series of 1992,
0.00% Due 11/15/20. (Original issue discount
bonds delivered on or about August 25, 1992
at a price of 17.606% of principal amount.)
250,000 The Municipal Authority of the Borough of 2008 at 100 AAA Aaa 250,625
Lewistown (Mifflin County, Pennsylvania),
Water Revenue Bonds, Series 1998, 5.20% Due
1/1/22.
250,000 Northeastern Pennsylvania Hospital and 2007 at 102 AAA Aaa 250,000
Education Authority, Health Care Revenue
Bonds, 1996 Series A (Wyoming Valley Health
Care Issue), 5.25% Due 1/1/26. (Original
issue discount bonds delivered on or about
December 19, 1996 at a price of 93.647% of
principal amount.)
250,000 The Hospitals and Higher Education Facilities 2008 at 101 AAA Aaa 246,510
Authority of Philadelphia (Pennsylvania),
Health System Revenue Bonds, Series 1998A
(Jefferson Health System), 5.125% Due
5/15/21.
- ----------- ---------------
$ 1,750,000 $ 1,670,816
- ----------- ---------------
- ----------- ---------------
</TABLE>
- ------------
(1) The Sponsor's contracts to purchase Bonds were entered into on August
13, 1998. Other information regarding the Bonds in the Trust on the Date of
Deposit is as follows:
<TABLE>
<CAPTION>
Profit (or
Cost to loss) Annual Interest Bid Price
Trust Sponsor to Sponsor Income to Trust of Bonds
---------------------------------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Pennsylvania Insured Trust 238.......... $ 1,666,479 $ 4,337 $ 84,875 $ 1,663,966
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .39%. Neither cost
to Sponsor nor profit (or loss) to Sponsor reflects underwriting profits or
losses received or incurred by the Sponsor through its participation in
underwriting syndicates. The Sponsor did not participate as either the sole
underwriter or as a manager or member of a syndicate that acted as the original
underwriter of any of the Bonds.
(2) The Bonds are first subject to optional redemption in the years, and at
the prices, shown. Unless otherwise indicated, the Bonds, except for Bonds
issued at a substantial original issue discount, are redeemable at declining
prices (but not below par value) in subsequent years. Original issue discount
bonds, including zero coupon bonds, are generally redeemable at prices based on
the issue price plus the amount of original issue discount accreted to
redemption plus, if applicable, some premium, the amount of which will decline
in subsequent years. The Bonds may also be subject to sinking fund redemption
without premium prior to the dates shown. Certain Bonds may be subject to
redemption without premium prior to the date shown pursuant to special or
mandatory call provisions specified in the instruments setting forth the terms
and provisions of such Bonds. See "COMPOSITION OF TRUSTS", "WHAT IS THE TAX
STATUS OF UNITHOLDERS?" and "RISK FACTORS" in Part B of this Prospectus.
(3) All the Bonds in the Insured Trusts, as insured by the Insurer, are
rated AAA by Standard & Poor's, AAA by Fitch and/or Aaa by Moody's. The
insurance obtained by the Trust guarantees the payment of interest and principal
on the Bonds when due but does not cover certain market risks associated with
fixed income securities such as accelerated payments, premiums payable on
mandatory redemptions or interest rate risks. (See "WHY AND HOW ARE THE BONDS
INSURED?" in Part B of this Prospectus and "Description of Ratings" in the
Information Supplement.)
5 of 7
<PAGE>
Statement of Condition
NUVEEN PENNSYLVANIA INSURED TRUST 238
(Nuveen Tax-Free Unit Trust, Series 1020)
AS OF AUGUST 14, 1998
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase Bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,670,816
Accrued interest to August 14, 1998 on underlying
Bonds(1)........................................ 14,049
Offering costs(3)................................. 2,500
--------------
Total................................. $ 1,687,365
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
Liabilities:
Accrued interest to August 14, 1998 on
underlying Bonds(4).......................... $ 14,049
Accrued offering costs(3)..................... 2,500
--------------
Total................................. $ 16,549
--------------
--------------
Interest of Unitholders:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,756,896
Less: Gross underwriting commission(6).... (86,080)
--------------
Net amount applicable to investors............ $ 1,670,816
--------------
Total................................. $ 1,687,365
--------------
--------------
- ------------
</TABLE>
(1) Represented by contracts to purchase Bonds which include "when issued" or
"regular way" or "delayed delivery" contracts for which an irrevocable
letter of credit issued by a major commercial bank has been deposited with
the Trustee on the Date of Deposit. The amount of such letter of credit and
any cash deposited exceeds the amount necessary for the purchase of the
Bonds plus accrued interest to the Date of Deposit. At the Date of Deposit,
Bonds may have been delivered to the Sponsor pursuant to certain of these
contracts; the Sponsor has assigned to the Trustee all of its rights, title
and interest in and to such Bonds.
(2) Aggregate value (at offering prices) as of the Date of Deposit of the Bonds
listed under "Schedule of Investments" herein, and their aggregate cost to
the Trust are the same. Such offering prices were determined by Kenny S&P
Evaluation Services, a division of J. J. Kenny Co., Inc., as of the close of
business on the business day prior to the Date of Deposit. (See "HOW WAS THE
PRICE OF THE BONDS DETERMINED AT THE DATE OF DEPOSIT?" in Part B of this
Prospectus.) Insurance coverage providing for the timely payment, when due,
of all principal of and interest on the Bonds in an Insured Trust has been
obtained by the Sponsor or by the issuers of such Bonds. Such insurance does
not guarantee the market value of the Bonds or the value of the Units. Both
the bid and the offering prices of the underlying Bonds and of the Units may
include value attributable to such policies of insurance.
(3) The Trust (and therefore Unitholders) will bear all or a portion of its
estimated offering costs which will be deferred and amortized over five
years from the Date of Deposit.
(4) Representing, as set forth in "WHAT IS ACCRUED INTEREST?" in Part B of this
Prospectus, advancement by the Trustee of an amount equal to the accrued
Bond interest as of the Date of Deposit.
(5) Aggregate Public Offering Price (exclusive of accrued interest) computed as
set forth under "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?" in Part B of
this Prospectus.
(6) The gross underwriting commission of 4.90% of the Public Offering Price has
been calculated on the assumption that the Units sold are not subject to a
reduction of sales charge for quantity purchases. In single transactions
involving 500 Units or more, the sales charge is reduced. (See "HOW IS THE
PUBLIC OFFERING PRICE DETERMINED?" in Part B of this Prospectus.)
6 of 7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
PENNSYLVANIA INSURED TRUST 238:
We have audited the accompanying statement of condition and the schedule of
investments at date of deposit (included in Part A of this Prospectus) of
Pennsylvania Insured Trust 238 (contained in Nuveen Tax-Free Unit Trust, Series
1020), as of August 14, 1998. These financial statements are the responsibility
of the Sponsor. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the irrevocable letter of credit arrangement for the purchase of
securities, described in Note (1) to the statement of condition, by
correspondence with 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 that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of condition and the schedule of investments
at date of deposit referred to above present fairly, in all material respects,
the financial position of Pennsylvania Insured Trust 238 as of August 14, 1998,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 14, 1998
7 of 7
<PAGE>
<PAGE>
B
NUVEEN Tax-Free Unit Trusts
PROSPECTUS -- PART B
(GENERAL TERMS)
JULY 8, 1997
THIS PART B OF THE PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART
A. BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
FURTHER DETAIL REGARDING CERTAIN OF THE INFORMATION PROVIDED IN THE PROSPECTUS
MAY BE OBTAINED WITHIN FIVE BUSINESS DAYS OF WRITTEN OR TELEPHONIC REQUEST TO
THE TRUSTEE AT 4 NEW YORK PLAZA, NEW YORK, NY 10004-2413 OR (800) 257-8787.
INTEREST INCOME TO A TRUST AND TO UNITHOLDERS, IN THE OPINION OF COUNSEL, UNDER
EXISTING LAW IS EXEMPT FROM FEDERAL INCOME TAX. CAPITAL GAINS, IF ANY, ARE
SUBJECT TO TAX. IN ADDITION, INTEREST INCOME OF STATE TRUSTS IS, IN THE OPINION
OF COUNSEL, EXEMPT, TO THE EXTENT INDICATED, FROM STATE AND LOCAL TAXES.
INTEREST INCOME OF ANY TRUST OTHER THAN A STATE TRUST MAY BE SUBJECT TO STATE
AND LOCAL TAXES.
CURRENTLY OFFERED AT PUBLIC OFFERING PRICE PLUS INTEREST ACCRUED TO THE DATE OF
SETTLEMENT. MINIMUM PURCHASE--EITHER $5,000 OR 50 UNITS, WHICHEVER IS LESS.
THIS NUVEEN TAX-FREE UNIT TRUST SERIES consists of the underlying separate unit
investment trusts set forth in Part A to this Prospectus. Each Trust initially
consists of delivery statements relating to contracts to purchase Bonds and,
thereafter, will consist of a diversified portfolio of obligations issued by or
on behalf of states and territories of the United States and authorities and
political subdivisions thereof (see "Schedule of Investments" appearing in Part
A of this Prospectus). Except in specific instances as noted in Part A of this
Prospectus, the information contained in this Part B shall apply to each Trust
in its entirety. All obligations in each Traditional Trust are rated in the
category "A" or better by Standard & Poor's, a division of The McGraw Hill
Companies ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's") or
Fitch Investors Service, Inc. ("Fitch") on the Date of Deposit. All obligations
in each Insured Trust are covered by policies of insurance obtained from the
MBIA Insurance Corporation guaranteeing payment of principal and interest when
due. All such policies of insurance remain effective so long as the obligations
are outstanding. As a result of such insurance, the Bonds in each portfolio of
the Insured Trusts have received a rating of "Aaa" by Moody's, "AAA" by Fitch
and/ or "AAA" by Standard & Poor's. INSURANCE RELATES ONLY TO THE BONDS IN THE
INSURED TRUSTS AND NOT TO THE UNITS OFFERED HEREBY OR TO THEIR MARKET VALUE.
(See "WHY AND HOW ARE THE BONDS INSURED?")
THE OBJECTIVES of a Trust are tax-exempt income and conservation of capital
through a diversified investment in tax-exempt Bonds. The payment of interest
and the preservation of principal are, of course, dependent upon the continuing
ability of the issuers of Bonds and of any insurer thereof to meet their
obligations thereunder. There is no guarantee that a Trust's objectives will be
achieved. (See "RISK FACTORS.")
DISTRIBUTIONS of interest received by a Trust will be made semi-annually unless
the Unitholder elects to receive them monthly or quarterly. (See "WHEN ARE
DISTRIBUTIONS MADE TO UNITHOLDERS?") Distribution of funds in the Principal
Account, if any, will ordinarily be made semi-annually.
FOR ESTIMATED LONG TERM RETURNS AND ESTIMATED CURRENT RETURNS to Unitholders on
the business day prior to the Date of Deposit, see Part A of this Prospectus and
"WHAT ARE ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN?"
THE PUBLIC OFFERING PRICE per Unit of each Trust during the initial offering
period is equal to a pro rata share of the OFFERING prices of the Bonds in such
Trust's portfolio plus a sales charge of up to 4.90% of the Public Offering
Price (equivalent to 5.152% of the net amount invested); the sales charge is
somewhat lower on Trusts with lesser average maturities. (See "HOW IS THE PUBLIC
OFFERING PRICE DETERMINED?") The Secondary Market Public Offering Price per Unit
for each Trust will be equal to a pro rata share of the sum of BID prices of the
Bonds in such Trust plus the sales charges determined based on the number of
years remaining to the maturity of each Bond. Accrued interest from the
preceding Record Date to, but not including, the settlement date (normally three
business days after purchase) is added to the Public Offering Price. The sales
charge is reduced on a graduated scale for sales involving at least $50,000 or
500 Units and will be applied on whichever basis is more favorable to the
purchaser. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?")
A UNITHOLDER MAY REDEEM UNITS at the office of the Trustee at prices based upon
the BID prices of the Bonds. The price received upon redemption may be more or
less than the amount paid by Unitholders, depending upon the value of the Bonds
on the date of tender for redemption. (See "HOW UNITS MAY BE REDEEMED WITHOUT
CHARGE.") The Sponsor, although not required to do so, intends to make a
secondary market for the Units of the Trusts at prices based upon the BID prices
of the Bonds in the respective Trusts. (See "MARKET FOR UNITS.")
RISK FACTORS. An investment in a Trust should be made with an understanding of
the risks associated therewith, including, among other factors, the inability of
the issuer or an insurer to pay the principal of or interest on a Bond when due,
volatile interest rates, early call provisions, and changes to the tax status of
the Bonds. See Part A of this Prospectus and "RISK FACTORS."
UNITS OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND ARE NOT FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
NUVEEN Tax-Free Unit Trusts
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<C> <S> <C>
WHAT IS THE NUVEEN TAX-FREE UNIT TRUST? 4
WHAT ARE THE OBJECTIVES OF THE TRUSTS? 4
SUMMARY OF PORTFOLIOS 4
RISK FACTORS 5
COMPOSITION OF TRUSTS 6
WHY AND HOW ARE THE BONDS INSURED? 8
HOW IS THE PUBLIC OFFERING PRICE DETERMINED? 9
MARKET FOR UNITS 11
WHAT IS ACCRUED INTEREST? 12
WHAT ARE ESTIMATED LONG TERM RETURN AND ESTIMATED
CURRENT RETURN? 12
HOW WAS THE PRICE OF THE BONDS DETERMINED AT THE
DATE
OF DEPOSIT? 13
WHAT IS THE TAX STATUS OF UNITHOLDERS? 13
WHAT ARE NORMAL TRUST OPERATING EXPENSES? 15
WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS? 16
ACCUMULATION PLAN 17
HOW DETAILED ARE REPORTS TO UNITHOLDERS? 17
UNIT VALUE AND EVALUATION 17
HOW UNITS OF THE TRUSTS ARE DISTRIBUTED TO THE
PUBLIC 18
OWNERSHIP AND TRANSFER OF UNITS 19
HOW UNITS MAY BE REDEEMED WITHOUT CHARGE 20
HOW UNITS MAY BE PURCHASED BY THE SPONSOR 21
HOW BONDS MAY BE REMOVED FROM THE TRUSTS 21
INFORMATION ABOUT THE TRUSTEE 21
INFORMATION ABOUT THE SPONSOR 22
OTHER INFORMATION 22
</TABLE>
2
<PAGE>
NUVEEN Tax-Free Unit Trusts
<TABLE>
<CAPTION>
TOPICAL INDEX PAGE
<C> <S> <C> <C>
Accrued Interest 12
Accumulation Plan 17
Information
Bond Ratings, Description of Supplement
Bonds, Initial Determination of Offering Price 13
Bonds, How Selected 4
Bonds, Limited Right of Substitution 7
Bonds, Removal from a Trust 21
Call Provisions of Portfolio Bonds 7
Capital Gains Taxability 14
Composition of Trusts 7
Dealer Discounts 18
Distributions to Unitholders 16
Part
Distribution Payment Dates A,16
Distribution of Units to the Public 18
Part
Essential Information Regarding the Trusts A,12
Part
Estimated Long Term Return and Estimated Current Return A,12
Evaluation 17
Expenses for Normal Trust Operation 15
Indenture, Amendment of 22
Indenture, Termination of 22
Insurance on the Bonds 8
Interest Account Distributions Part A
Legal Opinion 23
Limitations on Liabilities of Sponsor and Trustee 21
Market for Units 11
Minimum Transaction 18
Objectives of the Trusts 4
Optional Distribution Plan 16
Other Information 22
Ownership and Transfer of Units 19
Principal Account Distributions 16
Public Offering Price of Units 9
Purchase of Units by Sponsor 21
Quantity Purchases 9
Part
Record Dates A,16
Redemption of Units Without Charge 20
Report of Independent Public Accountants Part A
Reports to Unitholders 17
Risk Factors 5
Sales Charge 10
Schedules of Investments Part A
Sponsor, Information About 22
State Tax Status Part A
Statements of Condition Part A
Successor Trustees and Sponsors 22
Supplemental Information 23
Tax Status of Unitholders 13
Trustee, Information About 21
Units, Description of 4
</TABLE>
3
<PAGE>
WHAT IS THE NUVEEN TAX-FREE UNIT TRUST?
This Nuveen Tax-Free Unit Trust is one of a series of separate but similar
investment companies created by the Sponsor, each of which is designated by a
different Series number. The underlying unit investment trusts contained in this
Series are combined under one Trust Indenture and Agreement. Specific
information regarding this Trust is set forth in Part A of this Prospectus. The
various Nuveen Tax-Free Unit Trusts are collectively referred to herein as the
"Trusts"; the trusts in which few or none of the Bonds are insured are sometimes
referred to as the "Traditional Trusts," the trusts in which all of the Bonds
are insured as described herein are sometimes referred to as the "Insured
Trusts," and the state trusts (both Traditional and Insured) are sometimes
referred to as the "State Trusts." This Series was created under the laws of the
State of New York pursuant to a Trust Indenture and Agreement dated the Date of
Deposit (the "Indenture") between John Nuveen & Co. Incorporated ("Nuveen" or
the "Sponsor") and The Chase Manhattan Bank (the "Trustee").
The Sponsor has deposited with the Trustee delivery statements relating to
contracts for the purchase of municipal debt obligations together with funds
represented by an irrevocable letter of credit issued by a major commercial bank
in the amount, including accrued interest, required for their purchase (or the
obligations themselves) (the "Bonds"). See "Schedule of Investments" in Part A
of this Prospectus, for a description of the Bonds deposited in a Trust. See
"SUMMARY OF PORTFOLIOS" and "RISK FACTORS" for a discussion of zero coupon bonds
and stripped obligations included in the Trusts, if any. Some of the delivery
statements may relate to contracts for the purchase of "when issued" or other
Bonds with delivery dates after the date of settlement for a purchase made on
the Date of Deposit. See the "Schedule of Investments" in Part A of this
Prospectus and "COMPOSITION OF TRUSTS." For a discussion of the Sponsor's
obligations in the event of a failure of any contract for the purchase of any of
the Bonds and its limited right to substitute other bonds to replace any failed
contract, see "COMPOSITION OF TRUSTS."
Payment of interest on the Bonds in each Insured Trust, and of principal at
maturity, is guaranteed under policies of insurance obtained by the Sponsor or
by the issuers of the Bonds. (See "WHY AND HOW ARE THE BONDS INSURED?") AS A
GENERAL MATTER, NEITHER THE ISSUER NOR THE SPONSOR HAS OBTAINED INSURANCE WITH
RESPECT TO THE BONDS IN ANY TRADITIONAL TRUST.
The Trustee has delivered to the Sponsor registered Units which represent
ownership of the entire Trust, and which are offered for sale by this
Prospectus. Each Unit of a Trust represents a fractional undivided interest in
the principal and net income of such Trust in the ratio set forth in "Essential
Information" in Part A of this Prospectus. Units may only be sold in states in
which they are registered. To the extent that any Units of any Trust are
redeemed by the Trustee, the aggregate value of the Trust's assets will decrease
by the amount paid to the redeeming Unitholder, but the fractional undivided
interest of each unredeemed Unit in such Trust will increase proportionately.
The Sponsor will initially, and from time to time thereafter, hold Units in
connection with their offering.
WHAT ARE THE OBJECTIVES OF THE TRUSTS?
The objectives of the Trusts are income exempt from Federal income tax and, in
the case of State Trusts, where applicable, state income and intangibles taxes,
and conservation of capital, through an investment in obligations issued by or
on behalf of states and territories of the United States and authorities and
political subdivisions thereof, the interest on which is, in the opinion of
recognized bond counsel to the issuing governmental authorities, exempt from
Federal income tax under existing law and for State Trusts, from certain state
income taxes and intangibles taxes, if any, for purchasers who qualify as
residents of that State in which Bonds are issued. Insurance guaranteeing the
timely payment, when due, of all principal and interest on the Bonds in each
Insured Trust has been obtained by the Sponsor or by the issuers of such Bonds
from MBIA Insurance Corporation, and as a result of such insurance the Bonds in
the Insured Trusts are rated "Aaa" by Moody's, "AAA" by Fitch and/or "AAA" by
Standard & Poor's. (See "WHY AND HOW ARE THE BONDS INSURED?") All obligations in
each Traditional Trust are rated in the category "A" or better (SP-1, MIG 2 or
F-2 or better, respectively, in the case of short term obligations included in a
Short Term Traditional Trust) by Standard & Poor's, Moody's and/or Fitch
(including provisional or conditional ratings). In addition, certain Bonds in
certain Traditional Trusts may be covered by insurance guaranteeing the timely
payment, when due, of all principal and interest. There is, of course, no
guarantee that the Trusts' objectives will be achieved. For a comparison of net
after-tax return for various tax brackets, see the "TAXABLE EQUIVALENT ESTIMATED
CURRENT RETURN TABLES" included in the Appendices to the Information Supplement
of this Prospectus.
SUMMARY OF PORTFOLIOS
In selecting Bonds for the respective Trusts, the following factors, among
others, were considered: (i) the Standard & Poor's, Moody's and/or Fitch ratings
of the Bonds (see "WHAT ARE THE OBJECTIVES OF THE TRUSTS?" for a description of
minimum rating standards), (ii) the prices of the Bonds relative to other bonds
of comparable quality and maturity, (iii) the diversification of Bonds as to
purpose of issue and location of issuer, (iv) the maturity dates of the Bonds,
and (v) in the case of the Insured Trusts only, the availability of MBIA
Insurance Corporation insurance on such Bonds. (See "WHY AND HOW ARE THE BONDS
INSURED?")
4
<PAGE>
RISK FACTORS
An investment in Units of any Trust should be made with an understanding of the
risks that such an investment may entail. Each Trust consists of fixed-rate
municipal debt obligations. As such, the value of the debt obligations and
therefore of the Units will decline with increases in interest rates. In
general, the longer the period until the maturity of a Bond, the more sensitive
its value will be to fluctuations in interest rates. The Sponsor cannot predict
the extent or timing of such fluctuations and, accordingly, their effect upon
the value of the Bonds. Additional risk factors include the ability of the
issuer, or, if applicable, an insurer, to make payments of interest and
principal when due, "mandatory put" features, early call provisions and the
potential for changes in the tax status of the Bonds. As set forth in Part A of
this Prospectus, the Trusts may contain or be concentrated in one or more of the
types of bonds discussed below. The following paragraphs briefly discuss certain
circumstances which may adversely affect the ability of issuers of Bonds held in
the portfolio of a Trust to make payments of principal and interest thereon, and
which also therefore may adversely affect the ratings of such Bonds. With
respect to Insured Trusts, however, because of the insurance obtained by the
Sponsor or by the issuers of the Bonds, such changes should not adversely affect
an Insured Trust's receipt of principal and interest or the Standard & Poor's
"AAA", the Moody's "Aaa" or the Fitch "AAA" ratings of the Bonds in the Insured
Trust portfolio. The Bonds described below may be subject to special or
extraordinary redemption provisions. For economic risks specific to the
individual Trusts, see Part A of this Prospectus and the Appendices to the
Information Supplement of this Prospectus.
ESCROW SECURED OBLIGATIONS are typically secured by direct obligations of
the U.S. Government or in some cases obligations guaranteed by the U.S.
Government placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date. In
a few isolated instances, however, bonds which were thought to be escrowed to
maturity have been called for redemption prior to maturity.
HEALTH CARE FACILITY OBLIGATIONS are obligations of issuers whose revenues
are derived from services provided by hospitals or other health care facilities,
including nursing homes. The ability of such issuers to make debt service
payments on these obligations is dependent on various factors, including
occupancy levels of the facility, demand for services, wages of employees,
overhead expenses, competition from other similar providers, government
regulation, the cost of malpractice insurance, and the degree of governmental
financial assistance, including Medicare and Medicaid.
HOUSING OBLIGATIONS are obligations of issuers whose revenues are primarily
derived from mortgage loans on single family residences or housing projects for
low to moderate income families. Housing obligations are generally prepayable at
any time and therefore their average life will ordinarily be less than their
stated maturities. The ability of such issuers to make debt service payments on
these obligations is dependent on various factors, including occupancy levels,
rental income, mortgage default rates, taxes, operating expenses, governmental
regulations and the appropriation of subsidies.
INDUSTRIAL REVENUE OBLIGATIONS are industrial revenue bonds ("IRBs"),
including pollution control revenue bonds, which are tax-exempt securities
issued by states, municipalities, public authorities or similar entities to
finance the cost of acquiring, constructing or improving various industrial
projects. Debt service payment on IRBs is dependent upon various factors,
including the creditworthiness of the corporate operator of the project and, if
applicable, corporate guarantor, revenues generated from the project, expenses
associated with the project and regulatory and environmental restrictions.
UTILITY OBLIGATIONS are obligations of issuers whose revenues are primarily
derived from the sale of several types of energy, including electric and natural
gas. The ability of such issuers to make debt service payments on these
obligations is dependent on various factors, including the rates for electricity
and natural gas, the demand for electricity and natural gas, the degree of
competition, governmental regulation, overhead expenses and variable costs, such
as fuel.
TRANSPORTATION FACILITY REVENUE OBLIGATIONS are obligations of issuers which
are payable from and secured by revenues derived from the ownership and
operation of airports, public transit systems and ports. The ability of issuers
to make debt service payments on airport obligations is dependent on the
capability of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other factors,
many airlines may have difficulty meeting their obligations under these use
agreements. Bonds that are secured primarily by the revenue collected by a
public transit system typically are additionally secured by a pledge of sales
tax receipts collected at the state or local level, or of other governmental
financial assistance. The revenue of issuers of transit system obligations will
be affected by variations in utilization, which in turn may be affected by the
degree of local governmental subsidization, competition from other forms of
transportation, and increased costs. Port authorities derive their revenues
primarily from fees imposed on ships using the facilities which may fluctuate
depending on the local economy and on competition from competing forms of
transportation such as air, rail and trucks. The revenues of issuers which
derive their payments from bridge, road or tunnel toll revenues could be
adversely affected by increases in fuel costs, competition from toll-free
vehicular bridges and roads and alternative modes of transportation.
WATER AND/OR SEWERAGE OBLIGATIONS are obligations of issuers whose revenues
are payable from user fees from the sale of water and/or sewerage services. The
problems of such issuers include the ability to obtain rate increases,
population declines, the limitations on operations and increased costs and
delays attributable to environmental considerations, the difficulties obtaining
new supplies of fresh water, the effect of conservation programs and "no-growth"
zoning ordinances.
5
<PAGE>
UNIVERSITY AND COLLEGE REVENUE OBLIGATIONS are obligations of issuers whose
revenues are derived mainly from tuition, dormitory revenues, grants and
endowments. General problems faced by such issuers include declines in the
number of "college" age individuals, possible inability to raise tuitions and
fees, the uncertainty of continued receipt of Federal grants and state funding,
and government legislation or regulations which may adversely affect the
revenues or costs of such issuers.
DEDICATED-TAX SUPPORTED OBLIGATIONS are obligations of issuers which are
payable from and secured by tax revenues from a designated source, which
revenues are pledged to secure the bonds. The various types of Bonds described
below differ in structure and with respect to the rights of the bondholders to
the underlying property. Each type of dedicated-tax supported Bond has distinct
risks, only some of which are set forth below. One type of dedicated-tax
supported Bond is secured by the incremental tax received on either real
property or on sales within a specifically defined geographical area; such tax
generally will not provide bondholders with a lien on the underlying property or
revenues. Another type of dedicated-tax supported Bond is secured by a special
tax levied on real property within a defined geographical area in such a manner
that the tax is levied on those who benefit from the project; such bonds
typically provide for a statutory lien on the underlying property for unpaid
taxes. A third type of dedicated-tax supported Bond may be secured by a tax
levied upon the manufacture, sale or consumption of commodities or upon the
license to pursue certain occupations or upon corporate privileges within a
taxing jurisdiction. As to any of these types of Bonds, the ability of the
designated revenues to satisfy the interest and principal payments on such bonds
may be affected by changes in the local economy, the financial success of the
enterprise responsible for the payment of the taxes, the value of any property
on which taxes may be assessed and the ability to collect such taxes in a timely
fashion. Each of these factors will have a different affect on each distinct
type of dedicated-tax supported bonds.
MUNICIPAL LEASE OBLIGATIONS are obligations that are secured by lease
payments of a governmental entity and are normally subject to annual budget
appropriations of the leasing governmental entity. A governmental entity that
enters into such a lease agreement cannot obligate future governments to
appropriate for and make lease payments but covenants to take such action as is
necessary to include any lease payments due in its budgets and to make the
appropriations therefor. A governmental entity's failure to appropriate for and
to make payments under its lease obligation could result in insufficient funds
available for payment of the obligations secured thereby.
ORIGINAL ISSUE DISCOUNT OBLIGATIONS AND STRIPPED OBLIGATIONS are bonds which
were issued with nominal interest rates less than the rates then offered by
comparable securities and as a consequence were originally sold at a discount
from their face, or par, values. In a stable interest rate environment, the
market value of an original issue discount bond would tend to increase more
slowly in early years and in greater increments as the bond approached maturity.
Certain of the original issue discount obligations in a Trust may be zero
coupon bonds. Zero coupon bonds do not provide for the payment of any current
interest; the buyer receives only the right to receive a final payment of the
face amount of the bond at its maturity. Zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality that pay interest
currently.
Original issue discount obligations, including zero coupon bonds, may be
subject to redemption at prices based on the issue price plus the amount of
original issue discount accreted to redemption (the "accreted value") plus, if
applicable, some premium. Pursuant to such call provisions, an original issue
discount bond may be called prior to its maturity date at a price less than its
face value. See the "Schedule of Investments" appearing in Part A of this
Prospectus for more information about the call provisions of portfolio Bonds.
Certain of the Bonds in a Trust may be stripped obligations, which represent
evidences of ownership with respect to either the principal amount of or a
payment of interest on a tax-exempt obligation ("Stripped Obligations"). Each
Stripped Obligation has been purchased at a discount from the amount payable at
maturity. A Stripped Obligation therefore has economic characteristics similar
to zero coupon bonds, as described above.
Unitholders should consult their own tax advisers with respect to the state
and local tax consequences of owning original issue discount bonds or Stripped
Obligations. Under applicable provisions governing determination of state and
local taxes, interest on original issue discount obligations or Stripped
Obligations may be deemed to be received in the year of accrual even though
there is no corresponding cash payment.
Certain bonds may carry a "mandatory put" (also referred to as a "mandatory
tender" or "mandatory repurchase") feature pursuant to which the holder of such
bonds will receive payment of the full principal amount thereof on a stated date
prior to the maturity date unless such holder affirmatively acts to retain the
bond. The Trustee does not have the authority to act to retain Bonds with such
features; accordingly, it will receive payment of the full principal amount of
any such Bonds on the stated put date and such date is therefore treated as the
maturity date of such Bonds in selecting Bonds for the respective Trusts and for
purposes of calculating the average maturity of the Bonds in any Trust.
COMPOSITION OF TRUSTS
Each Trust initially consists of delivery statements relating to contracts to
purchase Bonds (or of such Bonds) as are listed under "Schedule of Investments"
in Part A of this Prospectus and, thereafter, of such Bonds as may continue to
be held from time to time (including certain securities deposited in the Trust
in substitution for Bonds not delivered to a Trust or in
6
<PAGE>
exchange or substitution for Bonds upon certain refundings), together with
accrued and undistributed interest thereon and undistributed cash realized from
the disposition of Bonds.
"WHEN-ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The contracts to
purchase Bonds delivered to the Trustee represent an obligation by issuers or
dealers to deliver Bonds to the Sponsor for deposit in the Trusts. Certain of
the contracts relate to Bonds which have not been issued as of the Date of
Deposit and which are commonly referred to as "when issued" or "when, as and if
issued" Bonds. Although the Sponsor believes it unlikely, if such Bonds, or
replacement bonds described below, are not acquired by a Trust or if their
delivery is delayed, the Estimated Current Returns and Estimated Long Term
Returns shown in Part A of this Prospectus may be reduced. Certain of the
contracts for the purchase of Bonds provide for delivery dates after the date of
settlement for purchases made on the Date of Deposit. Interest on such "when
issued" and "delayed delivery" Bonds accrues to the benefit of Unitholders
commencing with the first settlement date for the Units. However, in the opinion
of counsel, Unitholders who purchase their Units prior to the date such Bonds
are actually delivered to the Trustee must reduce the tax basis of their Units
for interest accruing on such Bonds during the interval between their purchase
of Units and the delivery of the Bonds because such amounts constitute a return
of principal. As a result of such adjustment, the Estimated Current Returns set
forth in Part A of this Prospectus (which are based on the Public Offering Price
as of the business day prior to the Date of Deposit) may be slightly lower than
that which Unitholders will receive after the first year, assuming the Portfolio
does not change and estimated annual expense does not vary from that set forth
under "Essential Information" in Part A of this Prospectus. Those Bonds in each
Trust purchased with delivery dates after the date of settlement for purchases
made on the Date of Deposit are so noted in the "Schedule of Investments" in
Part A of this Prospectus.
LIMITED REPLACEMENT OF CERTAIN BONDS. Neither the Sponsor nor the Trustee
shall be liable in any way for any default, failure or defect in any Bond. In
the event of a failure to deliver any Bond that has been purchased for a Trust
under a contract, including those Bonds purchased on a when, as and if issued
basis ("Failed Bonds"), the Sponsor is authorized under the Indenture to direct
the Trustee to acquire other specified Bonds ("Replacement Bonds") to make up
the original corpus of the Trust within 20 days after delivery of notice of the
failed contract and the cost to the Trust (exclusive of accrued interest) may
not exceed the amount of funds reserved for the purchase of the Failed Bonds.
The Replacement Bonds must satisfy the criteria previously described for the
Trusts and shall be substantially identical to the Failed Bonds they replace in
terms of (i) the exemption from federal and state taxation; (ii) maturity and;
(iii) cost to the Trust. In addition, Replacement Bonds shall not be "when, as
and if issued" Bonds. Whenever a Replacement Bond has been acquired for a Trust,
the Trustee shall, within five days after the delivery thereof, mail or deliver
a notice of such acquisition to all Unitholders of the Trust involved. Once the
original corpus of the Trust is acquired, the Trustee will have no power to vary
the investment of the Trust.
To the extent Replacement Bonds are not acquired, the Sponsor shall refund
to all Unitholders of the Trust involved the sales charge attributable to such
Failed Bonds not replaced, and the principal and accrued interest attributable
to such Bonds shall be distributed not more than 30 days after the determination
of such failure or at such earlier time as the Trustee in its sole discretion
deems to be in the interest of the Unitholders. Any such accrued interest paid
to Unitholders will be paid by the Sponsor and, accordingly, will not be treated
as tax-exempt income. In the event Failed Bonds in a Trust could not be
replaced, the Net Annual Interest Income per Unit for such Trust would be
reduced and the Estimated Current Return thereon might be lowered.
SALE, MATURITY AND REDEMPTION OF BONDS. Certain of the Bonds may from time
to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms. The proceeds from such events will be used to pay
for Units redeemed or distributed to Unitholders and not reinvested;
accordingly, no assurance can be given that a Trust will retain for any length
of time its present size and composition.
All of the Bonds in each Trust are subject to being called or redeemed in
whole or in part prior to their stated maturities pursuant to the optional
redemption provisions described in the "Schedule of Investments" in Part A of
this Prospectus and in most cases pursuant to a sinking fund or special or
extraordinary redemption provisions. See the discussion of the various types of
bond issues, above, for information on the call provisions of such bonds,
particularly single family mortgage revenue bonds.
The exercise of redemption or call provisions will (except to the extent the
proceeds of the called Bonds are used to pay for Unit redemptions) result in the
distribution of principal and may result in a reduction in the amount of
subsequent interest distributions; it may also affect the current return on
Units of the Trust involved. The exercise of redemption or call provisions is
more likely to occur in situations where the Bonds have an offering side
evaluation which represents a premium over par (as opposed to a discount from
par). (In the case of original issue discount bonds, such redemption is
generally to be made at the issue price plus the amount of original issue
discount accreted to the date of redemption; such price is referred to herein as
"accreted value"). Because Bonds may have been valued at prices above or below
par value or the then current accreted value at the time Units were purchased,
Unitholders may realize gain or loss upon the redemption of portfolio Bonds.
(See "WHAT IS THE TAX STATUS OF UNITHOLDERS?" and "WHEN ARE DISTRIBUTIONS MADE
TO UNITHOLDERS?" in Part B and the "Schedule of Investments" in Part A of this
Prospectus.)
7
<PAGE>
CERTAIN TAX MATTERS; LITIGATION. Certain of the Bonds in a Trust's
portfolio may be subject to continuing requirements regarding the actual use of
bond proceeds, the manner of operation of the project financed from bond
proceeds or the rebate of excess earnings on bond proceeds, any of which may
affect the exemption of interest on such Bonds from Federal income taxation.
Although at the time of issuance of each of the Bonds in each Trust an opinion
of bond counsel was rendered as to the exemption of interest on such obligations
from Federal income taxation, and the issuers covenanted to comply with all
requirements necessary to retain the tax-exempt status of the Bonds, there can
be no assurance that the respective issuers or other obligors on such
obligations will fulfill the various continuing requirements established upon
issuance of the Bonds. A failure to comply with such requirements may cause a
determination that interest on such obligations is subject to Federal income
taxation, perhaps even retroactively from the date of issuance of such Bonds,
thereby reducing the value of the Bonds and subjecting Unitholders to
unanticipated tax liabilities.
To the best knowledge of the Sponsor, there is no litigation pending as of
the Date of Deposit in respect of any Bonds which might reasonably be expected
to have a material adverse effect on any of the Trusts. It is possible that
after the Date of Deposit, litigation may be initiated with respect to Bonds in
any Trust. Any such litigation may affect the validity of such Bonds or the
tax-exempt nature of the interest thereon, but while the outcome of litigation
of such nature can never be entirely predicted, the opinions of bond counsel to
the issuer of each Bond on the date of issuance state that such Bonds were
validly issued and that the interest thereon is, to the extent indicated, exempt
from Federal income tax.
WHY AND HOW ARE THE BONDS INSURED?
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in each Insured Trust has been obtained by the Sponsor or
by the issuers or underwriters of the Bonds from the MBIA Insurance Corporation
(the "Insurer"). Certain of the Bonds in an Insured Trust may be covered by a
policy or policies of insurance obtained by the issuers or underwriters of the
Bonds from Municipal Bond Insurance Association (the "Association") or Bond
Investors Guaranty Insurance Company ("BIG"). The claims-paying ability of both
the Insurer and the Association was rated "AAA Prime Grade" by Standard &
Poor's. Moody's rates all bond issues insured by either the Insurer or the
Association "Aaa" and short-term loans "MIG 1." Fitch, upon request, rates all
bond issues insured by the Insurer or the Association "AAA" and short-term loans
"F-1." All such ratings designate the highest quality. The Insurer has issued a
policy or policies of insurance covering each of the Bonds in the Insured
Trusts, each policy to remain in force until the payment in full of such Bonds
and whether or not the Bonds continue to be held by an Insured Trust. By the
terms of each policy the Insurer will unconditionally guarantee to the holders
or owners of the Bonds the payment, when due, required of the issuer of the
Bonds of an amount equal to the principal of and interest on the Bonds as such
payments shall become due but not be paid (except that in the event of any
acceleration of the due date of principal by reason of mandatory or optional
redemption, default or otherwise, the payments guaranteed will be made in such
amounts and at such times as would have been due had there not been an
acceleration).
Insurance guaranteeing the timely payment, when due, of all principal and
interest on certain Bonds in a Traditional Trust may have been obtained by the
Sponsor, issuer or underwriter of the particular Bonds involved or by another
party. Such insurance, which provides coverage substantially the same as that
obtained with respect to Bonds in Insured Trusts as described above, is
effective so long as the insured Bond is outstanding and the insurer remains in
business. Insurance relates only to the particular Bond and not to the Units
offered hereby or to their market value. Insured Bonds have received a rating of
"Aaa" by Moody's, "AAA" by Fitch and/or "AAA" by Standard & Poor's in
recognition of such insurance.
If a Bond in a Traditional Trust is insured, the "Schedule of Investments"
appearing in Part A of this Prospectus will identify the insurer. There can be
no assurance that any insurer listed therein will be able to satisfy its
commitments in the event claims are made in the future. However, Standard &
Poor's, Fitch and/or Moody's have rated the claims-paying ability of each
insurer "AAA," "AAA" or "Aaa," respectively.
The Insurer is the principal operating subsidiary of MBIA, Inc., a New York
Stock Exchange listed company. MBIA, Inc. is not obligated to pay the debts of
or claims against the Insurer. The Insurer is domiciled in the State of New York
and licensed to do business in and subject to regulation under the laws of all
50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
As of December 31, 1995 the Insurer had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital and
surplus of $1.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of September 30, 1996, the Insurer had admitted assets of $4.3
billion (unaudited), total liabilities of $2.9 billion (unaudited), and total
capital and surplus of $1.4 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
8
<PAGE>
The Association is comprised of the five insurance companies set forth in
the following table, which provides certain unaudited financial information with
respect to each of the five insurance companies comprising the Association.
MUNICIPAL BOND INSURANCE ASSOCIATION
FIVE MEMBER COMPANIES ASSETS AND POLICYHOLDERS' SURPLUS (UNAUDITED)
AS OF MARCH 31, 1995.
(000'S OMITTED)
<TABLE>
<CAPTION>
NEW YORK NEW YORK NEW YORK
STATUTORY STATUTORY POLICYHOLDERS
ASSETS LIABILITIES SURPLUS
------------ ------------ --------------
<S> <C> <C> <C>
The AEtna Casualty & Surety Company........................................ $ 10,225,604 $ 8,312,158 $ 1,913,446
Fireman's Fund Insurance Company........................................... 7,126,217 5,116,059 2,010,158
The Travelers Indemnity Company............................................ 10,461,356 8,654,130 1,807,226
CIGNA Property and Casualty Company (formerly Aetna Insurance Company)..... 4,260,177 3,637,513 622,664
The Continental Insurance Company.......................................... 3,060,583 2,380,723 679,860
------------ ------------ --------------
Total.............................................................. $ 35,133,937 $ 28,100,583 $ 7,033,354
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and limitations on
investments, reports of financial condition, and requirements regarding reserves
for unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies is required by law to be held in reserve against
potential claims on policies and is not available to general creditors. Although
the federal government does not regulate the business of insurance, federal
initiatives including pension regulation, controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
tax law changes affecting life insurance companies and repeal of the antitrust
exemption for the insurance business can significantly impact the insurance
business.
The above ratings are not recommendations to buy, sell or hold the Bonds,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of either or both ratings
may have an adverse effect on the market price of the Bonds. See the Information
Supplement--for further information concerning insurance.
Because the insurance on the Bonds, if any, will be effective so long as the
Bonds are outstanding, such insurance will be taken into account in determining
the market value of the Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Insured Trusts. The
insurance does not, however, guarantee the market value of the Bonds or of the
Units.
HOW IS THE PUBLIC OFFERING PRICE DETERMINED?
The Public Offering Price of the Units of each Trust is equal to the Trustee's
determination of the aggregate OFFERING prices of the Bonds deposited therein
(minus any advancement to the principal account of the Trust made by the
Trustee) plus a sales charge set forth in "Essential Information" in Part A of
this Prospectus, in each case adding to the total thereof cash held by the
Trust, if any, and dividing the sum so obtained by the number of Units
outstanding in the Trust. See "UNIT VALUE AND EVALUATION."
The sales charge applicable to quantity purchases is reduced on a graduated
scale for sales to any purchaser of at least $50,000 or 500 Units and will be
applied on whichever basis is more favorable to the purchaser. For purposes of
calculating the applicable sales charge, purchasers who have indicated their
intent to purchase a specified amount of Units of any Trust in the primary or
secondary offering period by executing and delivering a letter of intent to the
Sponsor, which letter of intent must be in a form acceptable to the Sponsor and
shall have a maximum duration of thirteen months, will be eligible to receive a
reduced sales charge according to the following tables based on the amount of
intended aggregate purchases as expressed in the letter of intent. Due to
administrative limitations and in order to permit adequate tracking, the only
secondary market purchases that will be permitted to be applied toward the
intended specified amount and that will receive the corresponding reduced sales
charge are those Units that are acquired through or from the Sponsor. By
establishing a letter of intent, a Unitholder agrees that the first purchase of
Units following the execution of such letter of intent will be at least 5% of
the total amount of the intended aggregate purchases expressed in such
Unitholder's letter of intent. Further, through the establishment of the letter
of intent, such Unitholder agrees that Units representing 5% of the total amount
of the intended purchases will be held in escrow by the Trustee pending
completion of these purchases. All distributions on Units held in escrow will be
credited to such Unitholder's account. If total purchases prior to the
expiration of the letter of intent period equal or exceed the amount specified
in a Unitholder's letter of intent, the Units held in escrow will be transferred
to such Unitholder's account. A Unitholder who purchases Units during the letter
of intent period in excess of the number of Units specified in a Unitholder's
letter of intent, the amount of which would cause the Unitholder to be eligible
to receive an additional sales charge reduction, will be allowed such additional
sales charge reduction on the purchase of Units which caused the Unitholder to
reach such new breakpoint level and on all additional purchases of Units
9
<PAGE>
during the letter of intent period. If the total purchases are less than the
amount specified, the Unitholder involved must pay the Sponsor an amount equal
to the difference between the amounts paid for these purchases and the amounts
which would have been paid if the higher sales charge had been applied; the
Unitholder will, however, be entitled to any reduced sales charge qualified for
by reaching any lower breakpoint level. If such Unitholder does not pay the
additional amount within 20 days after written request by the Sponsor or the
Unitholder's securities representative, the Sponsor will instruct the Trustee to
redeem an appropriate number of the escrowed Units to meet the required payment.
By establishing a letter of intent, a Unitholder irrevocably appoints the
Sponsor as attorney to give instructions to redeem any or all of such
Unitholder's escrowed Units, with full power of substitution in the premises. A
Unitholder or his securities representative must notify the Sponsor whenever
such Unitholder makes a purchase of Units that he wishes to be counted towards
the intended amount. Sales charges during the primary offering period are as
follows:
<TABLE>
<CAPTION>
NATIONAL AND
STATE
NATIONAL AND STATE LONG TERM INTERMEDIATE
TRUSTS LONG INTERMEDIATE TRUSTS TRUSTS
----------------------------- ----------------------------- ------------
<S> <C> <C> <C> <C> <C>
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF NET OF OF NET OF
OFFERING AMOUNT OFFERING AMOUNT OFFERING
NUMBER OF UNITS* PRICE INVESTED PRICE INVESTED PRICE
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
Less than 500........................... 4.90 % 5.152 % 4.25 % 4.439 % 3.90%
500 but less than 1,000................. 4.75 4.987 4.15 4.330 3.70
1,000 but less than 2,500............... 4.50 4.712 3.85 4.004 3.50
2,500 but less than 5,000............... 4.25 4.439 3.60 3.734 3.25
5,000 but less than 10,000.............. 3.50 3.627 3.35 3.466 3.00
10,000 but less than 25,000............. 3.00 3.093 3.00 3.093 2.75
25,000 but less than 50,000............. 2.50 2.564 2.50 2.564 2.50
50,000 or more.......................... 2.00 2.041 2.00 2.041 2.00
<CAPTION>
<S> <C>
PERCENT
OF NET
AMOUNT
NUMBER OF UNITS* INVESTED
- ---------------------------------------- ------------
Less than 500........................... 4.058 %
500 but less than 1,000................. 3.842
1,000 but less than 2,500............... 3.627
2,500 but less than 5,000............... 3.359
5,000 but less than 10,000.............. 3.093
10,000 but less than 25,000............. 2.828
25,000 but less than 50,000............. 2.564
50,000 or more.......................... 2.041
</TABLE>
<TABLE>
<CAPTION>
NATIONAL AND STATE SHORT
INTERMEDIATE TRUSTS SHORT TERM TRUSTS
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
PERCENT PERCENT PERCENT PERCENT
OF OF NET OF OF NET
OFFERING AMOUNT OFFERING AMOUNT
NUMBER OF UNITS* PRICE INVESTED PRICE INVESTED
- ---------------------------------------- ------------ ------------ ------------ ------------
Less than 500........................... 3.00 % 3.093 % 2.50 % 2.564 %
500 but less than 1,000................. 2.80 2.881 2.30 2.354
1,000 but less than 2,500............... 2.60 2.670 2.10 2.145
2,500 but less than 5,000............... 2.35 2.407 1.85 1.885
5,000 but less than 10,000.............. 2.10 2.145 1.60 1.626
10,000 but less than 25,000............. 1.85 1.885 1.35 1.368
25,000 but less than 50,000............. 1.80 1.833 1.25 1.266
50,000 or more.......................... 1.50 1.523 1.15 1.163
</TABLE>
*Breakpoint sales charges are computed both on a dollar basis and on the basis
of the number of Units purchased, using the equivalent of 500 Units to $50,000,
2,500 Units to $250,000 etc., and will be applied on that basis which is more
favorable to the purchaser.
For "secondary market" sales the Public Offering Price per Unit of each
Trust is determined by adding to the Trustee's determination of the BID price of
each Bond in the Trust a sales charge determined in accordance with the table
set forth below based upon the number of years remaining to the maturity of each
such Bond. See "UNIT VALUE AND EVALUATION." The effect of this method of sales
charge calculation will be that different sales charge rates will be applied to
the various Bonds in a Trust portfolio based upon the maturities of such Bonds.
As shown, the sales charge on Bonds in each maturity range (and therefore the
aggregate sales charge on the purchase) is reduced with respect to purchases of
at least $50,000 or 500 Units:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$50,000 $100,000 $250,000 $500,000 $1,000,000 $2,500,000
UNDER TO TO TO TO TO TO $5,000,000
YEARS TO MATURITY $50,000 $99,999 $249,999 $499,999 $999,999 $2,499,999 $4,999,999 OR MORE
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less than 1................... 0 0 0 0 0 0 0 0
1 but less than 2............. 1.523 % 1.446 % 1.369 % 1.317 % 1.215 % 1.061 % .900 % .750 %
2 but less than 3............. 2.041 1.937 1.833 1.729 1.626 1.420 1.225 1.030
3 but less than 4............. 2.564 2.433 2.302 2.175 2.041 1.781 1.546 1.310
4 but less than 5............. 3.093 2.961 2.828 2.617 2.459 2.175 1.883 1.590
5 but less than 7............. 3.627 3.433 3.239 3.093 2.881 2.460 2.165 1.870
7 but less than 10............ 4.167 3.951 3.734 3.520 3.239 2.828 2.489 2.150
10 but less than 13........... 4.712 4.467 4.221 4.004 3.788 3.253 2.842 2.430
13 but less than 16........... 5.263 4.988 4.712 4.439 4.167 3.627 3.169 2.710
16 or more.................... 5.820 5.542 5.263 4.987 4.603 4.004 3.500 3.000
</TABLE>
*Breakpoint sales charges are computed both on a dollar basis and on the basis
of the number of Units purchased, using the equivalent of 500 Units to
$50,000, 2,500 Units to $250,000, etc., and will be applied on that basis
which is more favorable to the purchaser.
The secondary market sales charges above are expressed as a percent of the
net amount invested; expressed as a percent of the Public Offering Price, the
maximum sales charge on a Trust, for instance one consisting entirely of Bonds
with 16 years or more to maturity, would be 5.50% (5.820% of the net amount
invested). The actual secondary market sales charge included in the Public
Offering Price of any particular Trust will depend on the maturities of the
Bonds in the portfolio of such Trust.
10
<PAGE>
Pursuant to the terms of the Indenture, the Trustee may terminate a Trust if
the net asset value of such Trust, as shown by any evaluation, is less than 20%
of the original principal amount of the Trust.
At all times while Units are being offered for sale, the Sponsor will
appraise or cause to be appraised daily the value of the underlying Bonds in
each Trust as of 4:00 p.m. eastern time, or as of any earlier closing time on a
day on which the New York Stock Exchange (the "Exchange") is scheduled in
advance to close at such earlier time and will adjust the Public Offering Price
of the Units commensurate with such appraisal. Such Public Offering Price will
be effective for all orders received by a dealer or the Sponsor at or prior to
4:00 p.m. eastern time on each such day or as of any earlier closing time on a
day on which the Exchange is scheduled in advance to close at such earlier time.
Orders received after that time, or on a day when the Exchange is closed for a
scheduled holiday or weekend, will be held until the next determination of
price.
Accrued interest from the preceding Record Date to, but not including, the
settlement date of the transaction (three business days after purchase) will be
added to the Public Offering Price to determine the purchase price of Units. See
"WHAT IS ACCRUED INTEREST?"
The graduated sales charges set forth above will apply on all applicable
purchases of Nuveen investment company securities on any one day by the same
purchaser in the amounts stated, and for this purpose purchases of this Series
will be aggregated with concurrent purchases of any other Series or of shares of
any open-end management investment company of which the Sponsor is principal
underwriter and with respect to the purchase of which a sales charge is imposed.
Purchases by or for the account of individuals and their spouses, parents,
children, grandchildren, grandparents, parents-in-law, sons- and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings
("immediate family members") will be aggregated to determine the applicable
sales charge. The graduated sales charges are also applicable to a trustee or
other fiduciary purchasing securities for a single trust estate or single
fiduciary account. Units may be purchased at the Public Offering Price without a
sales charge by officers or directors and by bona fide, full-time employees of
Nuveen, Nuveen Advisory Corp., Nuveen Institutional Advisory Corp. and The John
Nuveen Company, including in each case these individuals and their immediate
family members (as defined above).
Units may be purchased in the primary market with sales charges of 1.70% of
the Public Offering Price for National and State Long Term Trusts, 1.35% of the
Public Offering Price for Long Intermediate Trusts, 1.20% of the Public Offering
Price for National and State Intermediate Trusts, 1.0% of the Public Offering
Price for National and State Short Intermediate Trusts and 1.0% of the Public
Offering Price for Short Term Trusts by (1) investors who purchase Units through
registered investment advisers, certified financial planners and registered
broker-dealers who in each case either 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, (2) bank trust departments
investing funds over which they exercise exclusive discretionary investment
authority and that are held in a fiduciary, agency, custodial or similar
capacity, (3) any person who for at least 90 days, has been an officer, director
or bona fide employee of any firm offering Units for sale to investors or their
immediate family members (as defined above) and (4) officers and directors of
bank holding companies that make Units available directly or through
subsidiaries or bank affiliates (collectively, the "Discounted Purchases"). In
addition, such investors may purchase Units in the secondary market at the
Public Offering Price for non-breakpoint purchases minus the concession the
Sponsor typically allows to brokers and dealers for non-breakpoint purchases.
Notwithstanding anything to the contrary in this Prospectus, investors who
purchase Units as described in this paragraph will not receive sales charge
reductions for quantity purchases.
The initial or primary Public Offering Price of the Units in each Trust is
based upon a pro rata share of the OFFERING prices per Unit of the Bonds in such
Trust plus the applicable sales charge. The secondary market Public Offering
Price of each Trust is based upon a pro rata share of the BID prices per Unit of
the Bonds in such Trust plus the applicable sales charge. The OFFERING prices of
Bonds in a Trust may be expected to average between 1/2% to 2% more than the BID
prices of such Bonds. The difference between the bid side evaluation and the
offering side evaluation of the Bonds in each Trust on the business day prior to
the Date of Deposit is shown in the discussion of each Trust portfolio.
Whether or not Units are being offered for sale, the Sponsor will determine
the aggregate value of each Trust as of 4:00 p.m. eastern time: (i) on each June
30 or December 31 (or, if such date is not a business day, the last business day
prior thereto), (ii) on any day on which a Unit is tendered for redemption (or
the next succeeding business day if the date of tender is a non-business day)
and (iii) at such other times as may be necessary. For this purpose, a "business
day" shall be any day on which the Exchange is normally open. (See "UNIT VALUE
AND EVALUATION.")
MARKET FOR UNITS
During the initial public offering period, the Sponsor intends to offer to
purchase Units of each Trust at a price equivalent to the pro rata share per
Unit of the OFFERING prices of the Bonds in such Trust (plus accrued interest).
Afterward, although it is not obligated to do so, the Sponsor intends to
maintain a secondary market for Units of each Trust at its own expense and
continuously to offer to purchase Units of each Trust at prices, subject to
change at any time, which are based upon the BID prices of Bonds in the
respective portfolios of the Trusts. UNITHOLDERS WHO WISH TO DISPOSE OF THEIR
UNITS SHOULD INQUIRE OF THE TRUSTEE OR THEIR BROKER AS TO THE CURRENT REDEMPTION
PRICE. (See "HOW UNITS MAY BE REDEEMED WITHOUT CHARGE?") In connection with its
secondary marketmaking activities, the Sponsor may from time to time enter into
secondary market joint account agreements with other brokers and dealers.
Pursuant to such an agreement, the Sponsor will
11
<PAGE>
purchase Units from the broker or dealer at the bid price and will place the
Units into a joint account managed by the Sponsor; sales from the account will
be made in accordance with the then current prospectus and the Sponsor and the
broker or dealer will share profits and losses in the joint account in
accordance with the terms of their joint account agreement.
Certificates, if any, for Units are delivered to the purchaser as promptly
after the date of settlement (three business days after purchase) as the Trustee
can complete the mechanics of registration, normally within 48 hours after
registration instructions are received. Purchasers of Units to whom Certificates
are issued will be unable to exercise any right of redemption until they have
received their Certificates, properly endorsed for transfer. (See "HOW UNITS MAY
BE REDEEMED WITHOUT CHARGE?")
WHAT IS ACCRUED INTEREST?
Accrued interest is the accumulation of unpaid interest on a bond from the last
day on which interest thereon was paid. Interest on Bonds in each Trust is
accounted for daily on an accrual basis. For this reason, the purchase price of
Units of a Trust will include not only the Public Offering Price but also the
proportionate share of accrued interest to the date of settlement. Accrued
interest does not include accrual of original issue discount on zero coupon
bonds, Stripped Obligations or other original issue discount bonds. Interest
accrues to the benefit of Unitholders commencing with the settlement date of
their purchase transaction.
In an effort to reduce the amount of accrued interest that investors would
have to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to each Trust the amount of accrued interest due on the Bonds as of the
Date of Deposit (which has been designated the first Record Date for all plans
of distribution). This accrued interest will be paid to the Sponsor as the
holder of record of all Units on the Date of Deposit. Consequently, the amount
of accrued interest to be added to the Public Offering Price of Units will
include only accrued interest from the Date of Deposit to, but not including,
the date of settlement of the investor's purchase (three business days after
purchase), less any distributions from the related Interest Account. The Trustee
will recover its advancements (without interest or other cost to the Trusts)
from interest received on the Bonds deposited in each Trust.
The Trustee has no cash for distribution to Unitholders until it receives
interest payments on the Bonds in the Trusts. Since municipal bond interest is
accrued daily but paid only semi-annually, during the initial months of the
Trusts, the Interest Accounts, consisting of accrued but uncollected interest
and collected interest (cash), will be predominantly the uncollected accrued
interest that is not available for distribution. However, due to advances by the
Trustee, the Trustee will provide a first distribution between approximately 30
and 60 days after the Date of Deposit. Assuming each Trust retains its original
size and composition and expenses and fees remain the same, annual interest
collected and distributed will approximate the estimated Net Annual Interest
Income stated herein. However, the amount of accrued interest at any point in
time will be greater than the amount that the Trustee will have actually
received and distributed to the Unitholders. Therefore, there will always remain
an item of accrued interest that is included in the Purchase Price and the
redemption price of the Units.
Interest is accounted for daily and a proportionate share of accrued and
undistributed interest computed from the preceding Record Date is added to the
daily valuation of each Unit of each Trust. (See Part A of this Prospectus and
"WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?") As Bonds mature, or are redeemed
or sold, the accrued interest applicable to such bonds is collected and
subsequently distributed to Unitholders. Unitholders who sell or redeem all or a
portion of their Units will be paid their proportionate share of the remaining
accrued interest to, but not including, the third business day following the
date of sale or tender.
WHAT ARE ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN?
The Estimated Long Term Return for each Trust is a measure of the return to the
investor expected to be earned over the estimated life of the Trust. The
Estimated Long Term Return represents an average of the yields to maturity (or
call) of the Bonds in the Trust's portfolio calculated in accordance with
accepted bond practice and adjusted to reflect expenses and sales charges. Under
accepted bond practice, tax-exempt bonds are customarily offered to investors on
a "yield price" basis, which involves computation of yield to maturity or to an
earlier call date (whichever produces the lower yield), and which takes into
account not only the interest payable on the bonds but also the amortization or
accretion of any premium over, or discount from, the par (maturity) value
inherent in the bond's purchase price. In the calculation of Estimated Long Term
Return, the average yield for a Trust's portfolio is derived by weighting each
Bond's yield by the market value of the Bond and by the amount of time remaining
to the date to which the Bond is priced. This weighted average yield is then
adjusted to reflect estimated expenses, is compounded, and is reduced by a
factor which represents the amortization of the sales charge over the expected
average life of a Trust. The Estimated Long Term Return calculation does not
take into account the effect of a first distribution which may be less than a
regular distribution or may be paid at some point after 30 days (or a second
distribution which may be less than a normal distribution for Unitholders who
choose quarterly or semi-annual plans of distribution), and it also does not
take into account the difference in timing of payments to Unitholders who choose
quarterly or semi-annual plans of distribution, each of which will reduce the
return.
12
<PAGE>
Estimated Current Return is computed by dividing the Net Annual Interest
Income per Unit by the Public Offering Price. In contrast to Estimated Long Term
Return, Estimated Current Return does not reflect the amortization of premium or
accretion of discount, if any, on the Bonds in a Trust's portfolio. Net Annual
Interest Income per Unit is calculated by dividing the annual interest income to
a Trust, less estimated expenses, by the number of Units outstanding.
Net Annual Interest Income per Unit, used to calculate Estimated Current
Return, will vary with changes in fees and expenses of the Trustee and the
Evaluator and with the redemption, maturity, exchange or sale of Bonds. A
Unitholder's actual return may vary significantly from the Estimated Long-Term
Return, based on their holding period, market interest rate changes, other
factors affecting the prices of individual bonds in the portfolio, and
differences between the expected remaining life of portfolio bonds and the
actual length of time that they remain in a Trust; such actual holding periods
may be reduced by termination of a Trust, as described in "OTHER INFORMATION."
Since both the Estimated Current Return and the Estimated Long Term Return
quoted herein are based on the market value of the underlying Bonds on the
business day prior to the Date of Deposit, subsequent calculations of these
performance measures will reflect the then current market value of the
underlying Bonds and may be higher or lower. The Sponsor will provide estimated
cash flow information relating to a Trust without charge to each potential
investor in a Trust who receives this prospectus and makes an oral or written
request to the Sponsor for such information.
A portion of the monies received by a Trust may be treated, in the first
year only, as a return of principal due to the inclusion in the Trust portfolio
of "when-issued" or other Bonds having delivery dates after the date of
settlement for purchases made on the Date of Deposit. A consequence of this
treatment is that in the computation of Estimated Current Return for the first
year, such monies are excluded from Net Annual Interest Income and treated as an
adjustment to the Public Offering Price. (See "Essential Information" appearing
in Part A of this Prospectus, "COMPOSITION OF TRUSTS" and "WHAT IS THE TAX
STATUS OF UNITHOLDERS?")
A comparison of tax-free and equivalent taxable estimated current returns
with the returns on various taxable investments is one element to consider in
making an investment decision. The Sponsor may from time to time in its
advertising and sales materials compare the then current estimated returns on a
Trust and returns over specified periods on other similar Nuveen Trusts with
returns on taxable investments such as corporate or U.S. Government bonds, bank
CD's and money market accounts or money market funds, each of which has
investment characteristics that may differ from those of the Trust. U.S.
Government bonds, for example, are backed by the full faith and credit of the
U.S. Government and bank CD's and money market accounts are insured by an agency
of the federal government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the condition
of the short-term debt market. The investment characteristics of the Trusts are
described more fully elsewhere in the Prospectus.
HOW WAS THE PRICE OF THE BONDS DETERMINED AT THE DATE OF DEPOSIT?
The prices at which the Bonds deposited in the Trusts would have been offered to
the public on the business day prior to the Date of Deposit were determined by
the Trustee on the basis of an evaluation of such Bonds prepared by Kenny S&P
Evaluation Services, a division of J. J. Kenny Co., Inc. ("Kenny S&P"), a firm
regularly engaged in the business of evaluating, quoting or appraising
comparable bonds. With respect to Bonds in Insured Trusts and insured Bonds in
Traditional Trusts, Kenny S&P evaluated the Bonds as so insured. (See "WHY AND
HOW ARE THE BONDS INSURED?")
The amount by which the Trustee's determination of the OFFERING PRICES of
the Bonds deposited in the Trusts was greater or less than the cost of such
Bonds to the Sponsor was PROFIT OR LOSS to the Sponsor exclusive of any
underwriting profit. (See Part A of this Prospectus.) The Sponsor also may
realize FURTHER PROFIT OR SUSTAIN FURTHER LOSS as a result of fluctuations in
the Public Offering Price of the Units. Cash, if any, made available to the
Sponsor prior to the settlement date for a purchase of Units, or prior to the
acquisition of all Portfolio securities by a Trust, may be available for use in
the Sponsor's business, and may be of benefit to the Sponsor.
WHAT IS THE TAX STATUS OF UNITHOLDERS?
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income were rendered by bond counsel to the respective issuing authorities. In
addition, with respect to State Trusts, where applicable, bond counsel to the
issuing authorities rendered opinions as to the exemption of interest on such
Bonds, when held by residents of the state in which the issuers of such Bonds
are located, from state income taxes and certain state or local intangibles and
local income taxes. For a discussion of the tax status of State Trusts, see Part
A of this Prospectus. Neither the Sponsor nor Chapman and Cutler has made any
special review for the Trusts of the proceedings relating to the issuance of the
Bonds or of the basis for the opinions rendered in connection therewith. If the
interest on a Bond should be determined to be taxable, the Bond would generally
have to be sold at a substantial discount. In addition, investors could be
required to pay income tax on interest received prior to the date of which
interest is determined to be taxable.
Federally tax-exempt income, including income on Units of the Trusts, will
be taken into consideration in computing the portion, if any, of social security
benefits received that will be included in a taxpayer's gross income subject to
the Federal income tax.
13
<PAGE>
Gain realized on the sale or redemption of the Bonds by the Trustee or of a
Unit by a Unitholder is includable in gross income for Federal income tax
purposes, and may be includable in gross income for state tax purposes. (Such
gain does not include any amounts received in respect of tax-exempt accrued
interest or accrued original issue discount, if any.) Sections 1288 and 1272 of
the Internal Revenue Code of 1986, as amended (the "Code") provide a complex set
of rules governing the accrual of original issue discount. These rules provide
that original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price") to prior owners. If a Bond is acquired with accrued interest, that
portion of the price paid for the accrued interest is added to the tax basis of
the Bond. When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased for a
premium, the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax basis of
the Bond is reduced each tax year by the amount of the premium amortized in that
tax year. The application of these rules will also vary depending on the value
of the Bond on the date a Unitholder acquires his Units and the price the
Unitholder pays for his Units. Unitholders should consult with their tax
advisers regarding these rules and their application.
The "Revenue Reconciliation Act of 1993" (the "Tax Act") subjects tax-exempt
bonds to the market discount rules of the Code, effective for bonds purchased
after April 30, 1993. In general, market discount is the amount (if any) by
which the stated redemption price at maturity exceeds an investor's purchase
price (except to the extent that such difference, if any, is attributable to
original issue discount not yet accrued), subject to a statutory DE MINIMIS
rule. Market discount can arise based on the price the Trust pays for the Bonds
or the price a Unitholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law, the
accretion had been treated as capital gain. Market discount that accretes while
the Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or her
Units, unless a Unitholder elects to include market discount in taxable income
as it accrues. The market discount rules are complex and Unitholders should
consult their tax advisors regarding these rules and their application.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under existing
law:
(1) the Trusts are not associations taxable as corporations for Federal
income tax purposes, and interest and accrued original issue discount on
Bonds which is excludable from gross income under the Code will retain
its status when distributed to the Unitholders; however such interest
may be taken into account in computing the alternative minimum tax, an
additional tax on branches of foreign corporations and the environmental
tax (the "Superfund Tax"). See "CERTAIN TAX MATTERS APPLICABLE TO
CORPORATE UNITHOLDERS", below;
(2) each Unitholder of a Trust is considered to be the owner of a pro rata
portion of such Trust under Subpart E, subchapter J of Chapter 1 of the
Code and will have a taxable event when the Trust disposes of a Bond or
when the Unitholder redeems or sells Units. Unitholders must reduce the
tax basis of their Units for their share of accrued interest received by
the Trust, if any, on Bonds delivered after the Unitholders pay for
their Units to the extent that such interest accrued on such Bonds
before the date the Trust acquired ownership of the Bonds (and the
amount of this reduction may exceed the amount of accrued interest paid
to the seller) during the period from the Unitholders settlement date to
the date such Bonds are delivered to the respective Trusts and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, payment at
maturity, redemption or otherwise), gain or loss is recognized to the
Unitholder. The amount of any such gain or loss is measured by comparing
the Unitholder's pro rata share of the total proceeds from such
disposition with the Unitholder's basis for his or her fractional
interest in the asset disposed of. In the case of a Unitholder who
purchases Units, such basis (before adjustment for earned original issue
discount and amortized bond premium, if any) is determined by
apportioning the cost of the Units among each of the Trust assets
ratably according to value as of the valuation date nearest the date of
acquisition of the Units. The tax basis reduction requirements of said
Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder realizing a taxable gain when
his or her Units are sold or redeemed for an amount less than or equal
to their original cost; and
(3) any amounts paid on defaulted Bonds held by the Trustee under policies
of insurance issued with respect to such Bonds will be excludable from
Federal gross income if, and to the same extent as, such interest would
have been so excludable if paid in the normal course by the issuer of
the defaulted Bonds provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary
and consistent with the reasonable expectation that the issuer of the
Bonds, rather than the insurer, will pay debt service on the Bonds.
Paragraph (2) of this opinion is accordingly applicable to policy
proceeds representing maturing interest.
14
<PAGE>
In the opinion of Carter, Ledyard & Milburn, counsel to the Trustee, and, in the
absence of a New York Trust from the Series, special counsel for the Series for
New York tax matters, under existing law:
Under the income tax laws of the State and City of New York, each Trust
is not an association taxable as a corporation and the income of each Trust
will be treated as the income of the Unitholders.
For a summary of each opinion of special counsel to the respective State
Trusts for state tax matters, see Part A of this Prospectus.
ALL STATEMENTS IN THE PROSPECTUS CONCERNING EXCLUSION FROM GROSS INCOME FOR
FEDERAL, STATE OR OTHER TAX PURPOSES ARE THE OPINION OF COUNSEL AND ARE TO BE SO
CONSTRUED.
Counsel for the Sponsor has also advised that under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units of a
Trust is not deductible for Federal income tax purposes. The Internal Revenue
Service has taken the position that such indebtedness need not be directly
traceable to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase or improve a
personal residence). Also, under Section 265 of the Code, certain financial
institutions that acquire Units would generally not be able to deduct any of the
interest expense attributable to ownership of such Units. On December 7, 1995,
the U.S. Treasury Department released proposed legislation that, if enacted,
would generally extend the financial institution rules to all corporations,
effective for obligations acquired after the date of announcement. Investors
with questions regarding this issue should consult with their tax advisers.
In the case of certain of the Bonds in the Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user" of
the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or related
person, will not be excludable from Federal gross income, although interest on
such Bonds received by others would be excludable from Federal gross income.
"Substantial user" and "related person" are defined under the Code and U.S.
Treasury Regulations. Any person who believes that he or she may be a
"substantial user" or a "related person" as so defined should contact his or her
tax adviser.
For purposes of computing the alternative minimum tax for individuals and
corporations, interest on certain specified tax-exempt private activity bonds is
included as a preference item. The Trusts do not include any such bonds.
CERTAIN TAX MATTERS APPLICABLE TO CORPORATE UNITHOLDERS. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax depend
upon the corporation's alternative minimum taxable income ("AMTI"), which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing AMTI and the Superfund Tax of a corporation (other than
an S corporation, Regulated Investment Company, Real Estate Investment Trust, or
REMIC) is an amount equal to 75% of the excess of such corporation's "adjusted
current earnings" over an amount equal to its AMTI (before such adjustment item
and the alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax-exempt interest, including interest on all Bonds in
the Trust. Under current Code provisions, the Superfund Tax does not apply to
tax years beginning on or after January 1, 1996. However, the Superfund Tax
could be extended retroactively. Under the provisions of Section 884 of the
Code, a branch profits tax is levied on the "effectively connected earnings and
profits" of certain foreign corporations which include tax-exempt interest such
as interest on the Bonds in the Trust. Unitholders should consult their tax
advisors with respect to the particular tax consequences to them including the
corporate alternative minimum tax, the Superfund Tax and the branch profits tax
imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers who
may be deemed to have incurred (or continued) indebtedness to purchase or carry
tax-exempt obligations. Prospective investors should consult their tax advisers
as to the applicability of any such collateral consequences.
EXCEPT AS NOTED ABOVE AND IN PART A OF THIS PROSPECTUS, THE EXEMPTION OF
INTEREST ON STATE AND LOCAL OBLIGATIONS FOR FEDERAL INCOME TAX PURPOSES
DISCUSSED ABOVE DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME OR
OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF THE SEVERAL STATES VARY WITH
RESPECT TO THE TAXATION OF SUCH OBLIGATIONS.
WHAT ARE NORMAL TRUST OPERATING EXPENSES?
No annual advisory fee is charged to the Trusts by the Sponsor. The Sponsor
does, however, receive a fee as set forth in "Essential Information" in Part A
of this Prospectus for regularly evaluating the Bonds and for maintaining
surveillance over the portfolio. (See "UNIT VALUE AND EVALUATION.")
The Trustee receives for ordinary recurring services an annual fee for each
plan of distribution for each Trust as set forth in "Essential Information"
appearing in Part A of this Prospectus. Each annual fee is per $1,000 principal
amount of the underlying Bonds in a Trust for that portion of the Trust that
represents a particular plan of distribution. 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) and may be further adjusted in accordance with the
cumulative percentage increase of the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent of Shelter" since the
establishment of the Trusts. The Trustee has the use of funds, if any, being
held in the Interest and
15
<PAGE>
Principal Accounts of each Trust for future distributions, payment of expenses
and redemptions. These Accounts are non-interest bearing to Unitholders.
Pursuant to normal banking procedures, the Trustee benefits from the use of
funds held therein. Part of the Trustee's compensation for its services to the
Trusts is expected to result from such use of these funds.
Premiums for the policies of insurance obtained by the Sponsor or by the
Bond issuers with respect to the Bonds in the Insured Trusts and with respect to
insured Bonds in Traditional Trusts have been paid in full prior to the deposit
of the Bonds in the Trusts, and the value of such insurance has been included in
the evaluation of the Bonds in each Trust and accordingly in the Public Offering
Price of Units of each Trust. There are no annual continuing premiums for such
insurance.
All or a portion of the expenses incurred in establishing the Trusts,
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 each Trust portfolio, the initial
evaluation, legal fees, the initial fees and expenses of the Trustee and any
other non-material out-of-pocket expenses, will be paid by the Trusts and
amortized over the first five years of such Trusts. The following are additional
expenses of the Trusts and, when paid by or are owed to the Trustee, are secured
by a lien on the assets of the Trust or Trusts to which such expenses are
allocable: (1) the expenses and costs of any action undertaken by the Trustee to
protect the Trusts and the rights and interests of the Unitholders; (2) all
taxes and other governmental charges upon the Bonds or any part of the Trusts
(no such taxes or charges are being levied or made or, to the knowledge of the
Sponsor, contemplated); (3) amounts payable to the Trustee as fees for ordinary
recurring services and for extraordinary non-recurring services rendered
pursuant to the Indenture, all disbursements and expenses including counsel fees
(including fees of bond counsel which the Trustee may retain) sustained or
incurred by the Trustee in connection therewith; and (4) any losses or
liabilities accruing to the Trustee without negligence, bad faith or willful
misconduct on its part. The Trustee is empowered to sell Bonds in order to pay
these amounts if funds are not otherwise available in the applicable Interest
and Principal Accounts.
The Indenture requires each Trust to be audited on an annual basis at the
expense of the Trust by independent public accountants selected by the Sponsor.
The Trustee shall not be required, however, to cause such an audit to be
performed if its cost to a Trust shall exceed $.05 per Unit on an annual basis.
Unitholders of a Trust covered by an audit may obtain a copy of the audited
financial statements upon request.
WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS?
Interest received by the Trustee on the Bonds in each Trust, including that part
of the proceeds of any disposition of Bonds which represents accrued interest
and including any insurance proceeds representing interest due on defaulted
Bonds, shall be credited to the "Interest Account" of such Trust and all other
moneys received by the Trustee shall be credited to the "Principal Account" of
such Trust.
The pro rata share of cash in the Principal Account in each Trust will be
computed as of each semi-annual Record Date and distributions to the Unitholders
as of such Record Date will be made on or shortly after the fifteenth day of the
month. Proceeds received from the disposition, including sale, call or maturity,
of any of the Bonds and all amounts paid with respect to zero coupon bonds and
Stripped Obligations will be held in the Principal Account and either used to
pay for Units redeemed or distributed on the Distribution Date following the
next semi-annual Record Date. The Trustee is not required to make a distribution
from the Principal Account of any Trust unless the amount available for
distribution in such account equals at least ten cents per Unit.
The pro rata share of the Interest Account in each Trust will be computed by
the Trustee each month as of each Record Date and distributions will be made on
or shortly after the fifteenth day of the month to Unitholders of such Trust as
of the Record Date who are entitled to distributions at that time under the plan
of distribution chosen. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the Distribution Date
following the next Record Date under the applicable plan of distribution.
Purchasers of Units who desire to receive interest distributions on a
monthly or quarterly basis may elect to do so at the time of purchase during the
initial public offering period. Those indicating no choice will be deemed to
have chosen the semi-annual distribution plan. All Unitholders, however, who
purchase Units during the initial public offering period and who hold them of
record on the first Record Date will receive the first distribution of interest.
Thereafter, Record Dates for monthly distributions will be the first day of each
month; Record Dates for quarterly distributions will be the first day of
February, May, August and November; and Record Dates for semi-annual
distributions will be the first day of May and November. See Part A of this
Prospectus for details of distributions per Unit of each Trust under the various
plans based upon estimated Net Annual Interest Income at the Date of Deposit.
The amount of the regular distributions will generally change when Bonds are
redeemed, mature or are sold or when fees and expenses increase or decrease. For
the purpose of minimizing fluctuations in the distributions from the Interest
Account of a Trust, the Trustee is authorized to advance such amounts as may be
necessary to provide for interest distributions of approximately equal amounts.
The Trustee shall be reimbursed, without interest, for any such advances from
funds in the Interest Account of such Trust. The Trustee's fee takes into
account the costs attributable to the outlay of capital needed to make such
advances.
The plan of distribution selected by a Unitholder will remain in effect
until changed. Unitholders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Unitholders
16
<PAGE>
desiring to change their plan of distribution may do so by sending a written
notice requesting the change, together with any Certificate(s), to the Trustee.
The notice and any Certificate(s) must be received by the Trustee not later than
the semi-annual Record Date to be effective as of the semi-annual distribution
following the subsequent semi-annual Record Date. Unitholders are requested to
make any such changes within 45 days prior to the applicable Record Date.
Certificates should only be sent by registered or certified mail to minimize the
possibility of their being lost or stolen. (See "OWNERSHIP AND TRANSFER OF
UNITS.")
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust or, to the extent funds are not sufficient therein, from the
Principal Account of a Trust, amounts needed for payment of expenses of such
Trust. The Trustee also may withdraw from said accounts such amount, if any, as
it deems necessary to establish a reserve for any governmental charges payable
out of such Trust. Amounts so withdrawn shall not be considered a part of a
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate account. In addition, the Trustee shall withdraw
from the Interest Account and the Principal Account of a Trust such amounts as
may be necessary to cover redemptions of Units of such Trust by the Trustee.
Funds which are available for future distributions, redemptions and payment of
expenses are held in accounts which are non-interest bearing to Unitholders and
are available for use by the Trustee pursuant to normal banking procedures.
ACCUMULATION PLAN
The Sponsor is also the principal underwriter of several open-end mutual funds
(the "Accumulation Funds") into which Unitholders may choose to reinvest Trust
distributions. Unitholders may elect to reinvest principal distributions or
interest and principal distributions automatically, without any sales charge.
Each Accumulation Fund has investment objectives which differ in certain
respects from those of the Trusts and may invest in securities which would not
be eligible for deposit in the Trusts. Further information concerning the
Accumulation Plan and a list of Accumulation Funds is set forth in the
Information Supplement of this Prospectus, which may be obtained by contacting
the Trustee at the phone number listed on the back cover of this Prospectus.
Participants may at any time, by so notifying the Trustee in writing, elect to
change the Accumulation Fund into which their distributions are being
reinvested, to change from principal only reinvestment to reinvestment of both
principal and interest or vice versa, or to terminate their participation in the
Accumulation Plan altogether and receive future distributions on their Units in
cash. There will be no charge or other penalty for such change of election or
termination. The character of Trust distributions for income tax purposes will
remain unchanged even if they are reinvested in an Accumulation Fund.
HOW DETAILED ARE REPORTS TO UNITHOLDERS?
The Trustee shall furnish Unitholders of a Trust in connection with each
distribution, a statement of the amount of interest, if any, and the amount of
other receipts (received since the preceding distribution) being distributed,
expressed in each case as a dollar amount representing the pro rata share of
each Unit of a Trust outstanding and a year to date summary of all distributions
paid on said Units. Within a reasonable period of time after the end of each
calendar year, the Trustee shall furnish to each person, who at any time during
the calendar year was a registered Unitholder of a Trust, a statement with
respect to such Trust (i) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Bonds), and, except for any State Trust, the percentage of such interest by
states in which the issuers of the Bonds are located, deductions for fees and
expenses of such Trust, redemption of Units and the balance remaining after such
distributions and deductions, expressed in each case both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (ii) as to the
Principal Account: the dates of disposition of any Bonds and the net proceeds
received therefrom (excluding any portion representing accrued interest), the
amount paid for purchase of Replacement Bonds, the amount paid upon redemption
of Units, deductions for payment of applicable taxes and fees and expenses of
the Trustee, and the balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (iii) a list of the Bonds held and the number of Units
outstanding on the last business day of such calendar year; (iv) the Unit Value
based upon the last computation thereof made during such calendar year; and (v)
amounts actually distributed during such calendar year from the Interest Account
and from the Principal Account, separately stated, expressed both as total
dollar amounts and as dollar amounts representing the pro rata share of each
Unit outstanding. Each annual statement will reflect pertinent information in
respect of all plans of distribution so that Unitholders may be informed
regarding the results of other plans of distribution.
UNIT VALUE AND EVALUATION
The value of each Trust is determined by the Sponsor on the basis of (1) the
cash on hand in the Trust or moneys in the process of being collected, (2) the
value of the Bonds in the Trust based on the BID prices of the Bonds and (3)
interest accrued thereon not subject to collection, LESS (1) amounts
representing taxes or governmental charges payable out of the Trust and (2) the
accrued expenses of the Trust. The result of such computation is divided by the
number of Units of such Trust outstanding as of the date thereof to determine
the per Unit value ("Unit Value") of such Trust. The Sponsor may determine the
value of the Bonds in each Trust (1) on the basis of current BID prices of the
Bonds obtained from dealers or brokers who customarily deal in bonds comparable
to those held by a Trust, (2) if bid prices are not available for any of the
Bonds, on the basis of bid prices for comparable bonds, (3) by causing the value
of the Bonds to be determined by others
17
<PAGE>
engaged in the practice of evaluating, quoting or appraising comparable bonds or
(4) by any combination of the above. Although the Unit Value of each Trust is
based on the BID prices of the Bonds, the Units are sold initially to the public
at the Public Offering Price based on the OFFERING prices of the Bonds.
Because the insurance obtained by the Sponsor or by the issuers of Bonds
with respect to the Bonds in the Insured Trusts and with respect to insured
Bonds in Traditional Trusts is effective so long as such Bonds are outstanding,
such insurance will be taken into account in determining the bid and offering
prices of such Bonds and therefore some value attributable to such insurance
will be included in the value of Units of Trusts that include such Bonds.
HOW UNITS OF THE TRUSTS ARE DISTRIBUTED TO THE PUBLIC
Nuveen, in addition to being the Sponsor, is the sole Underwriter of the Units.
It is the intention of the Sponsor to qualify Units of National, Long
Intermediate, Intermediate, Short Intermediate and Short Term Trusts for sale
under the laws of substantially all of the states of the United States of
America, and Units of State Trusts only in the state for which the Trust is
named and selected other states.
Promptly following the deposit of Bonds in exchange for Units of the Trusts,
it is the practice of the Sponsor to place all of the Units as collateral for a
letter or letters of credit from one or more commercial banks under an agreement
to release such Units from time to time as needed for distribution. Under such
an arrangement the Sponsor pays such banks compensation based on the then
current interest rate. This is a normal warehousing arrangement during the
period of distribution of the Units to public investors. To facilitate the
handling of transactions, sales of Units shall be limited to transactions
involving a minimum of either $5,000 or 50 Units, whichever is less. The Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units.
The Sponsor plans to allow a discount to brokers and dealers in connection
with the primary distribution of Units and also in secondary market
transactions. The primary market discounts are as follows:
<TABLE>
<CAPTION>
DISCOUNT PER UNIT
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATIONAL LONG INTER- SHORT INTER-
AND STATE MEDIATE INTERMEDIATE MEDIATE SHORT TERM
NUMBER OF UNITS* TRUSTS TRUSTS TRUSTS TRUSTS TRUSTS
- ------------------------------ ---------- ------------- ------------- ------------- -----------
Less than 500................. $3.20 $2.90 $2.70 $2.00 $1.50
500 but less than 1,000....... 3.20 2.90 2.70 2.00 1.50
1,000 but less than 2,500..... 3.20 2.70 2.50 1.80 1.30
2,500 but less than 5,000..... 3.20 2.45 2.25 1.55 1.05
5,000 but less than 10,000.... 2.50 2.45 2.25 1.55 1.05
10,000 but less than 25,000... 2.00 2.00 2.00 1.30 .80
25,000 but less than 50,000... 1.75 1.75 1.75 1.30 .60
50,000 or more................ 1.75 1.50 1.50 1.00 .60
</TABLE>
*Breakpoint sales charges and related dealer concessions are computed both on a
dollar basis and on the basis of the number of Units purchased, using the
equivalent of 500 Units to $50,000, 2,500 Units to $250,000 etc. and will be
applied on that basis which is more favorable to the purchaser.
The Sponsor currently intends to maintain a secondary market for Units of
each Trust. See "MARKET FOR UNITS." The amount of the dealer concession on
secondary market purchases of Trust Units through the Sponsor will be computed
based upon the value of the Bonds in the Trust portfolio, including the sales
charge computed as described in "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?",
and adjusted to reflect the cash position of the Trust principal account, and
will vary with the size of the purchase as shown in the following table:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE*
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$50,000 $100,000 $250,000 $500,000 $1,000,000 $2,500,000
UNDER TO TO TO TO TO TO $5,000,000
YEARS TO MATURITY $50,000 $99,999 $249,999 $499,999 $999,999 $2,499,999 $4,999,999 OR MORE
- -------------------------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Less than 1............... 0 0 0 0 0 0 0 0
1 but less than 2......... 1.00% .90% .85% .80% .70% .55% .467% .389%
2 but less than 3......... 1.30% 1.20% 1.10% 1.00% .90% .73% .634% .538%
3 but less than 4......... 1.60% 1.45% 1.35% 1.25% 1.10% .90% .781% .662%
4 but less than 5......... 2.00% 1.85% 1.75% 1.55% 1.40% 1.25% 1.082% .914%
5 but less than 7......... 2.30% 2.15% 1.95% 1.80% 1.65% 1.50% 1.320% 1.140%
7 but less than 10........ 2.60% 2.45% 2.25% 2.10% 1.95% 1.70% 1.496% 1.292%
10 but less than 13....... 3.00% 2.80% 2.60% 2.45% 2.30% 2.00% 1.747% 1.494%
13 but less than 16....... 3.25% 3.15% 3.00% 2.75% 2.50% 2.15% 1.878% 1.606%
16 or more................ 3.50% 3.50% 3.40% 3.35% 3.00% 2.50% 2.185% 1.873%
</TABLE>
*Breakpoint sales charges and related dealer concessions are computed both on a
dollar basis and on the basis of the number of Units purchased, using the
equivalent of 500 Units to $50,000, 2,500 Units to $250,000, etc., and will be
applied on that basis which is more favorable to the purchaser.
The Sponsor reserves the right to change the foregoing dealer concessions
from time to time.
At the discretion of the Sponsor, volume incentives can be earned as a
marketing allowance by dealer firms who reach cumulative firm sales or sales
arrangement levels of a specified number of Units of an individual Trust during
the primary
18
<PAGE>
offering period as set forth in the table below. For firms that meet the
necessary volume level for a Trust, volume incentives may be given on all trades
involving that Trust originated from or by that firm during the primary offering
period.
Primary Market Volume Incentives
<TABLE>
<CAPTION>
PER TRUST SALES LEVEL
AVERAGE MATURITY DURING THE PRIMARY VOLUME INCENTIVE
OF TRUST OFFERING PERIOD PER UNIT
- ------------------------------- -------------------------- -----------------
<S> <C> <C>
Less than 6 years At least 5,000 Units $ 0.05
6 but less than 15 years At least 2,500 Units $ 0.10
15 years or more At least 2,500 Units $ 0.20
</TABLE>
In addition, a volume incentive of $2.50 per $1,000 of Units sold can be
earned by dealer firms as a marketing allowance for secondary market sales of at
least $1 million of Nuveen Unit Trust units per calendar quarter.
Only sales through the Sponsor qualify for volume incentives and for meeting
minimum requirements. The Sponsor reserves the right to modify or change the
volume incentive schedule at any time and make the determination as to which
firms qualify for the marketing allowance and the amount paid.
Registered investment advisers, certified financial planners and registered
broker-dealers who in each case either 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, and bank trust departments
investing funds over which they exercise exclusive discretionary investment
authority and that are held in a fiduciary, agency, custodial or similar
capacity, are not entitled to receive any dealer concession for any sales made
to investors which qualified as "Discounted Purchases" during the primary or
secondary market. (See "HOW IS THE PUBLIC OFFERING PRICE DETERMINED?")
Certain commercial banks are making Units of the Trusts available to their
customers on an agency basis. A portion of the sales charge paid by these
customers is retained by or remitted to the banks in the amounts shown in the
above table. The Glass-Steagall Act prohibits banks from underwriting Trust
Units; the Act does, however, permit certain agency transactions and banking
regulators have not indicated that these particular agency transactions are not
permitted under the Act. In Texas and in certain other states, any bank making
Units available must be registered as a broker-dealer under state law.
OWNERSHIP AND TRANSFER OF UNITS
The ownership of Units is evidenced by book entry positions recorded on the
books and records of the Trustee unless the Unitholder expressly requests that
the purchased Units be evidenced in Certificate form. The Trustee is authorized
to treat as the owner of Units that person who at the time is registered as such
on the books of the Trustee. Any Unitholder who holds a Certificate may change
to book entry ownership by submitting to the Trustee the Certificate along with
a written request that the Units represented by such Certificate be held in book
entry form. Likewise, a Unitholder who holds Units in book entry form may obtain
a Certificate for such Units by written request to the Trustee. Units may be
held in denominations of one Unit or any multiple or fraction thereof. Fractions
of Units are computed to three decimal places. Any Certificates issued will be
numbered serially for identification, and are issued in fully registered form,
transferable only on the books of the Trustee. Book entry Unitholders will
receive a Book Entry Position Confirmation reflecting their ownership.
For Trusts allowing optional plans of distribution, Certificates for Units
will bear an appropriate notation on their face indicating which plan of
distribution has been selected. When a change is made, the existing Certificates
must be surrendered to the Trustee and new Certificates issued to reflect the
currently effective plan of distribution. There will be no charge for this
service. Holders of book entry Units can change their plan of distribution by
making a written request to the Trustee, which will issue a new Book Entry
Position Confirmation to reflect such change.
Units are transferable by making a written request to the Trustee and, in
the case of Units evidenced by Certificate(s), by presenting and surrendering
such Certificate(s) to the Trustee, at its address listed on the back cover of
this Part B of the Prospectus, properly endorsed or accompanied by a written
instrument or instruments of transfer. The Certificate(s) should be sent
registered or certified mail for the protection of the Unitholder. Each
Unitholder must sign such written request, and such Certificate(s) or transfer
instrument, exactly as his name appears on (a) the face of the Certificate(s)
representing the Units to be transferred, or (b) the Book Entry Position
Confirmation(s) relating to the Units to be transferred. Such signature(s) must
be guaranteed by a guarantor acceptable to the Trustee. In certain instances the
Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator or
certificates of corporate authority. Mutilated Certificates must be surrendered
to the Trustee in order for a replacement Certificate to be issued. Although at
the date hereof no charge is made and none is contemplated, a Unitholder may be
required to pay $2.00 to the Trustee for each Certificate reissued or transfer
of Units requested and to pay any governmental charge which may be imposed in
connection therewith.
REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATES.
To obtain a new Certificate replacing one that has been lost, stolen, or
destroyed, the Unitholder must furnish the Trustee with sufficient
indemnification and pay such expenses as the Trustee may incur. This
indemnification must be in the
19
<PAGE>
form of an Open Penalty Bond of Indemnification. The premium for such an
indemnity bond may vary, but currently amounts to 1% of the market value of the
Units represented by the Certificate. In the case however, of a Trust as to
which notice of termination has been given, the premium currently amounts to
0.5% of the market value of the Units represented by such Certificate.
HOW UNITS MAY BE REDEEMED WITHOUT CHARGE
Unitholders may redeem all or a portion of their Units by (1) making a written
request for such redemption (book entry Unitholders may use the redemption form
on the reverse side of their Book Entry Position Confirmation) to the Trustee at
its address listed on the back cover of this Part B of the Prospectus
(redemptions of 1,000 Units or more will require a signature guarantee), (2) in
the case of Units evidenced by a Certificate, by also tendering such Certificate
to the Trustee, duly endorsed or accompanied by proper instruments of transfer
with signatures guaranteed as explained above, or provide satisfactory indemnity
required in connection with lost, stolen or destroyed Certificates and (3)
payment of applicable governmental charges, if any. Certificates should be sent
only by registered or certified mail to minimize the possibility of their being
lost or stolen. (See "OWNERSHIP AND TRANSFER OF UNITS.") No redemption fee will
be charged. A Unitholder may authorize the Trustee to honor telephone
instructions for the redemption of Units held in book entry form. Units
represented by Certificates may not be redeemed by telephone. The proceeds of
Units redeemed by telephone will be sent by check either to the Unitholder at
the address specified on his account or to a financial institution specified by
the Unitholder for credit to the account of the Unitholder. A Unitholder wishing
to use this method of redemption must complete a Telephone Redemption
Authorization Form and furnish the Form to the Trustee. Telephone Redemption
Authorization Forms can be obtained from a Unitholder's registered
representative or by calling the Trustee. Once the completed Form is on file,
the Trustee will honor telephone redemption requests by any authorized person.
The time a telephone redemption request is received determines the "date of
tender" as discussed below. The redemption proceeds will be mailed within three
business days following the telephone redemption request. Only Units held in the
name of individuals may be redeemed by telephone; accounts registered in broker
name, or accounts of corporations or fiduciaries (including among others,
trustees, guardians, executors and administrators) may not use the telephone
redemption privilege.
On the third business day following the date of tender, the Unitholder will
be entitled to receive in cash for each Unit tendered an amount equal to the
Unit Value of such Trust determined by the Trustee, as of 4:00 p.m. eastern
time, or as of any earlier closing time on a day on which the Exchange is
scheduled in advance to close at such earlier time, on the date of tender as
defined hereafter, plus accrued interest to, but not including, the third
business day after the date of tender ("Redemption Price"). The price received
upon redemption may be more or less than the amount paid by the Unitholder
depending on the value of the Bonds on the date of tender. Unitholders should
check with the Trustee or their broker to determine the Redemption Price before
tendering Units.
The "date of tender" is deemed to be the date on which the request for
redemption of Units is received in proper form by the Trustee, except that as
regards a redemption request received after 4:00 p.m. eastern time, or as of any
earlier closing time on a day on which the Exchange is scheduled in advance to
close at such earlier time, or on any day on which the Exchange is normally
closed, the date of tender is the next day on which such Exchange is normally
open for trading and such request will be deemed to have been made on such day
and the redemption will be effected at the Redemption Price computed on that
day.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account of the appropriate Trust or, if the balance therein is insufficient,
from the Principal Account of such Trust. All other amounts paid on redemption
shall be withdrawn from the Principal Account. The Trustee is empowered to sell
underlying Bonds of a Trust in order to make funds available for redemption.
(See "HOW BONDS MAY BE REMOVED FROM THE TRUSTS.") Units so redeemed shall be
cancelled. To the extent that Bonds are sold from a Trust, the size and
diversity of such Trust will be reduced. Such sales may be required at a time
when Bonds would not otherwise be sold and might result in lower prices than
might otherwise be realized.
The Redemption Price is determined on the basis of the BID prices of the
Bonds in each Trust, while the initial Public Offering Price of Units will be
determined on the basis of the OFFERING prices of the Bonds as of 4:00 p.m.
eastern time on any day on which the Exchange is normally open for trading, or
as of any earlier closing time on a day on which the Exchange is scheduled in
advance to close at such earlier time, and such determination is made. As of any
given time, the difference between the bid and offering prices of such Bonds may
be expected to average 1/2% to 2% of principal amount. In the case of actively
traded Bonds, the difference may be as little as 1/4 to 1/2 of 1%, and in the
case of inactively traded Bonds such difference usually will not exceed 3%.
The right of redemption may be suspended and payment postponed for any
period during which the Securities and Exchange Commission determines that
trading in the municipal bond market is restricted or an emergency exists, as a
result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit.
Under regulations issued by the Internal Revenue Service, the Trustee will
be required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal
20
<PAGE>
Revenue Service and may be recovered by the Unitholder only when filing his or
her tax return. Under normal circumstances the Trustee obtains the Unitholder's
tax identification number from the selling broker at the time the Certificate or
Book Entry Return Confirmation is issued, and this number is printed on the
Certificate or Book Entry Return Confirmation and on distribution statements. If
a Unitholder's tax identification number does not appear as described above, or
if it is incorrect, the Unitholder should contact the Trustee before redeeming
Units to determine what action, if any, is required to avoid this "back-up
withholding."
HOW UNITS MAY BE PURCHASED BY THE SPONSOR
The Trustee will notify the Sponsor of any tender of Units for redemption. If
the Sponsor's bid in the secondary market at that time equals or exceeds the
Redemption Price it may purchase such Units by notifying the Trustee before the
close of business on the second succeeding business day and by making payment
therefor to the Unitholder not later than the day on which payment would
otherwise have been made by the Trustee. (See "HOW UNITS MAY BE REDEEMED WITHOUT
CHARGE.") The Sponsor's current practice is to bid at the Redemption Price in
the secondary market. Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units.
HOW BONDS MAY BE REMOVED FROM THE TRUSTS
Bonds will be removed from a Trust as they mature or are redeemed by the issuers
thereof. See Part A of this Prospectus and "RISK FACTORS" for a discussion of
call provisions of portfolio Bonds.
The Indenture also empowers the Trustee to sell Bonds for the purpose of
redeeming Units tendered by any Unitholder, and for the payment of expenses for
which income may not be available. Under the Indenture, the Sponsor is obligated
to provide the Trustee with a current list of Bonds in each Trust to be sold in
such circumstances. In deciding which Bonds should be sold the Sponsor intends
to consider, among other things, such factors as: (1) market conditions; (2)
market prices of the Bonds; (3) the effect on income distributions to
Unitholders of the sale of various Bonds; (4) the effect on principal amount of
underlying Bonds per Unit of the sale of various Bonds; (5) the financial
condition of the issuers; and (6) the effect of the sale of various Bonds on the
investment character of the Trust. Such sales, if required, could result in the
sale of Bonds by the Trustee at prices less than original cost to the Trust. To
the extent Bonds are sold, the size and diversity of such Trust will be reduced.
In addition, the Sponsor is empowered to direct the Trustee to liquidate
Bonds upon the happening of certain other events, such as default in the payment
of principal and/or interest, an action of the issuer that will adversely affect
its ability to continue payment of the principal of and interest on its Bonds,
or an adverse change in market, revenue or credit factors affecting the
investment character of the Bonds. If a default in the payment of the principal
of and/or interest on any of the Bonds occurs, and if the Sponsor fails to
instruct the Trustee whether to sell or continue to hold such Bonds within 30
days after notification by the Trustee to the Sponsor of such default, the
Indenture provides that the Trustee shall liquidate said Bonds forthwith and
shall not be liable for any loss so incurred. The Sponsor may also direct the
Trustee to liquidate Bonds in a Trust if the Bonds in the Trust are the subject
of an advanced refunding, generally considered to be when refunding bonds are
issued and the proceeds thereof are deposited in irrevocable trust to retire the
refunded Bonds on their redemption date.
Except as stated in "COMPOSITION OF TRUSTS" regarding the limited right of
substitution of Replacement Bonds for Failed Bonds, and except for refunding
securities that may be exchanged for Bonds under certain conditions specified in
the Indenture, the Indenture does not permit either the Sponsor or the Trustee
to acquire or deposit bonds either in addition to, or in substitution for, any
of the Bonds initially deposited in a Trust.
INFORMATION ABOUT THE TRUSTEE
The Trustee and its address are stated on the back cover of this Part B of the
Prospectus. The Trustee is subject to supervision and examination by the Federal
Deposit Insurance Corporation, the Board of Governors of the Federal Reserve
System and either the Comptroller of the Currency or state banking authorities.
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE
The Sponsor and the Trustee shall be under no liability to Unitholders for
taking any action or for refraining from any action in good faith pursuant to
the Indenture, or for errors in judgment, but shall be liable only for their own
negligence, lack of good faith or willful misconduct. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the Trustee of
any of the Bonds. In the event of the failure of the Sponsor to act under the
Indenture, the Trustee may act thereunder and shall not be liable for any action
taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Bonds or upon the interest thereon or upon it
as Trustee under the Indenture or upon or in respect of any Trust which the
Trustee may be required to pay under any present or future law of the United
States of America or of any other taxing authority having jurisdiction. In
addition, the Indenture contains other customary provisions limiting the
liability of the Trustee.
21
<PAGE>
SUCCESSOR TRUSTEES AND SPONSORS
The Trustee or any successor trustee may resign by executing an instrument
of resignation in writing and filing same with the Sponsor and mailing a copy of
a notice of resignation to all Unitholders then of record. Upon receiving such
notice, the Sponsor is required to promptly appoint a successor trustee. If the
Trustee becomes incapable of acting or is adjudged a bankrupt or insolvent, or a
receiver or other public officer shall take charge of its property or affairs,
the Sponsor may remove the Trustee and appoint a successor by written
instrument. The resignation or removal of a trustee and the appointment of a
successor trustee shall become effective only when the successor trustee accepts
its appointment as such. Any successor trustee shall be a corporation authorized
to exercise corporate trust powers, having capital, surplus and undivided
profits of not less than $5,000,000. Any corporation into which a trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which a trustee shall be a party, shall be the
successor trustee.
If upon resignation of a trustee no successor has been appointed and has
accepted the appointment within 30 days after notification, the retiring trustee
may apply to a court of competent jurisdiction for the appointment of a
successor.
If the Sponsor fails to undertake any of its duties under the Indenture, and
no express provision is made for action by the Trustee in such event, the
Trustee may, in addition to its other powers under the Indenture (1) appoint a
successor sponsor or (2) terminate the Indenture and liquidate the Trusts.
INFORMATION ABOUT THE SPONSOR
Since our founding in 1898, Nuveen has been synonymous with investments that
withstand the test of time. Today, we offer a broad range of investments
designed for mature investors whose portfolio is the principal source of their
ongoing financial security. More than 1.3 million investors have entrusted
Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach--purchasing securities of strong companies and
communities that represent good long-term value--is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value investing
begins with in-depth research and a discerning eye for marketplace opportunity.
Nuveen's team of investment professionals is backed by the discipline, resources
and expertise of almost a century of investment experience, including one of the
most recognized research departments in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products--including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, customized asset management services and cash management
products. Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by the St. Paul Companies, Inc. ("ST. PAUL"). St. Paul
is located in St. Paul, Minnesota and is principally engaged in providing
property-liability insurance through subsidiaries. Nuveen is a member of the
National Association of Securities Dealers, Inc. and the Securities Industry
Association and has its principal office located in Chicago (333 West Wacker
Drive). Nuveen maintains 11 regional offices.
To help advisers and investors better understand and more efficiently use an
investment in the Trusts to reach their investment goals, the Sponsor may
advertise and create specific investment programs and systems. For example, such
activities may include presenting information on how to use an investment in the
Trusts, alone or in combination with an investment in other mutual funds or unit
investment trusts sponsored by Nuveen, to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Trusts' sponsor may
produce software or additional sales literature to promote the advantages of
using the Trusts to meet these and other specific investor needs.
OTHER INFORMATION
AMENDMENT OF INDENTURE
The Indenture may be amended by the Trustee and the Sponsor without the
consent of any of the Unitholders (1) to cure any ambiguity or to correct or
supplement any provision thereof which may be defective or inconsistent, or (2)
to make such other provisions as shall not adversely affect the Unitholders,
provided, however, that the Indenture may not be amended to increase the number
of Units in any Trust or to permit the deposit or acquisition of bonds either in
addition to, or in substitution for any of the Bonds initially deposited in any
Trust except as stated in "COMPOSITION OF TRUSTS" regarding the limited right of
substitution of Replacement Bonds and except for the substitution of refunding
bonds under certain circumstances. The Trustee shall advise the Unitholders of
any amendment promptly after execution thereof.
TERMINATION OF INDENTURE
Each Trust may be liquidated at any time by written consent of 100% of the
Unitholders or by the Trustee when the value of such Trust, as shown by any
evaluation, is less than 20% of the original principal amount of such Trust and
will be liquidated by the Trustee in the event that Units not yet sold
aggregating more than 60% of the Units originally created are tendered for
redemption by the Sponsor thereby reducing the net worth of such Trust to less
than 40% of the principal amount of the Bonds originally deposited in the
portfolio. (See "Essential Information" appearing in Part A of this Prospectus.)
The sale of Bonds from the Trusts upon termination may result in realization of
a lesser amount than might otherwise be realized if such sale were not required
at such time. For this reason, among others, the amount realized by a Unitholder
22
<PAGE>
upon termination may be less than the principal amount of Bonds originally
represented by the Units held by such Unitholder. The Indenture will terminate
upon the redemption, sale or other disposition of the last Bond held thereunder,
but in no event shall it continue beyond the end of the calendar year preceding
the fiftieth anniversary of its execution for National and State Trusts, beyond
the end of the calendar year preceding the twentieth anniversary of its
execution for Long Intermediate, and Intermediate Trusts or beyond the end of
the calendar year preceding the tenth anniversary of its execution for Short
Intermediate and Short Term Trusts.
Written notice of any termination specifying the time or times at which
Unitholders may surrender their Certificates, if any, for cancellation shall be
given by the Trustee to each Unitholder at the address appearing on the
registration books of a Trust maintained by the Trustee. Within a reasonable
time thereafter, the Trustee shall liquidate any Bonds in the Trust then held
and shall deduct from the assets of the Trust any accrued costs, expenses or
indemnities provided by the Indenture which are allocable to such Trust,
including estimated compensation of the Trustee and costs of liquidation and any
amounts required as a reserve to provide for payment of any applicable taxes or
other governmental charges. The Trustee shall then distribute to Unitholders of
such Trust their pro rata share of the balance of the Interest and Principal
Accounts. With such distribution, the Unitholders shall be furnished a final
distribution statement, in substantially the same form as the annual
distribution statement, of the amount distributable. At such time as the Trustee
in its sole discretion shall determine that any amounts held in reserve are no
longer necessary, it shall make distribution thereof to Unitholders in the same
manner.
LEGAL OPINION
The legality of the Units offered hereby has been passed upon by Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603. Special counsel for the
Trusts for respective state tax matters are named in "Tax Status" for each Trust
appearing in Part A of this Prospectus. Carter, Ledyard & Milburn, 2 Wall
Street, New York, New York 10005, has acted as counsel for the Trustee with
respect to the Series, and, in the absence of a New York Trust from the Series,
as special New York tax counsel for the Series.
AUDITORS
The "Statement of Condition" and "Schedule of Investments" at Date of
Deposit included in Part A of this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report in
Part A of this Prospectus, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
SUPPLEMENTAL INFORMATION
Upon written or telephonic request to the Trustee, investors will receive at
no cost to the investor supplemental information about this Trust, which has
been filed with the Securities and Exchange Commission and is intended to
supplement information contained in Part A and Part B of this Prospectus. The
supplemental information includes more detailed information concerning certain
of the Bonds included in the Trusts contained in the applicable Series and more
specific risk information concerning the individual state Trusts. This
supplement also includes additional general information about the Sponsor and
the Trusts.
23
<PAGE>
NUVEEN Tax-Free Unit Trusts
PROSPECTUS -- PART B
JULY 8, 1997
<TABLE>
<C> <S> <C>
SPONSOR John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
Telephone: 312.917.7700
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
212.207.2000
TRUSTEE The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
800.257.8787
LEGAL COUNSEL Chapman and Cutler
TO SPONSOR 111 West Monroe Street
Chicago, IL 60603
INDEPENDENT Arthur Andersen LLP
PUBLIC 33 West Monroe Street
ACCOUNTANTS Chicago, IL 60603
FOR THE TRUSTS
</TABLE>
--------------
Except as to statements made herein furnished by the Trustee, the
Trustee has assumed no responsibility for the accuracy, adequacy and
completeness of the information contained in this Prospectus.
This Prospectus does not contain all of the information set forth in
the registration statement and exhibits relating thereto, filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933, and to which reference is made.
No person is authorized to give any information or to make
representations not contained in this Prospectus or in supplemental information
or sales literature prepared by the Sponsor, and any information or
representation not contained therein must not be relied upon as having been
authorized by either the Trusts, the Trustee or the Sponsor. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy,
securities in any State to any person to whom it is not lawful to make such
offer in such state. The Trusts are registered as Unit Investment Trusts under
the Investment Company Act of 1940, as amended. Such registration does not imply
that the Trusts or any of their Units have been guaranteed, sponsored,
recommended or approved by the United States or any State or agency or officer
thereof.
<PAGE>
NUVEEN TAX-FREE UNIT TRUSTS
---------------------------------------------
INFORMATION SUPPLEMENT
NUVEEN SERIES 1020
This Information Supplement provides additional
information concerning the structure, operations and risks
of a Nuveen Tax-Free Unit Trust not found in the
prospectuses for the Trusts. This Information Supplement
is not a prospectus and does not include all of the
information that a prospective investor should consider
before investing in a Trust. This Information Supplement
should be read in conjunction with the prospectus for the
Trust in which an investor is considering investing
("Prospectus"). Copies of the Prospectus can be obtained
by calling or writing the Trustee at the telephone number
and address indicated in Part B of the Prospectus. This
Information Supplement has been created to supplement
information contained in the Prospectus.
This Information Supplement is dated August 14, 1998.
Capitalized terms have been defined in the Prospectus.
TABLE OF CONTENTS
----------------------------------------------
<TABLE>
<S> <C>
GENERAL RISK DISCLOSURE.............................................. 2
Health Care Facility Revenue Obligations........................... 2
Single Family and Multi-Family Housing Revenue Obligations......... 2
Single Family Mortgage Revenue Bonds............................... 2
Congregate Care Revenue Obligations................................ 3
Federally Enhanced Obligations..................................... 3
Public Housing Authority Revenue Obligations....................... 3
Industrial Revenue Obligations..................................... 3
Power Revenue Obligations.......................................... 4
Utility Obligations................................................ 4
Transportation Bonds............................................... 4
Water and/or Sewerage Revenue Obligations.......................... 4
Resource Recovery Revenue Obligations.............................. 5
Education Revenue Obligations...................................... 5
Bridge and Tollroad Revenue Obligations............................ 5
Dedicated-Tax Supported Revenue Bonds.............................. 5
Municipal Lease Revenue Bonds...................................... 5
Special Obligation to Crossover.................................... 5
Civic Organization Obligations..................................... 5
Original Issue Discount Bonds and Stripped Obligations............. 5
WHY AND HOW ARE THE BONDS INSURED?................................... 6
ACCUMULATION PLAN.................................................... 8
INFORMATION ABOUT THE SPONSOR........................................ 10
DESCRIPTION OF RATINGS............................................... 11
HOW THE TRUST COMPARES PERFORMANCE................................... 13
HOW TO CALCULATE YOUR ESTIMATED INCOME............................... 14
Appendix A -- California Disclosure.................................. A-1
Appendix B -- Colorado Disclosure.................................... B-1
Appendix C -- Michigan Disclosure.................................... C-1
Appendix D -- Pennsylvania Disclosure................................ D-1
</TABLE>
<PAGE>
GENERAL RISK DISCLOSURE
An investment in Units of any Trust should be made with an understanding of
the risks that such an investment may entail. These include the ability of the
issuer, or, if applicable, an insurer, to make payments of interest and
principal when due, the effects of changes in interest rates generally, early
call provisions and the potential for changes in the tax status of the Bonds. As
set forth in the portfolio summaries in Part A of this Prospectus, the Trusts
may contain or be concentrated in one or more of the types of bonds discussed
below. The following paragraphs discuss certain circumstances which may
adversely affect the ability of issuers of Bonds held in the portfolio of a
Trust to make payment of principal and interest thereon or which may adversely
affect the ratings of such Bonds; with respect to Insured Trusts, however,
because of the insurance obtained by the Sponsor or by the issuers of the Bonds,
such changes should not adversely affect an Insured Trust's receipt of principal
and interest, the Standard & Poor's AAA or Moody's Aaa ratings of the Bonds in
the Insured Trust portfolio, or the Standard & Poor's AAA rating of the Units of
each such Insured Trust. For economic risks specific to the individual Trusts,
see "Risk Factors" for each Trust.
HEALTH CARE FACILITY REVENUE OBLIGATIONS. Some of the Bonds in a Trust may
be obligations of issuers whose revenues are derived from services provided by
hospitals or other health care facilities, including nursing homes. Ratings of
bonds issued for health care facilities are sometimes based on feasibility
studies that contain projections of occupancy levels, revenues and expenses. A
facility's gross receipts and net income available for debt service may be
affected by future events and conditions including, among other things, demand
for services, the ability of the facility to provide the services required, an
increasing shortage of qualified nurses or a dramatic rise in nursing salaries,
physicians' confidence in the facility, management capabilities, economic
developments in the service area, competition from other similar providers,
efforts by insurers and governmental agencies to limit rates, legislation
establishing state rate-setting agencies, expenses, government regulation, the
cost and possible unavailability of malpractice insurance, and the termination
or restriction of governmental financial assistance, including that associated
with Medicare, Medicaid and other similar third party payor programs. Medicare
reimbursements are currently calculated on a prospective basis and are not based
on a provider's actual costs. Such method of reimbursement may adversely affect
reimbursements to hospitals and other facilities for services provided under the
Medicare program and thereby may have an adverse effect on the ability of such
institutions to satisfy debt service requirements. In the event of a default
upon a bond secured by hospital facilities, the limited alternative uses for
such facilities may result in the recovery upon such collateral not providing
sufficient funds to fully repay the bonds.
Certain hospital bonds provide for redemption at par upon the damage,
destruction or condemnation of the hospital facilities or in other special
circumstances.
SINGLE FAMILY AND MULTI-FAMILY HOUSING REVENUE OBLIGATIONS. Some of the
Bonds in a Trust may be obligations of issuers whose revenues are primarily
derived from mortgage loans to housing projects for the elderly or for low to
moderate income families. Such issues are generally characterized by mandatory
redemption at par or, in the case of original issue discount bonds, accreted
value in the event of economic defaults and in the event of a failure of the
operator of a project to comply with certain covenants as to the operation of
the project. The failure of such operator to comply with certain covenants
related to the tax-exempt status of interest on the Bonds, such as provisions
requiring that a specified percentage of units be rented or available for rental
to low or moderate income families, potentially could cause interest on such
Bonds to be subject to Federal income taxation from the date of issuance of the
Bonds. The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects, including, among
other things, the achievement and maintenance of sufficient occupancy levels and
adequate rental income, employment and income conditions prevailing in local
labor markets, increases in taxes, utility costs and other operating expenses,
the managerial ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies, and social and economic trends
affecting the localities in which the projects are located. Occupancy of such
housing projects may be adversely affected by high rent levels and income
limitations imposed under Federal and state programs.
SINGLE FAMILY MORTGAGE REVENUE BONDS. Some of the Bonds in a Trust may be
single family mortgage revenue bonds, which are issued for the purpose of
acquiring from originating financial institutions notes secured by mortgages on
residences located within the issuer's boundaries and owned by persons of low or
moderate income. Mortgage loans are generally partially or completely prepaid
prior to their final maturities as a result of events such as sale of the
mortgaged premises, default, condemnation or casualty loss. Because these bonds
are subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. Extraordinary mandatory redemption without premium could also result
from the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. The redemption price
of such issues may be more or less than the offering price of such bonds.
Additionally, unusually high rates of default on the underlying mortgage loans
may reduce revenues available for the payment of principal of or interest on
such mortgage revenue
2
<PAGE>
bonds. Single family mortgage revenue bonds issued after December 31, 1980 were
issued under Section 103A of the Internal Revenue Code of 1954, as amended, or
Section 143 of the Internal Revenue Code of 1986, which Sections contain certain
requirements relating to the use of the proceeds of such bonds in order for the
interest on such bonds to retain its tax-exempt status. In each case, the issuer
of the bonds has covenanted to comply with applicable requirements and bond
counsel to such issuer has issued an opinion that the interest on the bonds is
exempt from Federal income tax under existing laws and regulations. There can be
no assurance that such continuing requirements will be satisfied; the failure to
meet such requirements could cause interest on the Bonds to be subject to
Federal income taxation, possibly from the date of issuance of the Bonds.
CONGREGATE CARE REVENUE OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are primarily derived from loans to
finance the construction and/or acquisition of congregate care facilities,
including retirement facilities and nursing care units. A facility's gross
receipts and net income available for debt service may be affected by future
events and conditions, including, among other things, demand for services, the
ability of the facility to provide the services required, management
capabilities, an increasing shortage of qualified nurses or a dramatic rise in
nursing salaries, economic developments in the service area, competition from
other similar providers, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation and the termination or restriction of governmental
financial assistance.
FEDERALLY ENHANCED OBLIGATIONS. Some of the mortgages which secure the
various health care or housing projects which underlie the previously discussed
Health Care Facility Revenue, Single Family and Multi-Family Housing Revenue,
Single Family Mortgage Revenue Obligations and Congregate Care Revenue Bonds
(the "Obligations") in a Trust may be insured by the Federal Housing
Administration ("FHA"). Under FHA regulations, the maximum insurable mortgage
amount cannot exceed 90% of the FHA's estimated value of the project. The FHA
mortgage insurance does not constitute a guarantee of timely payment of the
principal of and interest on the Obligations. Payment of mortgage insurance
benefits may be (1) less than the principal amount of Obligations outstanding or
(2) delayed if disputes arise as to the amount of the payment or if certain
notices are not given to the FHA within the prescribed time periods. In
addition, some of the previously discussed Obligations may be secured by
mortgage-backed certificates guaranteed by the Government National Mortgage
Association ("GNMA"), a wholly owned corporate instrumentality of the United
States, and/or the Federal National Mortgage Association ("Fannie Mae") a
federally chartered and stockholder-owed corporation. GNMA and Fannie Mae
guarantee timely payment of principal and interest on the mortgage-backed
certificates, even where the underlying mortgage payments are not made. While
such mortgage-backed certificates are often pledged to secure payment of
principal and interest on the Obligations, timely payment of interest and
principal on the Obligations is not insured or guaranteed by the United States,
GNMA, Fannie Mae or any other governmental agency or instrumentality. The GNMA
mortgage-backed certificates constitute a general obligation of the United
States backed by its full faith and credit. The obligations of Fannie Mae,
including its obligations under the Fannie Mae mortgage-backed securities, are
obligations solely of Fannie Mae and are not backed by, or entitled to, the full
faith and credit of the United States.
PUBLIC HOUSING AUTHORITY REVENUE OBLIGATIONS. Some of the Bonds in a Trust
may be obligations of issuers whose revenues are primarily derived from loans to
finance public housing projects. These bonds are guaranteed by the federal
Department of Housing and Urban Development. Such issues are generally
characterized by mandatory redemption at par or, in the case of original issue
discount bonds, accreted value in the event of economic defaults. The ability of
such issuers to make debt service payments will be affected by events and
conditions affecting financed projects, including, among other things, the
achievement and maintenance of sufficient occupancy levels, employment and
income conditions prevailing in local labor markets, increases in taxes, utility
costs and other operating expenses, changes in laws and governmental
regulations, and social and economic trends affecting the localities in which
the projects are located. In addition, the federal Department of Housing and
Urban Development may impose regulations and/or limitations which may have an
adverse impact on the Bonds in a Trust.
INDUSTRIAL REVENUE OBLIGATIONS. Certain of the Bonds in a Trust may be
industrial revenue bonds ("IRBs"), which are tax-exempt securities issued by
states, municipalities, public authorities or similar entities to finance the
cost of acquiring, constructing or improving various industrial projects. These
projects are usually operated by corporate entities. Issuers are obligated only
to pay amounts due on the IRBs to the extent that funds are available from the
unexpended proceeds of the IRBs or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments to
the issuer are designed to be sufficient to meet the payments of amounts due on
the IRBs. Regardless of the structure, payment of IRBs is solely dependent upon
the creditworthiness of the corporate operator of the project and, if
applicable, corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restrictions, litigation resulting from
accidents or environmentally-caused illnesses, extensive competition and
financial deterioration resulting from a corporate restructuring pursuant to a
leveraged buy-out, takeover or otherwise. Such a restructuring may
3
<PAGE>
result in the operator of a project becoming highly leveraged which may have an
impact on such operator's creditworthiness which in turn would have an adverse
impact on the rating and/or market value of such Bonds. Further, the possibility
of such a restructuring may have an adverse impact on the market for and
consequently the value of such Bonds, even though no actual takeover or other
action is ever contemplated or effected. The IRBs in a Trust may be subject to
special or extraordinary redemption provisions which may provide for redemption
at par or, in the case of original issue discount bonds, accreted value. The
Sponsor cannot predict the causes or likelihood of the redemption of IRBs in a
Trust prior to the stated maturity of such Bonds.
POWER REVENUE OBLIGATIONS. Some of the Bonds in a Trust may be obligations
of issuers whose revenues are primarily derived from pollution control bonds as
well as the sale of electric energy and oil and gas. Some of these obligations
are backed by the credit of an investor owned utility (IOU). The problems faced
by such issuers include the difficulty in obtaining approval for timely and
adequate rate increases from the applicable public utility commissions, the
difficulty of financing large construction programs, increased competition,
reductions in estimates of future demand for electricity in certain areas of the
country, the limitations on operations and increased costs and delays
attributable to environmental considerations, the difficulty of the capital
market in absorbing utility debt, the difficulty in obtaining fuel at reasonable
prices and the effect of energy conservation. All of such issuers have been
experiencing certain of these problems in varying degrees. In addition, Federal,
state and municipal governmental authorities may from time to time review
existing, and impose additional, regulations governing the licensing,
construction and operation of nuclear power plants, which may adversely affect
the ability of the issuers of certain of the Bonds in a Trust to make payments
of principal and/or interest on such Bonds.
UTILITY OBLIGATIONS. Some of the Bonds in a Trust may be obligations of
issuers whose revenues are primarily derived from the sale of natural gas or the
combined net revenue of two or more municipal utility systems operating as a
single entity. The problems faced by such issuers include the difficulty in
obtaining approval for timely and adequate rate increases from the applicable
public utility commissions, the difficulty of financing large construction
programs, increased competition, reductions in estimates of future demands for
natural gas in certain areas of the country, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
difficulty of the capital market in absorbing utility debt, the difficulty in
obtaining fuel at reasonable prices and the effect of energy conservation. In
addition, Federal, state and municipal governmental authorities may from time to
time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of certain of the Bonds in a Trust
to make payments of principal and/or interest on such Bonds.
TRANSPORTATION BONDS. Some of the Bonds in a Trust may be obligations of
issuers which are payable from and secured by revenues derived from the
ownership and operation of airports, public transit systems and ports. The major
portion of an airport's gross operating income is generally derived from fees
received from airlines pursuant to use agreements which consist of annual
payments for airport use, occupancy of certain terminal space, service fees and
leases. Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. In particular, facilities with use agreements involving
airlines experiencing financial difficulty may experience a reduction in revenue
due to the possible inability of these airlines to meet their use agreement
obligations because of such financial difficulties and possible bankruptcy. The
Sponsor cannot predict what effect these industry conditions may have on airport
revenues which are dependent for payment on the financial condition of the
airlines and their usage of the particular airport facility. Bonds that are
secured primarily by the revenue collected by a public transit system typically
are additionally secured by a pledge of sales tax receipts collected at the
state or local level, or of other governmental financial assistance. Transit
system net revenues will be affected by variations in utilization, which in turn
may be affected by the degree of local governmental subsidization, demographic
and population shifts, and competition from other forms of transportation; and
by increased costs, including costs resulting from previous deferrals of
maintenance. Port authorities derive their revenues primarily from fees imposed
on ships using the facilities. The rate of utilization of such facilities may
fluctuate depending on the local economy and on competition from competing forms
of transportation such as air, rail and trucks.
WATER AND/OR SEWERAGE REVENUE OBLIGATIONS. Some of the Bonds in a Trust may
be obligations of issuers whose revenues are derived from the sale of water
and/or sewerage services. Such Bonds are generally payable from user fees. The
problems of such issuers include the ability to obtain timely and adequate rate
increases, population decline resulting in decreased user fees, the difficulty
of financing large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
increasing difficulty of obtaining or discovering new supplies of fresh water,
the effect of conservation programs and the impact of "no-growth" zoning
ordinances. All of such issuers have been experiencing certain of these problems
in varying degrees.
4
<PAGE>
RESOURCE RECOVERY REVENUE OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from the sale of sewerage or
solid waste disposal services. Such bonds are generally payable from user fees.
The problems of such issuers include the ability to obtain timely and adequate
rate increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the effect of conservation programs and the impact of
"no-growth" zoning ordinances. All of such issuers have been experiencing
certain of these problems in varying degrees.
EDUCATION REVENUE OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers which are, or which govern the operation of, colleges and
universities and whose revenues are derived mainly from tuition, dormitory
revenues, grants and endowments. General problems of such issuers include the
prospect of a declining percentage of the population consisting of "college" age
individuals, possible inability to raise tuitions and fees sufficiently to cover
increased operating costs, the uncertainty of continued receipt of Federal
grants and state funding, and government legislation or regulations which may
adversely affect the revenues or costs of such issuers. All of such issuers have
been experiencing certain of these problems in varying degrees.
BRIDGE AND TOLLROAD REVENUE OBLIGATIONS. Some of the Bonds in a Trust may
be obligations of issuers which derive their payments from bridge, road or
tunnel toll revenues. The revenues of such an issuer could be adversely affected
by competition from toll-free vehicular bridges and roads and alternative modes
of transportation. Such revenues could also be adversely affected by a reduction
in the availability of fuel to motorists or significant increases in the costs
thereof. Specifically, governmental regulations restricting the use of vehicles
in the New York City metropolitan area may adversely affect revenues of the
Triborough Bridge and Tunnel Authority.
DEDICATED-TAX SUPPORTED REVENUE BONDS. Some of the Bonds in a Trust may be
obligations of issuers which are payable from and secured by tax revenues from a
designated source, which revenues are pledged to secure the bonds. The various
types of Bonds described below differ in structure and with respect to the
rights of the bondholders to the underlying property. Each type of dedicated-tax
supported Bond has distinct risks, only some of which are set forth below. One
type of dedicated-tax supported Bond is secured by the incremental tax received
on either real property or on sales within a specifically defined geographical
area; such tax generally will not provide bondholders with a lien on the
underlying property or revenues. Another type of dedicated-tax supported Bond is
secured by a special tax levied on real property within a defined geographical
area in such a manner that the tax is levied on those who benefit from the
project; such bonds typically provide for a statutory lien on the underlying
property for unpaid taxes. A third type of dedicated-tax supported Bond may be
secured by a tax levied upon the manufacture, sale or consumption of commodities
or upon the license to pursue certain occupations or upon corporate privileges
within a taxing jurisdiction. As to any of these types of Bonds, the ability of
the designated revenues to satisfy the interest and principal payments on such
bonds may be affected by changes in the local economy, the financial success of
the enterprise responsible for the payment of the taxes, the value of any
property on which taxes may be assessed and the ability to collect such taxes in
a timely fashion. Each of these factors will have a different affect on each
distinct type of dedicated-tax supported bonds.
MUNICIPAL LEASE REVENUE BONDS. Some of the Bonds in a Trust may be
obligations that are secured by lease payments of a governmental entity. Such
payments are normally subject to annual budget appropriations of the leasing
governmental entity. A governmental entity that enters into such a lease
agreement cannot obligate future governments to appropriate for and make lease
payments but covenants to take such action as is necessary to include any lease
payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby.
SPECIAL OBLIGATION TO CROSSOVER. Some of the Bonds in a Trust may be issued
with the intention of crossover refunding an outstanding issue at a future date.
These bonds are secured to the crossover date by U.S. Government securities
purchased with the proceeds of the refunding bonds. The revenues of such an
issuer could be adversely affected by problems associated with the outstanding
issue, economic, social and environmental policies and conditions that are not
within the control of the issuer and governmental policies and regulations
affecting the issuer.
CIVIC ORGANIZATION OBLIGATIONS. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from the pledge of civic
organizations, including their assets. The problems faced by such issuers
include the ability to collect pledges made, the unpredictable nature of an
organization's composition and participation, the quality and skill of
management, increased costs and delays attributable to organizations, expenses,
and legislation regarding certain organizational purposes.
ORIGINAL ISSUE DISCOUNT BONDS AND STRIPPED OBLIGATIONS. Certain of the
Bonds in a Trust may be original issue discount bonds. These Bonds were issued
with nominal interest rates less than the rates then offered by comparable
securities and as a consequence were originally sold at a discount from their
face, or par, values. This original issue discount, the difference between the
initial purchase price and face value, is deemed under current law to accrue on
a
5
<PAGE>
daily basis and the accrued portion is treated as tax-exempt interest income for
federal income tax purposes. On sale or redemption, gain, if any, realized in
excess of the earned portion of original issue discount will be taxable as
capital gain. See "What is the Tax Status of Unitholders". The current value of
an original issue discount bond reflects the present value of its face amount at
maturity. In a stable interest rate environment, the market value of an original
issue discount bond would tend to increase more slowly in early years and in
greater increments as the bond approached maturity.
Certain of the original issue discount bonds in a Trust may be zero coupon
bonds. Zero coupon bonds do not provide for the payment of any current interest;
the buyer receives only the right to receive a final payment of the face amount
of the bond at its maturity. The effect of owning a zero coupon bond is that a
fixed yield is earned not only on the original investment but also, in effect,
on all discount earned during the life of the obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest the income on such obligation at a rate as high as the implicit yield,
but at the same time also eliminates the holder's ability to reinvest at higher
rates in the future. For this reason, zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality that pay interest
currently.
Original issue discount bonds, including zero coupon bonds, may be subject
to redemption at prices based on the issue price plus the amount of original
issue discount accreted to redemption (the "accreted value") plus, if
applicable, some premium. Pursuant to such call provisions an original issue
discount bond may be called prior to its maturity date at a price less than its
face value. See the "Schedules of Investments" for more information about the
call provisions of portfolio Bonds.
Certain of the Bonds in a Trust may be Stripped Obligations, which represent
evidences of ownership with respect to either the principal amount of or a
payment of interest on a tax-exempt obligation. An obligation is "stripped" by
depositing it with a custodian, which then effects a separation in ownership
between the bond and any interest payment which has not yet become payable, and
issues evidences of ownership with respect to such constituent parts. A Stripped
Obligation therefore has economic characteristics similar to zero coupon bonds,
as described above.
Each Stripped Obligation has been purchased at a discount from the amount
payable at maturity. With respect to each Unitholder, the Internal Revenue Code
treats as "original issue discount" that portion of the discount which produces
a yield to maturity (as of the date of purchase of the Unitholder's Units) equal
to the lower of the coupon rate of interest on the underlying obligation or the
yield to maturity on the basis of the purchase price of the Unitholder's Units
which is allocable to each Stripped Obligation. Original issue discount which
accrues with respect to a Stripped Obligation will be exempt from Federal income
taxation to the same extent as interest on the underlying obligations. (See
"WHAT IS THE TAX STATUS OF UNITHOLDERS?" in Part B of this Prospectus.)
Unitholders should consult their own tax advisers with respect to the state
and local tax consequences of owning original issue discount bonds or Stripped
Obligations. Under applicable provisions governing determination of state and
local taxes, interest on original issue discount bonds or Stripped Obligations
may be deemed to be received in the year of accrual even though there is no
corresponding cash payment.
WHY AND HOW ARE THE BONDS INSURED?
INSURANCE ON BONDS
INSURED TRUSTS--The Insurer's policy unconditionally and irrevocably guarantees
the full and complete payment required to be made by or on behalf of the Issuer
to the Paying Agent or its successor of an amount equal to (i) the principal of
(either at the stated maturity or by an advancement of maturity pursuant to a
mandatory sinking fund payment) and interest on, the Bonds as such payments
shall become due but shall not be so paid (except that in the event of any
acceleration of the due date of such principal by reason of mandatory or
optional redemption or acceleration resulting from default or otherwise, other
than any advancement of maturity pursuant to a mandatory sinking fund payment,
the payments guaranteed by the Insurer's policy shall be made in such amounts
and at such times as such payments of principal would have been due had there
not been any such acceleration); and (ii) the reimbursement of any such payment
which is subsequently recovered from any owner of the Bonds pursuant to a final
judgment by a court of competent jurisdiction that such payment constitutes an
avoidable preference to such owner within the meaning of any applicable
bankruptcy law (a "Preference").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Bond. The Insurer's policy
does not, under any circumstance, insure against loss relating to: (i) optional
or mandatory redemptions (other than mandatory sinking fund redemptions); (ii)
any payments to be made on an accelerated basis; (iii) payments of the purchase
price of Bonds upon tender by an owner thereof; or (iv) any Preference relating
to (i) through (iii) above. The Insurer's policy also does not insure against
nonpayment of principal of or interest on the Bonds resulting from the
insolvency, negligence or any other act or omission of the Paying Agent or any
other paying agent for the Bonds.
6
<PAGE>
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer from the Paying Agent or
any owner of a Bond the payment of an insured amount for which is then due, that
such required payment has not been made, the Insurer on the due date of such
payment or within one business day after receipt of notice of such nonpayment,
whichever is later, will make a deposit of funds, in an account with State
Street Bank and Trust Company, N.A., in New York, New York, or its successor,
sufficient for the payment of any such insured amounts which are then due. Upon
presentment and surrender of such Bonds or presentment of such other proof of
ownership of the Bonds, together with any appropriate instruments of assignment
to evidence the assignment of the insured amounts due on the Bonds as are paid
by the Insurer, and appropriate instruments to effect the appointment of the
Insurer as agent for such owners of the Bonds in any legal proceeding related to
payment of insured amounts on the Bonds, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and
Trust Company, N.A. shall disperse to such owners or the Paying Agent payment of
the insured amounts due on such Bonds, less any amount held by the Paying Agent
for the payment of such insured amounts and legally available therefor.
The Insurer is the principal operating subsidiary of MBIA, Inc., a New York
Stock Exchange listed company (the "Company"). The Company is not obligated to
pay the debts of or claims against the Insurer. The Insurer is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. The Insurer has two European
branches, one in the Republic of France and the other in the Kingdom of Spain.
New York has laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by the Insurer, changes in
control and transactions among affiliates. Additionally, the Insurer is required
to maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
Effective February 17, 1998, the Company acquired all of the outstanding
stock of Capital Markets Assurance Corporation ("CMAC"), a New York domiciled
financial guarantee insurance company, through a merger with its parent, CapMAC
Holdings, Inc. Pursuant to a reinsurance agreement, CMAC has ceded all of its
net insured risks (including any amounts due but unpaid from third party
reinsurers), as well as its unearned premiums and contingency reserves, to the
Insurer. The Company is not obligated to pay the debts of or claims against
CMAC.
As of December 31, 1997, the Insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1998, the Insurer had admitted assets of $5.4
billion (unaudited), total liabilities of $3.6 billion (unaudited), and total
capital and surplus of $1.8 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of the Insurer's year end financial statements prepared
in accordance with statutory accounting practices are available without charge
from the Insurer. A copy of the Annual Report on Form 10-K of the Company is
available from the Insurer or the Securities and Exchange Commission. The
address of the Insurer is 113 King Street, Armonk, New York 10504. The telephone
number of the Insurer is (914) 273-4545.
Moody's Investors Service rates the claims paying ability of the Insurer
"Aaa".
Standard & Poor's Ratings Service, a division of the McGraw Hill Companies,
Inc., rates the claims paying ability of the Insurer "AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
claims paying ability of the Insurer "AAA."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Bonds,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of any of the above ratings
may have an adverse effect on the market price of the Bonds. The Insurer does
not guaranty the market price of the Bonds nor does it guaranty that the ratings
on the Bonds will not be revised or withdrawn.
TRADITIONAL TRUSTS--Insurance guaranteeing the timely payment, when due, of all
principal and interest on certain Bonds in a Traditional Trust may have been
obtained by the Sponsor, issuer or underwriter of the particular Bonds involved
or by another party. Such insurance, which provides coverage substantially the
same as that obtained with respect to Bonds in Insured Trusts as described
above, is effective so long as the insured Bond is outstanding and the insurer
remains in business. Insurance relates only to the particular Bond and not to
the Units offered hereby or to their
7
<PAGE>
market value. Insured Bonds have received a rating of "Aaa" by Moody's Investors
Service, Inc. and/or "AAA" by Standard & Poor's Corporation in recognition of
such insurance.
If a Bond in a Traditional Trust is insured, the Schedule of Investments in
Part A of this Prospectus will identify the insurer. Such insurance will be
provided by Financial Guaranty Insurance Company ("FGIC"), AMBAC Assurance
Corporation ("AMBAC"), Bond Investors Guaranty Insurance Company, now known as
MBIA Corp. of Illinois ("BIG"), Capital Guaranty Insurance Company ("CGIC"),
Financial Security Assurance, Inc. ("FSA"), Municipal Bond Insurance Association
(the "Association"), MBIA Insurance Corporation ("MBIA") or Connie Lee Insurance
Company ("ConnieLee"). The Sponsor to date has purchased and presently intends
to purchase insurance for Bonds in Traditional Trusts exclusively from MBIA (see
the preceding disclosure regarding MBIA). There can be no assurance that any
insurer listed therein will be able to satisfy its commitments in the event
claims are made in the future. However, Standard & Poor's Corporation has rated
the claims-paying ability of each insurer "AAA," and Moody's Investors Service
has rated all bonds insured by each such insurer, except ConnieLee, "Aaa."
Moody's Investor's Service gives no ratings for bonds insured by ConnieLee.
Because any such insurance will be effective so long as the insured Bonds
are outstanding, such insurance will be taken into account in determining the
market value of such Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Trust that includes
such Bonds. The insurance does not, however, guarantee the market value of the
Bonds or of the Units.
ACCUMULATION PLAN
The Sponsor, John Nuveen & Co. Incorporated, is also the principal
underwriter of the Accumulation Funds listed in the following table. Each of
these funds is an open-end, diversified management investment company into which
Unitholders may choose to reinvest Trust distributions automatically, without
any sales charge. Unitholders may reinvest both interest and principal
distributions or principal distributions only. Each Accumulation Fund has
investment objectives which differ in certain respects from those of the Trusts
and may invest in securities which would not be eligible for deposit in the
Trusts. The investment adviser to each Accumulation Fund is a wholly-owned
subsidiary of the Sponsor. Unitholders should contact their financial adviser or
the Sponsor to determine which of the Accumulation Funds they may reinvest into,
as reinvestment in certain of the Accumulation Funds may be restricted to
residents of a particular state or states. Unitholders may obtain a prospectus
for each Accumulation Fund through their financial adviser or through the
Sponsor at (800) 621-7227. For a more detailed description, Unitholders should
read the prospectus of the Accumulation Fund in which they are interested.
The following is a complete list of the Accumulation Funds currently
available, as of the Date of Deposit of this Prospectus, to Unitholders under
the Accumulation Plan. The list of available Accumulation Funds is subject to
change without the consent of any of the Unitholders.
ACCUMULATION FUNDS
MUTUAL FUNDS
NUVEEN FLAGSHIP MUNICIPAL TRUST
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST II
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Flagship Connecticut Municipal Bond Fund
8
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST III
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST IV
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
Flagship Utility Income Fund
Nuveen Investment Trust
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Nuveen Balanced Municipal and Stock Fund
Nuveen European Value Fund
Nuveen Investment Trust II
Nuveen Rittenhouse Growth Fund
MONEY MARKET FUNDS
Nuveen California Tax-Free Money Market Fund
Nuveen Massachusetts Tax-Free Money Market Fund
Nuveen New York Tax-Free Money Market Fund
Nuveen Tax-Free Reserves, Inc.
Nuveen Tax-Exempt Money Market Fund, Inc.
Each person who purchases Units of a Trust may become a participant in the
Accumulation Plan and elect to have his or her distributions on Units of the
Trust invested directly in shares of one of the Accumulation Funds. Reinvesting
Unitholders may select any interest distribution plan. Thereafter, each
distribution of interest income or principal on the participant's Units
(principal only in the case of a Unitholder who has chosen to reinvest only
principal distributions) will, on the applicable distribution date, or the next
day on which the New York Stock Exchange is normally open ("business day") if
the distribution date is not a business day, automatically be received by the
transfer agent for each of the Accumulation Funds, on behalf of such participant
and applied on that date to purchase shares (or fractions thereof) of the
Accumulation Fund chosen at net asset value as computed as of 4:00 p.m. eastern
time on each such date. All distributions will be reinvested in the Accumulation
Fund chosen and no part thereof will be retained in a separate account. These
purchases will be made without a sales charge.
The Transfer Agent of the Accumulation Fund will mail to each participant in
the Accumulation Plan a quarterly statement containing a record of all
transactions involving purchases of Accumulation Fund shares (or fractions
thereof) with Trust interest distributions or as a result of reinvestment of
Accumulation Fund dividends. Any distribution of principal used to purchase
shares of an Accumulation Fund will be separately confirmed by the Transfer
Agent. Unitholders will also receive distribution statements from the Trustee
detailing the amounts transferred to their Accumulation Fund accounts.
9
<PAGE>
Participants may at any time, by so notifying the Trustee in writing, elect
to change the Accumulation Fund into which their distributions are being
reinvested, to change from principal only reinvestment to reinvestment of both
principal and interest or vice versa, or to terminate their participation in the
Accumulation Plan altogether and receive future distributions on their Units in
cash. There will be no charge or other penalty for such change of election or
termination. The character of Trust distributions for income tax purposes will
remain unchanged even if they are reinvested in an Accumulation Fund.
INFORMATION ABOUT THE SPONSOR
Since our founding in 1898, Nuveen has been synonymous with investments that
withstand the test of time. Today, we offer a broad range of investments
designed for mature investors whose portfolio is the principal source of their
ongoing financial security. More than 1.3 million investors have entrusted
Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach--purchasing securities of strong companies and
communities that represent good long-term value--is the cornerstone of Nuveen's
investment philosophy. It is a careful, long-term strategy that offers the
potential for attractive returns with moderated risk. Successful value investing
begins with in-depth research and a discerning eye for marketplace opportunity.
Nuveen's team of investment professionals is backed by the discipline, resources
and expertise of a century of investment experience, including one of the most
recognized research departments in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products--including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, customized asset management services and cash management
products. Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by the St. Paul Companies, Inc. ("ST. PAUL"). St. Paul
is located in St. Paul, Minnesota and is principally engaged in providing
property-liability insurance through subsidiaries. Nuveen is a member of the
National Association of Securities Dealers, Inc. and the Securities Industry
Association and has its principal office located in Chicago (333 West Wacker
Drive). Nuveen maintains 8 regional offices.
To help advisers and investors better understand and more efficiently use an
investment in the Trusts to reach their investment goals, the Sponsor may
advertise and create specific investment programs and systems. For example, such
activities may include presenting information on how to use an investment in the
Trusts, alone or in combination with an investment in other mutual funds or unit
investment trusts sponsored by Nuveen, to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Sponsor may produce
software or additional sales literature to promote the advantages of using the
Trusts to meet these and other specific investor needs.
10
<PAGE>
DESCRIPTION OF RATINGS*
STANDARD & POOR'S CORPORATION. A description of the applicable Standard &
Poor's Corporation rating symbols and their meanings follows:
A Standard & Poor's rating is a current assessment of the creditworthiness
of an obligor with respect to a specific debt obligation. This assessment may
take into consideration obligors such as guarantors, insurers or lessees.
The rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangements under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher rated categories.
PLUS (+) OR MINUS (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own judgment with
respect to such likelihood and risk.
NOTE RATINGS: A Standard & Poor's note rating reflects the liquidity
concerns and market access risks unique to notes. Notes due in 3 years or less
will likely receive a note rating. Notes maturing beyond 3 years will most
likely receive a long-term debt rating.
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
Aaa--Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Their safety is so absolute that,
- ---------
*As published by the rating companies.
11
<PAGE>
with the occasional exception of oversupply in a few specific instances,
characteristically, their market value is affected solely by money market
fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. The market
value of A-rated bonds may be influenced to some degree by economic performance
during a sustained period of depressed business conditions, but, during periods
of normalcy, A-rated bonds frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few specific
instances.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the high
end of its category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. The market value of Baa-rated
bonds is more sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa market
valuations move in parallel with Aaa, Aa and A obligations during periods of
economic normalcy, except in instances of oversupply.
Con. (--)--Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
NOTE RATINGS:
MIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH IBCA, INC. (formerly Fitch Investors Service, L.P.) A brief
description of the applicable Fitch IBCA, Inc. rating symbols and their meanings
follow:
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
NOTE RATINGS:
FIN-1 Notes assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
12
<PAGE>
FIN-2 Notes assigned this rating reflect a degree of assurance for timely
payment only slightly less in degree than the highest category.
HOW THE TRUST COMPARES PERFORMANCE
The Sponsor may compare the estimated returns of the Trust with the returns
or yields of other tax-free and taxable investments, often on a taxable
equivalent basis. In addition, the Sponsor from time to time may quote various
performance measures and studies in order to compare the historical returns
available from an investment in municipal securities with investments in both
tax-free and taxable securities.
Nuveen Research prepared one such study which compared the after-tax value
of $100,000 initially invested in 1977 in various asset classes including
municipal bonds, treasury bonds and corporate bonds. As indicated in the chart
provided below, the 20-year study shows that municipal bonds significantly
outperformed corporate and treasury bonds once the effects of taxes were
factored in. In fact, over the 20-year period, municipal bond returns in dollars
were almost double those of treasury bonds.
AFTER-TAX VALUE OF $100,000 INVESTED IN 1977*
The graph appearing on this page of the Information Supplement compares
after-tax total returns of $100,000 initially in 1977 in each of the Lehman
Brothers MuniBond Index, Long-Term Treasury Index and Long-Term Corporate Index.
As indicated in the graph, such an investment in the Lehman Brothers MuniBond
Index, Long-Term Treasury Index and Long-Term Corporate Index would have
appreciated to $511,039, $274,434, and $298,682, respectively at the end of
1996. The graph assumes all proceeds of investment are reinvested at the
respective index rates at the time of reinvestment and also assumes that 20% of
the assets in each category are turned over annually and proceeds are reinvested
in the respective indexes. The tax rates assumed to generate the after-tax total
returns were based upon the income and capital gain rates applicable each year
from 1977-1996 for an investor who earned the inflation-adjusted equivalents of
$500,000 in 1996. In addition, treasury returns were "grossed up" an assumed 5%
to take into account the Treasuries' exemption from state income tax. The graph
is for illustrative purposes only, and does not represent the return or
performance of any Nuveen Tax-Free Unit Trust and is not intended to predict
future results.
* The graph compares after-tax total returns using the Lehman Brothers
MuniBond Index, Long-Term Treasury Index and Long-Term Corporate Index. The
graph assumes all proceeds of investment are reinvested at the respective index
rates at the time of reinvestment and also assumes that 20% of the assets in
each category are turned over annually and proceeds are reinvested in the
respective indexes. The tax rates assumed to generate the after-tax total
returns were based upon the income and capital gain rates applicable each year
from 1977-1996 for an investor who earned the inflation-adjusted equivalents of
$100,000 in 1996. In addition, treasury returns were "grossed up" an assumed 5%
to take into account the Treasuries' exemption from state income tax. The graph
is for illustrative purposes only, and does not represent the return or
performance of any Nuveen Tax-Free Unit Trust and is not intended to predict
future results.
A comparison of the estimated returns of the Trust and the historic
performance of municipal bonds to the returns and performance of other
investments is one element to consider in making an informed investment
decision. Taxable investments have investment characteristics that differ from
those of the Trust. U.S. Government bonds are long-term investments backed by
the full faith and credit of the U.S. Government and are subject to federal
income tax but are exempt from state income taxes. Bank CDs are generally
short-term FDIC insured investments, which pay fixed principal and interest but
are subject to fluctuating rollover rates. Both bank CDs and corporate bonds are
generally subject to both federal and state income taxes. Money market funds are
short term investments with stable net asset values, fluctuating yields and
special features that enhance liquidity.
13
<PAGE>
HOW TO CALCULATE YOUR ESTIMATED INCOME
The examples provided below illustrate how to calculate the estimated annual
income generated by a hypothetical $10,000 investment in each respective Trust.
The illustrations assume that the investment was made on the day prior to the
date of deposit by an investor electing the monthly distribution plan and that
the portfolio contains all the securities
14
<PAGE>
described in the portfolio. These hypothetical examples are for illustrative
purposes only and not intended to reflect or predict the results of any actual
investment and do not contemplate changes to the portfolio or expenses.
<TABLE>
<CAPTION>
EXAMPLE OF HOW TO CALCULATE YOUR ESTIMATED INCOME:
CALIFORNIA INSURED TRUST 308
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $99.84 = 100.160
Investment Offering price and # of units purchased
(as of 08/13/98) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
100.160 X $4.5398 = $454.71
# of units purchased Annual income per unit annual income
(monthly plan)
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE OF HOW TO CALCULATE YOUR ESTIMATED INCOME:
COLORADO INSURED TRUST 73
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $101.33 = 98.687
Investment Offering price and # of units purchased
(as of 08/13/98) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
98.687 X $4.5145 = $445.52
# of units purchased Annual income per unit annual income
(monthly plan)
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE OF HOW TO CALCULATE YOUR ESTIMATED INCOME:
MICHIGAN INSURED TRUST 75
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $99.82 = 100.180
Investment Offering price and # of units purchased
(as of 08/13/98) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
100.180 X $4.5327 = $454.09
# of units purchased Annual income per unit annual income
(monthly plan)
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE OF HOW TO CALCULATE YOUR ESTIMATED INCOME:
PENNSYLVANIA INSURED TRUST 238
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $100.46 = 99.542
Investment Offering price and # of units purchased
(as of 08/13/98) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
99.542 X $4.5921 = $457.11
# of units purchased Annual income per unit annual income
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(monthly plan)
</TABLE>
16
<PAGE>
APPENDIX A
CALIFORNIA DISCLOSURE
ECONOMIC FACTORS--CALIFORNIA
As described above, except to the extent the Fund invests in temporary
investments, the Fund will invest substantially all of its assets in California
Municipal Obligations. The Fund is therefore susceptible to political, economic
or regulatory factors affecting issuers of California Municipal Obligations.
These include the possible adverse effects of certain California
constitutional amendments, legislative measures, voter initiatives and other
matters that are described below. The following information provides only a
brief summary of the complex factors affecting the financial situation in
California (the "State") and is derived from sources that are generally
available to investors and are believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from various
State and local agencies in California or contained in Official Statements for
various California Municipal Obligations.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the state's finances have
improved since 1994. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital beds) are generally
linked directly to California's rating. Should the financial condition of
California deteriorate again, its credit ratings could be further reduced, and
the market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.
ECONOMIC OVERVIEW
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of more than 32 million represents
over 12% of the total United States population and grew by 27% in the 1980s.
Total personal income in the State, at an estimated $703 billion in 1994,
accounts for almost 13% of all personal income in the nation. Total employment
is over 14 million, the majority of which is in the service, trade and
manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Job losses were the
worst of any post-war recession. Employment levels stabilized by late 1993 and
steady growth has occurred since early 1994. Pre-recession job levels are
expected to be reached in 1996. Unemployment, while remaining higher than the
national average, has come down substantially from its 10% peak in January.
Economic indicators show a steady recovery underway in California since the
start of 1994. However, any delay or reversal of the recovery may create new
shortfalls in State revenues.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain California Municipal Obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on AD VALOREM property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of AD VALOREM property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise AD VALOREM taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% AD VALOREM tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of March
1, 1975, if acquired earlier), subject to certain adjustments. This system has
resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through AD
VALOREM property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the voters
of the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
APPROPRIATIONS LIMITS. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98
A-1
<PAGE>
and 111 in 1988 and 1990, respectively. Article XIIIB prohibits the State or any
covered local government from spending "appropriations subject to limitation" in
excess of the appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which consist of
tax revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees, to the extent that such proceeds exceed
the cost of providing the product or service, but "proceeds of taxes" exclude
most State subventions to local governments. No limit is imposed on
appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two-year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50% of
any excess, with the other 50% paid to schools and community colleges. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limits for up to four years. During
Fiscal Year 1986-87, State receipts from proceeds of taxes exceeded its
appropriations limit by $1.1 billion, which was returned to taxpayers. Since
that year, appropriations subject to limitation have been under the State limit.
State appropriations were $6.5 billion under the limit for Fiscal Year 1995-96.
A 1986 initiative statute, called "Proposition 62," imposed additional
limits on local governments, by requiring either majority or 2/3 voter approval
for any increases in "general taxes" or "special taxes," respectively (other
than property taxes, which are unchangeable). Court decisions had struck down
most of Proposition 62 and many local governments, especially cities, had
enacted or raised local "general taxes" without voter approval. In September,
1995, the California Supreme Court overruled the prior cases, and upheld the
constitutionality of Proposition 62. Many aspects of this decision remain
unclear (such as its impact on charter (home rule) cities, and whether it will
have retroactive effect), but its future effect will be to further limit the
fiscal flexibility of many local governments.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or Article
XIIIB on California Municipal Obligations or on the ability of the State or
local governments to pay debt service on such California Municipal Obligations.
It is not possible, at the present time, to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIIIA or Article XIIIB, or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Future initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA.
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. Total
outstanding general obligation bonds and lease purchase debt of California
increased from $9.4 billion at June 30, 1987 to $23.8 billion at February 1,
1996. In FY 1994-95, debt service on general obligation bonds and lease purchase
debt was approximately 5.3% of General Fund revenues.
RECENT FINANCIAL RESULTS.
The principal sources of General Fund revenues in 1994-95 were the
California personal income tax (43% of total revenues), the sales tax (34%),
bank and corporation taxes (13%), and the gross premium tax on insurance (3%).
The State maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a reserve to meet
cash needs of the General Fund, but which is required to be replenished as soon
as sufficient revenues are available. Year-end balances in the Economic
Uncertainties Fund are included for financial reporting purposes in the General
Fund balance. In most recent years, the State has budgeted to maintain the
Economic Uncertainties Fund at around 3% of General Fund expenditures but
essentially no reserve was budgeted from 1992-93, to 1995-96 because revenues
had been reduced by the recession and an accumulated budget deficit had to be
repaid.
A-2
<PAGE>
GENERAL. Throughout the 1980's, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher than the
growth rates for the principal revenue sources of the General Fund. These
structural concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes" law enacted in 1994.
RECENT BUDGETS. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget imbalance,
with expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the SFEU
approaching $2.8 billion at its peak at June 30, 1993. Starting in the 1990-91
Fiscal Year and for each year thereafter, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance and to
close large "budget gaps" which were identified. The Legislative and Governor
eventually agreed on a number of different steps to produce Budget Acts in the
years 1991-92 to 1995-96, including:
- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on local
government;
- transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools;
- reduction in growth of support for higher education programs, coupled with
increases in student fees;
- revenue increases (particularly in the 1992-93 Fiscal Year budget), most of
which were for a short duration;
- increased reliance on aid from the federal government to offset the costs of
incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal
aid than the State Administration had requested); and
- various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
Fiscal Year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95 to carry the final retirement of
the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94,
1994-95, and 1995-96 which have reduced the accumulated budget deficit to about
$70 million as of June 30, 1996.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future Fiscal Years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the
State to carry out its normal annual cash flow borrowing to replenish its cash
reserves, the State Controller was forced to issue approximately $3.8 billion of
registered warrants ("IOUs") over a 2-month period to pay a variety of
obligations representing prior years' or continuing appropriations, and mandates
from court orders.
The State's cash condition became so serious that from late spring 1992
until 1995, the State had to rely on issuance of short term notes which matured
in a subsequent Fiscal Year to finance its ongoing deficit, and pay current
obligations. With the repayment of the last of these deficit notes in April,
1996, the State does not plan to rely further on external borrowing across
Fiscal Years, but will continue its normal cash flow borrowings during a Fiscal
Year.
A-3
<PAGE>
CURRENT BUDGET. For the first time in four years, the State entered the
1995-96 Fiscal Year with strengthening revenues based on an improving economy.
The major feature of the Governor's proposed Budget, a 15% phased cut in
personal income and business taxes, was rejected by the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the Fiscal Year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
years. Expenditures were budgeted at $43.4 billion, a 4 percent increase. A
principal feature of the 1995-96 Budget Act, in addition to those noted above
was the first significant increase in per-pupil funding for public schools and
community colleges in four years.
In its regular budget update in May, 1996, the Department of Finance
indicated that, with the strengthening economy, State General Fund revenues for
1995-96 would be about $46.1 billion, some $2 billion higher than originally
estimated. Because of mandated spending for public schools, the failure to
receive expected federal aid for illegal immigrants, and the failure of Congress
to enact welfare reform which the Administration had expected would reduce State
costs, expenditures for 1995-96 were also increased, to about $45.4 billion. As
a result, the Department estimated that the accumulated budget deficit would be
reduced to about $70 million as of June 30, 1996.
As a result of the improved revenues, that State's cash position has
substantially recovered. Only $2 billion of cash flow borrowing was needed
during 1995-96, and only about $3 billion is projected for 1996-97, with no
external borrowing over the end of the Fiscal Year.
The Governor's proposed budget for 1996-97 projects $47.1 billion of
revenues and transfers, and $46.5 billion of expenditures, resulting in a budget
reserve at June 30, 1997 of about $500 million. A number of issues related to
the 1996-97 budget still have to be resolved, including the Governor's tax
reduction proposals, and his proposals for further health and welfare cuts.
BOND RATING. State general obligation bonds are currently rated A1 by
Moody's and A+ by S&P. Both of these ratings have been reduced in several stages
from AAA levels which the State held until late 1991.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
LEGAL PROCEEDINGS.
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or injunctions
which would overturn several parts of the state's recent budget compromises. The
matters covered by these lawsuits include a deferral of payments by California
to the Public Employees Retirement System, reductions in welfare payments, and
the use of certain cigarette tax funds for health costs. All of these cases are
subject to further proceedings and appeals, and if California eventually loses,
the final remedies may not have to be implemented in one year.
OBLIGATIONS OF OTHER ISSUERS
OTHER ISSUERS OF CALIFORNIA MUNICIPAL OBLIGATIONS. There are a number of
state agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. To the extent the State should be
constrained by its Article XIIIB appropriations limit, or its obligation to
conform to Proposition 98, or other fiscal considerations, the absolute level,
or the rate of growth, of State assistance to local governments may continue to
be reduced. Any such reductions in State aid could compound the serious fiscal
constraints already experienced by many local governments, particularly
counties. At least one rural county (Butte) publicly announced that it might
enter bankruptcy proceedings in
A-4
<PAGE>
August 1990, although such plans were put off after the Governor approved
legislation to provide additional funds for the county. Other counties have also
indicated that their budgetary condition is extremely grave. Los Angeles County,
the largest in the State, faced a nominal $1.2 billion gap in its 1995-96
budget, half of which was in the County health care system. The gaps were closed
only with significant cuts in services and personnel, particularly in the health
care system, federal aid, and transfer of some funds from other local
governments to the County pursuant to special legislation. The County's debt was
downgraded by Moody's and S&P in the summer of 1995. Orange County, just emerged
from Federal Bankruptcy Court protection in June 1996, has significantly reduced
county services and personnel, and faces strict financial conditions following
large investment fund losses in 1994 which resulted in bankruptcy.
ASSESSMENT BONDS. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
CALIFORNIA LONG-TERM LEASE OBLIGATIONS. Certain California long-term lease
obligations, though typically payable from the general fund of the municipality,
are subject to "abatement" in the event the facility being leased is unavailable
for beneficial use and occupancy by the municipality during the term of the
lease. Abatement is not a default, and there may be no remedies available to the
holders of the certificates evidencing the lease obligation in the event
abatement occurs. The most common cases of abatement are failure to complete
construction of the facility before the end of the period during which lease
payments have been capitalized and uninsured casualty losses to the facility
(E.G., due to earthquake). In the event abatement occurs with respect to a lease
obligation, lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may not be paid when
due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The trial
court has upheld the validity of the District's lease, and the case has been
settled. Any judgment in any future case against the position asserted by the
Trustee in the Richmond case may have adverse implications for lease
transactions of a similar nature by other California entities.
OTHER CONSIDERATIONS.
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by healthcare and hospital revenues may be affected by changes
in State regulations governing cost reimbursements to health care providers
under Medi-Cal (the State's Medicaid program), including risks related to the
policy of awarding exclusive contracts to certain hospitals.
Limitations on AD VALOREM property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (E.G., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not possible, at present, to predict the extent to which any such legislation
will be enacted. Nor is it possible, at present, to determine the impact of any
such legislation on California Municipal Obligations in which
A-5
<PAGE>
the Fund may invest, future allocations of state revenues to local governments
or the abilities of state or local governments to pay the interest on, or repay
the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the federal or State government to
appropriate sufficient funds within their respective budget limitations.
A-6
<PAGE>
CALIFORNIA TAXABLE ESTIMATED CURRENT RETURN TABLE
The following tables show the approximate taxable estimated current returns
for individuals that are equivalent to tax-exempt estimated current returns
under combined Federal and state taxes, using published 1998 marginal Federal
tax rates and marginal state tax rates currently available and scheduled to be
in effect. The tables incorporate increased tax rates for higher-income
taxpayers that were included in the Revenue Reconciliation Act of 1993. The
table assumes that federal taxable income is equal to state income subject to
tax, and for cases in which more than one state rate falls within a Federal
bracket, the state rate corresponding to the highest income within that Federal
bracket is used. The combined state and Federal tax brackets shown reflect the
fact that state tax payments are currently deductible for Federal tax purposes.
The tables do not reflect any local taxes or any taxes other than personal
income taxes. The tables illustrate what you would have to earn on taxable
investments to equal the tax-exempt estimated current return for your income tax
bracket. A taxpayer's marginal tax rate is affected by both his taxable income
and his adjusted gross income. Locate your adjusted gross and your taxable
income (which is your adjusted gross income reduced by any deductions and
exemptions), then locate your tax bracket based on joint or single tax filing.
Read across to the equivalent taxable estimated current return you would need to
match the tax-free income.
COMBINED MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 42.35 $ 0-124.50 20.0 % 5.00 5.31 5.63 5.94 6.25 6.56 6.88 7.19
42.35-102.30 0-124.50 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
124.50-186.80 35.5 6.20 6.59 6.98 7.36 7.75 8.14 8.53 8.91
102.30-155.95 0-124.50 37.5 6.40 6.80 7.20 7.60 8.00 8.40 8.80 9.20
124.50-186.80 38.5 6.50 6.91 7.32 7.72 8.13 8.54 8.94 9.35
186.80-228.30 40.5 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
228.30-265.80 41.5 6.84 7.26 7.69 8.12 8.55 8.97 9.40 9.83
265.80-309.30 41.0 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
155.95-278.45 124.50-186.80 43.0 7.02 7.46 7.89 8.33 8.77 9.21 9.65 10.09
186.80-228.30 46.0 7.41 7.87 8.33 8.80 9.26 9.72 10.19 10.65
228.30-265.80 46.5 7.48 7.94 8.41 8.88 9.35 9.81 10.28 10.75
265.80-309.30 46.0 7.41 7.87 8.33 8.80 9.26 9.72 10.19 10.65
Over 309.30 43.5 2 7.08 7.52 7.96 8.41 8.85 9.29 9.73 10.18
Over 278.45 186.80-228.30 49.5 7.92 8.42 8.91 9.41 9.90 10.40 10.89 11.39
228.30-265.80 50.5 8.08 8.59 9.09 9.60 10.10 10.61 11.11 11.62
265.80-309.30 49.5 7.92 8.42 8.91 9.41 9.90 10.40 10.89 11.39
Over 309.30 46.5 2 7.48 7.94 8.41 8.88 9.35 9.81 10.28 10.75
</TABLE>
COMBINED MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25.35 $ 0-114.15 20.0 % 5.00 5.31 5.63 5.94 6.25 6.56 6.88 7.19
25.35- 61.40 0-114.15 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
61.40-128.10 0-114.15 37.5 6.40 6.80 7.20 7.60 8.00 8.40 8.80 9.20
114.15-124.50 38.0 6.45 6.85 7.26 7.66 8.06 8.47 8.87 9.27
124.50-141.65 39.5 6.61 7.02 7.44 7.85 8.26 8.68 9.09 9.50
141.65-247.00 39.0 6.56 6.97 7.38 7.79 8.20 8.61 9.02 9.43
128.10-278.45 124.50-141.65 44.0 7.14 7.59 8.04 8.48 8.93 9.38 9.82 10.27
141.65-247.00 44.0 7.14 7.59 8.04 8.48 8.93 9.38 9.82 10.27
Over 247.00 43.5 2 7.08 7.52 7.96 8.41 8.85 9.29 9.73 10.18
Over 278.45 Over 247.00 46.5 3 7.48 7.94 8.41 8.88 9.35 9.81 10.28 10.75
</TABLE>
- ------------------
1 The table reflects the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed to phase out
certain benefits of these deductions for higher income taxpayers. These
limitations, in effect, raise the current maximum marginal combined Federal and
state tax rate to approximately 50.25 percent for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately 46.63
percent for taxpayers filing a single return entitled to only one personal
exemption. These limitations are subject to certain maximums, which depend on
the number of exemptions claimed and the total amount of the taxpayer's itemized
deductions. For example, the limitation on itemized deductions will not cause a
taxpayer to lose more than 80% of his allowable itemized deductions.
2 Combined Federal and state tax rate reverts to 41.95% rate after the 80%
cap on the limitation on itemized deductions, under federal or state law, as
appropriate has been met.
3 Combined Federal and state tax rate reverts to 45.22% after the 80% cap on
the limitation on itemized deductions has been met.
A-7
<PAGE>
APPENDIX B
COLORADO DISCLOSURE
ECONOMIC FACTORS--COLORADO
RESTRICTIONS ON APPROPRIATIONS AND REVENUES. The State Constitution
requires that expenditures for any fiscal year not exceed revenues for such
fiscal year. By statute, the amount of General Fund revenues available for
appropriation is based upon revenue estimates which, together with other
available resources, must exceed annual appropriations by the amount of the
unappropriated reserve (the "Unappropriated Reserve"). The Unappropriated
Reserve requirement for fiscal years 1991, 1992 and 1993 was set at 3% of total
appropriations from the General Fund. For fiscal years 1994 and thereafter, the
Unappropriated Reserve requirement is 4% of total appropriations from the
General Fund. In addition to the Unappropriated Reserve, a constitutional
amendment approved by Colorado voters in 1992 requires the State and each local
government to reserve a certain percentage of its fiscal year spending
(excluding bonded debt service) for emergency use (the "Emergency Reserve"). The
minimum Emergency Reserve was set at 1% for 1993 and 2% for 1994 and is set at
3% for 1995 and later years. The balance held in the State Controlled
Maintenance Trust Fund is now used to satisfy the Emergency Reserve requirement.
For fiscal year 1992 and thereafter, General Fund appropriations are also
limited by statute to an amount equal to the cost of performing certain required
reappraisals of taxable property plus an amount equal to the lesser of (i) five
percent of Colorado personal income or (ii) 106% of the total General Fund
appropriations for the previous fiscal year. This restriction does not apply to
any General Fund appropriations which are required as a result of a new federal
law, a final state or federal court order or moneys derived from the increase in
the rate or amount of any tax or fee approved by a majority of the registered
electors of the State voting at any general election. In addition, the statutory
limit on the level of General Fund appropriations may be exceeded for a given
fiscal year upon the declaration of a State fiscal emergency by the State
General Assembly.
According to the Colorado Economic Perspective, Fourth Quarter, Fiscal Year
1997-1998, June 20, 1998 (the "1998 Economic Report"), which is published by the
Office of State Planning and Budgeting, the fiscal year 1997 ending General Fund
balance was $514.1 million, which was $347.4 million over the Unappropriated
Reserve requirement. The 1996 fiscal year ending General Fund balance was $368.5
million, or $211.8 million over the required Unappropriated Reserve. Based on
the 1998 Economic Report estimates, the fiscal year 1998 ending General Fund
balance is expected to be approximately $823.6 million, or $646.6 million over
the required Unappropriated Reserve.
On November 3, 1992, voters in Colorado approved a constitutional amendment
(the "Amendment") which, in general, became effective December 31, 1992, and
restricts the ability of the State and local governments to increase revenues
and impose taxes. The Amendment applies to the State and all local governments,
including home rule entities ("Districts"). Enterprises, defined as
government-owned businesses authorized to issue revenue bonds and receiving
under 10% of annual revenue in grants from all Colorado state and local
governments combined, are excluded from the provisions of the Amendment.
The provisions of the Amendment are unclear and have required judicial
interpretation. Among other provisions, beginning November 4, 1992, the
Amendment requires voter approval prior to tax increases, the imposition of a
new tax, creation of debt, or mill levy or valuation for assessment ratio
increases or a change of tax policy resulting in a net revenue gain. The
Amendment also limits increases in government spending and property tax revenues
to specified percentages. The Amendment requires that District property tax
revenues yield no more than the prior year's revenues adjusted for inflation,
voter approved changes and (except with regard to school districts) local growth
in property values according to a formula set forth in the Amendment. School
districts are allowed to adjust tax levies for changes in student enrollment.
Pursuant to the Amendment, local government spending is to be limited by the
same formula as the limitation for property tax revenues. The Amendment limits
increases in expenditures from the State General Fund and program revenues (cash
funds) to the growth in inflation plus the percentage change in State population
in the prior calendar year. The bases for initial spending and revenue limits
were fiscal year 1992 spending and 1991 property taxes collected in 1992. The
base for spending and revenue limits for each subsequent fiscal year is the
prior fiscal year's spending and property taxes collected in the prior calendar
year. Debt service changes, reductions and voter-approved revenue changes are
excluded from the calculation bases. The Amendment also prohibits new or
increased real property transfer taxes, new State real property taxes and local
District income taxes.
Litigation concerning several issues relating to the Amendment has been
brought in the Colorado courts. The litigation deals with three principal
issues: (i) whether Districts can increase mill levies to pay debt service on
general obligation bonds without obtaining voter approval; (ii) whether a
multi-year lease-purchase agreement subject to annual appropriation is an
obligation which requires voter approval prior to execution of the agreement;
and (iii) what constitutes an "enterprise" which is excluded from the provisions
of the Amendment. In September, 1994, the Colorado
B-1
<PAGE>
Supreme Court held that Districts can increase mill levies to pay debt service
on voter approved general obligation bonds issued after the effective date of
the Amendment; in June, 1995 the Colorado Supreme Court validated mill levy
increases to pay general obligation bonds issued prior to the Amendment provided
that such bonds or bonds issued to refund such bonds were voter approved. In
late 1994, the Colorado Court of Appeals held that multi-year lease-purchase
agreements subject to annual appropriation do not require voter approval. The
time to file an appeal in that case has expired. Finally, in May, 1995, the
Colorado Supreme Court ruled that entities with the power to levy taxes may not
themselves be "enterprises" for purposes of the Amendment; however, the Court
did not address the issue of how valid enterprises may be created. Many Colorado
local governments interpret this decision to mean that a government with taxing
power cannot be an enterprise but that a business activity (such as a utility)
owned by such a government can be an enterprise. Additional litigation in the
"enterprise" arena may be filed in the future to clarify these issues. The
Colorado Supreme Court also has decided that voters can authorize a government
to keep and spend all revenues received in excess of the spending limits. Other
aspects of the spending limit are being litigated in district court actions.
According to the 1998 Economic Report, for fiscal year 1997, general fund
revenues (adjusted for cash funds that are exempt from the Amendment) were
$4,639.9 million and program revenues (cash funds) were $2,007.7 million, for
revenues totaling $6,647.6 million. During calendar year 1995, population and
inflation grew at rates of 4.3% and 2.3%, respectively, for a combined total
limit of 6.6%. Accordingly, under the Amendment, State expenditures during the
1997 fiscal year could not exceed $6,508.6 million and the actual 1997 general
fund and program revenues of $6,647.6 million were over the limit. The excess of
$139 million was refunded to Colorado taxpayers. The limitation for fiscal year
1998 is 5.5% over the revenue limit for the 1997 fiscal year; accordingly, 1998
fiscal year revenues cannot exceed $6,866.6 million. Fiscal year 1998 revenues
are estimated to be $528.8 million over the limitation. A measure pertaining to
the excess fiscal year revenues was passed by the General Assembly and will
appear on the November 1998 ballot for voter approval. The measure, if approved,
would provide that $200 million per year would be spent during each of the next
five years for highway and educational construction, with excess 1998 fiscal
year revenues to fund $200 million of these expenditures. The General Assembly
has not yet determined how the remaining $328 million of excess revenues for
fiscal year 1998 will be refunded. The limitation for the 1999 fiscal year is
currently projected to be 5.3% which translates to a revenue limit of
approximately $7,230.5 million for fiscal year 1999. The State projects that
revenues will exceed the Amendment limitations for the foreseeable future.
There is also a statutory restriction on the amount of annual increases in
taxes that the various taxing jurisdictions in Colorado can levy without
electoral approval. This restriction does not apply to taxes levied to pay
general obligation debt.
STATE FINANCES. As the State experienced revenue shortfalls in the
mid-1980s, it adopted various measures, including impoundment of funds by the
Governor, reduction of appropriations by the General Assembly, a temporary
increase in the sales tax, deferral of certain tax reductions and inter-fund
borrowings. According to State of Colorado Audited Financial Reports, under
generally accepted accounting principles, the State had unrestricted General
Fund ending balances at June 30 of approximately $326.8 million in fiscal year
1993, $320.4 million in fiscal year 1994, $408.0 million for fiscal year 1995,
$368.5 million for fiscal year 1996 and $514.1 million for fiscal year 1997.
For fiscal year 1997, the following tax categories generated the following
percentages of the State's $4,679.4 million total revenues (accrual basis):
individual income taxes represented 55% of gross fiscal year 1997 receipts;
sales, use, and other excise taxes represented 32.5% of gross fiscal year 1997
receipts; and corporate income taxes represented 5.1% of gross fiscal year 1997
receipts. For fiscal year 1998, General Fund revenues of approximately $5,339.7
million and appropriations of approximately $4,733.7 million are projected. The
percentages of General Fund revenue generated by type of tax for fiscal year
1998 are not expected to be significantly different from fiscal year 1997
percentages.
STATE DEBT. Under its constitution, the State of Colorado is not permitted
to issue general obligation bonds secured by the full faith and credit of the
State. However, certain agencies and instrumentalities of the State are
authorized to issue bonds secured by revenues from specific projects and
activities. The State enters into certain lease transactions which are subject
to annual renewal at the option of the State. In addition, the State is
authorized to issue short-term revenue anticipation notes. Local government
units in the State are also authorized to incur indebtedness. The major source
of financing for such local government indebtedness is an ad valorem property
tax. In addition, in order to finance public projects, local governments in the
State can issue revenue bonds payable from the revenues of a utility or
enterprise or from the proceeds of an excise tax, or assessment bonds payable
from special assessments. Colorado local governments can also finance public
projects through leases which are subject to annual appropriation at the option
of the local government. Local governments in Colorado also issue tax
anticipation notes. The Amendment requires prior voter approval for the creation
of any multiple fiscal year debt or other financial obligation whatsoever,
except for refundings at a lower rate or obligations of an enterprise.
STATE ECONOMY. Based on estimates published by the State of Colorado,
Office of State Planning and Budgeting as presented in the 1998 Economic Report,
55% of non-agricultural employment in Colorado in 1997 was concentrated in
B-2
<PAGE>
the retail and wholesale trade and service sectors, reflecting the importance of
tourism to the State's economy and of Denver as a regional economic and
transportation hub. The government and manufacturing sectors followed as the
next largest employment sectors in the State, representing approximately 15.9%
and 10.3%, respectively, of non-agricultural employment in the State in 1997.
The Office of Planning and Budgeting projects similar concentrations for
calendar years 1998 and 1999.
According to the 1998 Economic Report, the Colorado unemployment rate
improved from an average of 4.2% during 1996 to 3.3% during 1997. Total retail
sales increased by 5.6% during calendar year 1997. Colorado continued to surpass
the employment growth rate of the U.S., with a 4.0% rate of growth for Colorado
in 1997, as compared with 2.3% for the nation as a whole. The rate of job growth
in Colorado is projected in the 1998 Economic Report to be 3.9% in 1998.
Personal income rose 7.2% in Colorado during 1997, as compared with an
increase of 5.8% for the nation as a whole.
COLORADO TAXABLE ESTIMATED CURRENT RETURN TABLE
The following tables show the approximate taxable estimated current returns
for individuals that are equivalent to tax-exempt estimated current returns
under combined Federal and state taxes, using published 1998 marginal Federal
tax rates and marginal state tax rates currently available and scheduled to be
in effect. The tables incorporate increased tax rates for higher-income
taxpayers that were included in the Revenue Reconciliation Act of 1993. The
table assumes that federal taxable income is equal to state income subject to
tax, and for cases in which more than one state rate falls within a Federal
bracket, the state rate corresponding to the highest income within that Federal
bracket is used. The combined state and Federal tax brackets shown reflect the
fact that state tax payments are currently deductible for Federal tax purposes.
The tables do not reflect any local taxes or any taxes other than personal
income taxes. The tables illustrate what you would have to earn on taxable
investments to equal the tax-exempt estimated current return for your income tax
bracket. A taxpayer's marginal tax rate is affected by both his taxable income
and his adjusted gross income. Locate your adjusted gross and your taxable
income (which is your adjusted gross income reduced by any deductions and
exemptions), then locate your tax bracket based on joint or single tax filing.
Read across to the equivalent taxable estimated current return you would need to
match the tax-free income.
B-3
<PAGE>
COMBINED MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 42.35 $ 0-124.50 19.5 % 4.97 5.28 5.59 5.90 6.21 6.52 6.83 7.14
42.35-102.30 0-124.50 31.5 5.84 6.20 6.57 6.93 7.30 7.66 8.03 8.39
124.50-186.80 32.5 5.93 6.30 6.67 7.04 7.41 7.78 8.15 8.52
102.30-155.95 0-124.50 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
124.50-186.80 35.5 6.20 6.59 6.98 7.36 7.75 8.14 8.53 8.91
186.80-309.30 38.5 6.50 6.91 7.32 7.72 8.13 8.54 8.94 9.35
155.95-278.45 124.50-186.80 40.5 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
186.80-309.30 43.5 7.08 7.52 7.96 8.41 8.85 9.29 9.73 10.18
Over 309.30 40.5 2 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
Over 278.45 186.80-309.30 47.5 7.62 8.10 8.57 9.05 9.52 10.00 10.48 10.95
Over 309.30 44.0 3 7.14 7.59 8.04 8.48 8.93 9.38 9.82 10.27
</TABLE>
COMBINED MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25.35 $ 0-124.50 19.5 % 4.97 5.28 5.59 5.90 6.21 6.52 6.83 7.14
25.35- 61.40 0-124.50 31.5 5.84 6.20 6.57 6.93 7.30 7.66 8.03 8.39
61.40-128.10 0-124.50 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
124.50-247.00 36.0 6.25 6.64 7.03 7.42 7.81 8.20 8.59 8.98
128.10-278.45 124.50-247.00 41.0 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
Over 247.00 40.5 2 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
Over 278.45 Over 247.00 44.0 3 7.14 7.59 8.04 8.48 8.93 9.38 9.82 10.27
</TABLE>
- ------------------
1 The table reflects the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed to phase out
certain benefits of these deductions for higher income taxpayers. These
limitations, in effect, raise the current maximum marginal combined Federal and
state tax rate to approximately 47.32 percent for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately 43.84
percent for taxpayers filing a single return entitled to only one personal
exemption. These limitations are subject to certain maximums, which depend on
the number of exemptions claimed and the total amount of the taxpayer's itemized
deductions. For example, the limitation on itemized deductions will not cause a
taxpayer to lose more than 80% of his allowable itemized deductions, with
certain exceptions.
2 Combined Federal and state tax rate reverts to 39.2% after the 80% cap on
the limitation on itemized deductions has been met.
3 Combined Federal and state tax rate reverts to 42.62% after the 80% cap on
the limitation on itemized deductions has been met.
B-4
<PAGE>
APPENDIX C
MICHIGAN DISCLOSURE
ECONOMIC FACTORS--MICHIGAN
As described above, except to the extent the Michigan Insured Trust invests
in temporary investments, the Michigan Insured Trust will invest substantially
all of its net assets in Michigan Bonds. The Michigan Insured Trust is therefore
susceptible to political, economic or regulatory factors affecting issuers of
Michigan Bonds. The information set forth below is derived from official
statements prepared in connection with the issuance of Michigan Bonds and other
sources that are generally available to investors. The information is provided
as general information intended to give a recent historical description and is
not intended to indicate future or continuing trends in the financial or other
positions of the State of Michigan (the "State"). This information has not been
independently verified.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on issuers and other obligors
with respect to the Michigan Insured Trust generally, will not adversely affect
the market value of Michigan Bonds held in the portfolio of the Michigan Insured
Trust or the ability of particular obligors to make timely payments of debt
service on (or relating to) those obligations.
The principal sectors of the State's economy are manufacturing of durable
goods (including automobile and office equipment manufacturing), tourism and
agriculture. As reflected in historical employment figures, the State's economy
has lessened its dependence upon durable goods manufacturing. In 1960,
employment in such industry accounted for 33% of the State's workforce. This
figure fell to 15.4% by 1995. Nevertheless, this was an increase from the level
of 14.9% in 1994. Moreover, manufacturing (including auto-related manufacturing)
continues to be an important part of the State's economy. These industries are
highly cyclical. This factor could adversely affect the revenue streams of the
State and its political subdivisions because of its impact on tax sources,
particularly sales taxes, income taxes and single business taxes.
Historically, the average monthly unemployment rate in the State has been
higher than the average figures for the United States. Contrary to that prior
historical trend, however, for each of the last six years, the average monthly
unemployment rates in the State were less than the national averages. For 1995,
1996 and 1997, the average monthly unemployment rates in the State were 5.3%,
4.9% and 4.2%, respectively, as compared to national averages of 5.6%, 5.4% and
4.9%, respectively.
BUDGET. The budget of the State is a complete financial plan and
encompasses the revenues and expenditures, both operating and capital outlay, of
the General Fund and special revenue funds. The budget is prepared on a basis
consistent with generally accepted accounting principles (GAAP). The State's
Fiscal Year begins on October 1 and ends September 30 of the following year.
Under State law, the executive budget recommendations for any fund may not
exceed the estimated revenue thereof, and an itemized statement of estimated
revenues in each operating fund must be contained in an appropriation bill as
passed by the Legislature, the total of which may not be less than the total of
all appropriations made from the fund for that fiscal year. The State
Constitution provides that proposed expenditures from and revenues of any fund
must be in balance and that any prior year's surplus or deficit in any fund must
be included in the succeeding year's budget for that fund.
The State's Constitution limits the amount of total State revenues that may
be raised from taxes and other sources. State revenues (excluding federal aid
and revenues used for payment of principal and interest on general obligation
bonds) in any fiscal year are limited to a specified percentage of State
personal income in the prior calendar year or average of the prior three
calendar years, whichever is greater. The State may raise taxes in excess of the
limit in emergency situations.
The State finances its operations through the State's General Fund and
special revenue funds. The General Fund receives revenues that are not
specifically required to be included in the special revenue funds. Approximately
59 percent of General Fund revenues are obtained from the payment of State taxes
and approximately 41 percent from federal and non-tax revenue sources. Tax
revenues credited to the General Fund include the State's personal income tax,
single business tax, use tax, and the sales tax. In addition the State levies
various other taxes. Over two-thirds of total General Fund expenditures are made
for education and the State's Family Independence Agency and Department of
Community Health.
The State ended fiscal year 1992-93 with a balance of $26 million after the
transfer of $282.6 million to the Counter-Cyclical Budget and Economic
Stabilization Fund ("BSF") described below. The State ended fiscal year 1993-94
with a $460.2 million General Fund surplus, all which was transferred to the
BSF. The State's General Fund -- General Purpose ending unreserved surplus as of
the end of fiscal year 1994-95 was $64.7 million, all of which was transferred
to the BSF. The fiscal year 1995-96 General Fund unreserved surplus of $91.3
million was transferred to the BSF.
The State budget for the 1997-98 fiscal year, which began on October 1,
1997, has been adopted by the Legislature. This budget projects General
Fund/general purpose revenues of approximately $8.606 billion.
C-1
<PAGE>
The State also maintains the BSF which accumulates balances during the years
of significant economic growth and which may be utilized during periods of
budgetary shortfalls. Calculated on an accrual basis, the unreserved ending
accrued balance of the BSF on September 30, 1995 was $987.9 million, $614.5
million on September 30, 1996 and $579.8 on September 30, 1997. The balance is
net of a reserve for future education funding of $529.1 million on September 30,
1996 and $572.6 million on September 30, 1997.
DEBT. The State Constitution limits State general obligation debt to (i)
short-term debt for State operating purposes which must be repaid in the same
fiscal year in which it is issued and which cannot exceed 15% of the undedicated
revenues received by the State during the preceding fiscal year, (ii) short- and
long-term debt unlimited in amount for the purpose of making loans to school
districts and (iii) long-term debt for voter-approved purposes.
The State has issued and has outstanding general obligation full faith and
credit bonds for water resources, environmental protection program, recreation
program and school loan purposes totalling, as of September 30, 1997,
approximately $655 million. In November 1988, the State's voters approved the
issuance of $800 million of general obligation bonds for environmental
protection and recreational purposes; of this amount approximately $265 million
remains to be issued as of September 30, 1996. The State issued $900 million in
general obligation notes in November, 1997 which will mature September 30, 1998.
On April 28, 1998, the State issued $160,000,000 in general obligation school
loan bonds for school purposes. On June 3, 1998 the State issued $90,000,000 in
general obligation environmental protection program bonds. In addition, the
Governor has proposed the issuance of approximately $500 million in general
obligation indebtedness for environmental and other purposes. Issuance of such
indebtedness would require passage of legislation which is currently pending
before the Michigan Legislature and also approval of a majority of Michigan
voters at the November 1998 elections.
OTHER ISSUERS OF MICHIGAN MUNICIPAL OBLIGATIONS. There are a number of
state agencies, instrumentalities and political subdivisions of the State that
issue bonds, some of which may be conduit revenue obligations payable from
payments from private borrowers. These entities are subject to various economic
risks and uncertainties, and the credit quality of the securities issued by them
may vary considerably from obligations backed by the full faith and credit of
the State.
RATINGS. As of May 20, 1998, the State's general obligation bonds are rated
"Aa1" by Moody's, " AA+" by S&P and "AA+" by Fitch IBCA. In January, 1998, the
State received an upgrade from S&P from its prior rating of "AA". In March,
1998, the State received an upgrade from Moody's from its prior rating of "Aa2".
In April, 1998, the State received an upgrade from Fitch from its prior rating
of "AA".
LITIGATION. The State is a party to various legal proceedings seeking
damages or injunctive or other relief. In addition to routine litigation,
certain of these proceedings could, if unfavorably resolved from the point of
view of the State, substantially affect State programs or finances. As of May
20, 1998, these lawsuits involve programs generally in the areas of corrections,
tax collection, commerce and budgetary reductions to school districts and
governmental units and court funding. The ultimate disposition of these
proceedings was not determinable as of May 20, 1998.
PROPERTY TAX AND SCHOOL FINANCE REFORM. The State Constitution limits the
extent to which municipalities or political subdivisions may levy taxes upon
real and personal property through a process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and school
finance reform measure known as Proposal A. Under Proposal A, as approved,
effective May 1, 1994, the State sales and use tax increased from 4% to 6%, the
State income tax decreased from 4.6% to 4.4%, the cigarette tax increased from
$.25 to $.75 per pack and an additional tax of 16% of the wholesale price began
to be imposed on certain other tobacco products. A .75% real estate transfer tax
become effective January 1, 1995. Beginning in 1994, state property tax of 6
mills began to be imposed on all real and personal property currently subject to
the general property tax. All local school boards are authorized, with voter
approval, to levy up to the lesser of 18 mills or the number of mills levied in
1993 for school operating purposes on nonhomestead property and nonqualified
agricultural property. Proposal A contains additional provisions regarding the
ability of local school districts to levy taxes, as well as a limit on
assessment increases for each parcel of property, beginning in 1995. Such
increases for each parcel of property are limited to the lesser of 5% or the
rate of inflation. When property is subsequently sold, its assessed value will
revert to the current assessment level of 50% of true cash value. Under Proposal
A, much of the additional revenue generated by the new taxes will be dedicated
to the State School Aid Fund.
Proposal A and its implementing legislation provides for a system of
financing local school operating costs which relies upon a foundation allowance
amount which may vary by district based upon historical spending levels. State
funding will provide each school district an amount equal to the difference
between their foundation allowance and the revenues generated by their local
property tax levy. Local school districts would also be entitled to levy
supplemental property taxes to generate additional revenue if their foundation
allowance is less than their historical per pupil
C-2
<PAGE>
expenditures. Proposal A and its implementing legislation also provides for the
levy of a limited number of enhancement mills on regional and local school
district bases.
Proposal A shifted significant portions of the cost of local school
operations from local school districts to the State and raised additional State
revenues to fund these additional State expenses. These additional revenues will
be included within the State's constitutional revenue limitations and may impact
the State's ability to raise additional revenues in the future.
YEAR 2000 COMPLIANCE. On October 1, 1997, the State created the Year 2000
Project office to provide guidance, coordinate oversight for applications
software, manage Year 2000 funds, provide monitoring support, quality assurance
and other matters. The State's goal is to have all critical applications
operable by December 31, 1998 and all other applications operable by September
30, 1999. The State is currently on schedule to meet its objectives for Year
2000 compliance. The State currently believes that it will continue to meet the
objectives and time frames set forth for the Year 2000 Project. There can,
however, be no assurance that such completion will be done in a timely manner.
MICHIGAN TAXABLE ESTIMATED CURRENT RETURN TABLE
The following tables show the approximate taxable estimated current returns
for individuals that are equivalent to tax-exempt estimated current returns
under combined Federal and state taxes, using published 1998 marginal Federal
tax rates and marginal state tax rates currently available and scheduled to be
in effect. The tables incorporate increased tax rates for higher-income
taxpayers that were included in the Revenue Reconciliation Act of 1993. The
combined state and Federal tax brackets shown reflect the fact that state tax
payments are currently deductible for Federal tax purposes. The tables do not
reflect any local taxes or any taxes other than personal income taxes. The
tables illustrate what you would have to earn on taxable investments to equal
the tax-exempt estimated current return for your income tax bracket. A
taxpayer's marginal tax rate is affected by both his taxable income and his
adjusted gross income. Locate your adjusted gross and your taxable income (which
is your adjusted gross income reduced by any deductions and exemptions), then
locate your tax bracket based on joint or single tax filing. Read across to the
equivalent taxable estimated current return you would need to match the tax-free
income.
C-3
<PAGE>
COMBINED MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 42.35 $ 0-124.50 18.5 % 4.91 5.21 5.52 5.83 6.13 6.44 6.75 7.06
42.35-102.30 0-124.50 31.0 5.80 6.16 6.52 6.88 7.25 7.61 7.97 8.33
124.50-186.80 32.0 5.88 6.25 6.62 6.99 7.35 7.72 8.09 8.46
102.30-155.95 0-124.50 34.0 6.06 6.44 6.82 7.20 7.58 7.95 8.33 8.71
124.50-186.80 35.0 6.15 6.54 6.92 7.31 7.69 8.08 8.46 8.85
186.80-309.30 37.5 6.40 6.80 7.20 7.60 8.00 8.40 8.80 9.20
155.95-278.45 124.50-186.80 40.0 6.67 7.08 7.50 7.92 8.33 8.75 9.17 9.58
186.80-309.30 43.0 7.02 7.46 7.89 8.33 8.77 9.21 9.65 10.09
Over 309.30 40.0 2 6.67 7.08 7.50 7.92 8.33 8.75 9.17 9.58
Over 278.45 186.80-309.30 46.5 7.48 7.94 8.41 8.88 9.35 9.81 10.28 10.75
Over 309.30 43.5 3 7.08 7.52 7.96 8.41 8.85 9.29 9.73 10.18
</TABLE>
COMBINED MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25.35 $ 0-124.50 18.5 % 4.91 5.21 5.52 5.83 6.13 6.44 6.75 7.06
25.35- 61.40 0-124.50 31.0 5.80 6.16 6.52 6.88 7.25 7.61 7.97 8.33
61.40-128.10 0-124.50 34.0 6.06 6.44 6.82 7.20 7.58 7.95 8.33 8.71
124.50-247.00 35.5 6.20 6.59 6.98 7.36 7.75 8.14 8.53 8.91
128.10-278.45 124.50-247.00 40.5 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
Over 247.00 40.0 2 6.67 7.08 7.50 7.92 8.33 8.75 9.17 9.58
Over 278.45 Over 247.00 43.5 3 7.08 7.52 7.96 8.41 8.85 9.29 9.73 10.18
</TABLE>
- ------------------
1 The table reflects the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed to phase out
certain benefits of these deductions for higher income taxpayers. These
limitations, in effect, raise the current maximum marginal combined Federal and
state tax rate to approximately 46.66 percent for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately 43.40
percent for taxpayers filing a single return entitled to only one personal
exemption. These limitations are subject to certain maximums, which depend on
the number of exemptions claimed and the total amount of the taxpayer's itemized
deductions. For example, the limitation on itemized deductions will not cause a
taxpayer to lose more than 80% of his allowable itemized deductions, with
certain exceptions.
2 Combined Federal and state tax rate reverts to 38.82% after the 80% cap on
the limitation on itemized deductions has been met.
3 Combined Federal and state tax rate reverts to 42.26% after the 80% cap on
the limitation on itemized deductions has been met.
C-4
<PAGE>
APPENDIX D
PENNSYLVANIA DISCLOSURE
ECONOMIC FACTORS--PENNSYLVANIA
RISK FACTORS--Prospective investors should consider the financial
difficulties and pressures that the Commonwealth of Pennsylvania (the
"Commonwealth" or "Pennsylvania") and certain of its municipal subdivisions have
undergone. Both the Commonwealth and the City of Philadelphia have historically
experienced significant revenue shortfalls. There can be no assurance that the
Commonwealth will not experience further declines in economic conditions or that
portions of the municipal obligations purchased by the Fund will not be affected
by such declines. Without intending to be complete, the following briefly
summarizes some of these difficulties and the current financial situation, as
well as some of the complex factors affecting the financial situation in the
Commonwealth. It is derived from sources that are generally available to
investors and is based in part on information obtained from various agencies in
the Commonwealth. No independent verification has been made of the following
information.
STATE ECONOMY--The Commonwealth of Pennsylvania is one of the most populous
states, ranking fifth behind California, New York, Texas and Florida.
Pennsylvania is an established yet growing state with a diversified economy. It
is the headquarters for over 50 major corporations. Pennsylvania had been
historically identified as a heavy-industry state. That reputation has changed
over the last thirty years as the coal, steel and railroad industries declined
and the Commonwealth's business environment readjusted to reflect a more
diversified industrial base. This economic readjustment was a result of a
long-term shift in jobs, investment and workers away from the northeast part of
the nation. Currently, the major sources of growth in Pennsylvania are in the
service sector, including trade, medical and the health services, education and
financial institutions.
Pennsylvania's agricultural industries remain an important component of the
Commonwealth's economic structure, accounting for more than $3.6 billion in crop
and livestock products annually. Agribusiness and food-related industries
support $39 billion in economic activity annually. Over 51,000 farms form the
backbone of the State's agricultural economy. Farmland in Pennsylvania includes
over four million acres of harvested cropland and four million acres of pasture
and farm woodlands -- nearly one-third of the Commonwealth's total land area.
Agricultural diversity in the Commonwealth is demonstrated by the fact that
Pennsylvania ranks among the top ten states in the production of a number of
agricultural products.
Non-agricultural employment in Pennsylvania over the ten years ending in
1996 increased at an annual rate of 1.03 percent. This rate compares to a 0.41
percent rate for the middle atlantic region and a 1.8 percent rate for the
United States during the period from 1986 through 1996. For the last three
years, employment in the Commonwealth has increased 3.6 percent. The growth in
employment experienced in Pennsylvania during this period is higher than the 3.0
percent growth in the middle atlantic region.
Non-manufacturing employment in Pennsylvania has increased in recent years
to 82.5 percent of total employment in 1996. Consequently, manufacturing
employment constitutes a diminished share of total employment within the
Commonwealth. Manufacturing, contributing 17.5 percent of 1996 non-agricultural
employment has fallen behind both the services sector and the trade sector as
the largest single source of employment within the Commonwealth. In 1996, the
services sector accounted for 31.1 percent of all non-agricultural employment
while the trade sector accounted for 22.7 percent.
Pennsylvania's annual average unemployment rate was below the national
average from 1986 until 1990. Slower economic growth caused the unemployment
rate in the Commonwealth to rise to 6.9 percent in 1991 and 7.5 percent in 1992.
The resumption of faster economic growth resulted in a decrease in the
Commonwealth's unemployment rate to 7.1 percent in 1993. In 1994 and 1995,
Pennsylvania's annual average unemployment rate was below the Middle Atlantic
Region's average, but slightly higher than that of the United States. In 1996,
Pennsylvania's annual average unemployment rate was 5.3 percent, whereas the
annual average unemployment rate in the United States was 5.4 percent. For
August 1997, the seasonally adjusted unemployment rate for the Commonwealth was
5.3 percent compared to 4.9 percent for the United States.
STATE BUDGET--The Commonwealth operates under an annual budget that is
formulated and submitted for legislative approval by the Governor each February.
The Pennsylvania Constitution requires that the Governor's budget proposal
consist of three parts: (i) a balanced operating budget setting forth proposed
expenditures and estimated revenues from all sources and, if estimated revenues
and available surplus are less than proposed expenditures, recommending specific
additional sources of revenue sufficient to pay the deficiency; (ii) a capital
budget setting forth proposed expenditures to be financed from the proceeds of
obligations of the Commonwealth or its agencies or from operating funds; and
(iii) a financial plan for not less than the succeeding five fiscal years, that
includes for each year projected operating expenditures and estimated revenues
and projected expenditures for capital projects. The General Assembly may add,
D-1
<PAGE>
change or delete any items in the budget prepared by the Governor, but the
Governor retains veto power over the individual appropriations passed by the
legislature. The Commonwealth's fiscal year begins on July 1 and ends on June
30.
All funds received by the Commonwealth are subject to appropriation in
specific amounts by the General Assembly or by executive authorization by the
Governor. Total appropriations enacted by the General Assembly may not exceed
the ensuing year's estimated revenues, plus (less) the unappropriated fund
balance (deficit) of the preceding year, except for constitutionally authorized
debt service payments. Appropriations from the principal operating funds of the
Commonwealth (the General Fund, the Motor License Fund and the State Lottery
Fund) are generally made for one fiscal year and are returned to the
unappropriated surplus of the fund if not spent or encumbered by the end of the
fiscal year. The Constitution specifies that a surplus of operating funds at the
end of a fiscal year must be appropriated for the ensuing year.
Pennsylvania uses the "fund" method of accounting. For purposes of
government accounting, a "fund" is an independent fiscal and accounting entity
with a self-balancing set of accounts, recording cash and/or other resources
together with all related liabilities and equities that are segregated for the
purpose of carrying on specific activities or attaining certain objectives in
accordance with the fund's special regulations, restrictions or limitations. In
the Commonwealth, funds are established by legislative enactment or in certain
cases by administrative action. Over 150 funds have been established for the
purpose of recording the receipt and disbursement of moneys received by the
Commonwealth. Annual budgets are adopted each fiscal year for the principal
operating funds of the Commonwealth and several other special revenue funds.
Expenditures and encumbrances against these funds may only be made pursuant to
appropriation measures enacted by the General Assembly and approved by the
Governor. The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund. Debt
service on all bond indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
Financial information for the principal operating funds of the Commonwealth
are maintained on a budgetary basis of accounting, which is used for the purpose
of ensuring compliance with the enacted operating budget. Since 1984, the
Commonwealth has also prepared annual financial statements in accordance with
generally accepted accounting principles ("GAAP"). Budgetary basis financial
reports are based on a modified cash basis of accounting as opposed to a
modified accrual basis of accounting prescribed by GAAP. The budgetary basis
financial information is adjusted at fiscal year-end to reflect appropriate
accruals for financial reporting in conformity with GAAP.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.-- The fiscal years 1992
through 1996 were years of recovery for Pennsylvania from the recession in 1990
and 1991. The recovery fiscal years were characterized by modest economic growth
and low inflation rates in the Commonwealth. These economic conditions, combined
with several years of tax reductions following the various tax rate increases
and tax base expansions enacted in fiscal 1991 for the General Fund, produced
modest increases in Pennsylvania's tax revenues during the period. Tax revenues
from fiscal 1992 through fiscal 1996 rose at an annual average rate of 2.8
percent. Total revenues and other income sources increased during this period by
an average annual rate of 3.3 percent. Expenditures and other uses during the
fiscal 1992 through fiscal 1996 period rose at a 4.4 percent annual rate, led by
annual average increases of 14.2 percent for protection of persons and property
program costs and 11.4 percent for capital outlay costs. Expenditure reductions
for fiscal 1996 from the previous fiscal year for operating transfers out and
for conservation of natural resources program costs were the result of
accounting changes affecting the General Fund and the Motor License Fund and a
recategorization of expenditures due to a departmental restructuring in the
General Fund. At the close of fiscal 1996, the fund balance for the governmental
fund types totaled $1,986.3 million, an increase of $58.7 million over fiscal
1995 and $758.5 million over fiscal 1992.
FINANCIAL RESULTS FOR RECENT FISCAL YEARS (GAAP BASIS).--The five-year
period from fiscal 1992 through fiscal 1996 recorded a 4.6 percent average
annual increase in revenues and other sources, led by an average annual increase
of 13.2 percent for intergovernmental revenues. The increase for
intergovernmental revenues in fiscal 1996 is partly due to an accounting change.
Tax revenues during the five-year period increased an average of 2.5 percent as
modest economic growth, low inflation rates and several tax rate reductions and
other tax reduction measures constrained the growth of tax revenues. The tax
reduction measures followed a $2.7 billion tax increase measure adopted for the
1992 fiscal year.
Expenditures and other uses during the fiscal 1992 through fiscal 1996
period rose at an average annual rate of 6.0 percent led by increases of 14.2
percent for protection of persons and property program costs. The costs of a
prison expansion program and other correctional program expenses are responsible
for the large percentage increase. A reduction in debt service costs at an
average annual rate of 29.1 percent over the five-year period is a result of
reduced short-term borrowing for cash flow purposes. Improved financial results
and structural cash flow modifications contributed to the lower borrowing.
Efforts to control costs for various social welfare programs and the presence of
favorable
D-2
<PAGE>
economic conditions have led to a modest 5.6 percent increase for public health
and welfare costs for the five year period.
The fund balance at June 30, 1996 totaled $635.2 million, a $547.7 million
increase from a balance of $87.5 million at June 30, 1992 and a slight decrease
from the June 30, 1995 balance.
FISCAL 1995 FINANCIAL RESULTS (BUDGETARY BASIS).--Commonwealth revenues for
the 1995 fiscal year were above estimate and exceeded fiscal year expenditures
and encumbrances. Fiscal 1995 was the fourth consecutive fiscal year the
Commonwealth reported an increase in the fiscal year-end unappropriated balance.
Prior to reserves for transfer to the Tax Stabilization Reserve Fund, the fiscal
1995 closing unappropriated surplus was $540.0 million, an increase of $204.2
million over the fiscal 1994 closing unappropriated surplus prior to transfers.
Commonwealth revenues during the 1995 fiscal year were $459.4 million, 2.9
percent, above the estimate of revenues used at the time the 1995 fiscal year
budget was enacted. Corporation taxes contributed $329.4 million of the
additional receipts largely due to higher receipts from the corporate net income
tax. Fiscal 1995 revenues from the corporate net income tax were 22.6 percent
over collections in fiscal 1994 and include the effects of the reduction of the
tax rate from 12.25 percent to 11.99 percent that became effective with tax
years beginning on and after January 1, 1994. The sales and use tax and
miscellaneous revenues also showed strong year-over-year growth that produced
above-estimate revenue collections. Sales and use tax revenues were $5,526.9
million, $128.8 million above the enacted budget estimate and 7.9 percent over
fiscal 1994 collections. Tax receipts from both motor vehicle and non-motor
vehicle sales contributed to the higher collections. Miscellaneous revenue
collections for fiscal 1995 were $183.5 million, $44.9 million above estimate
and were largely due to additional investment earnings, escheat revenues and
other miscellaneous revenues.
FISCAL 1996 FINANCIAL RESULTS (BUDGETARY BASIS).--The unappropriated surplus
for Commonwealth revenues (prior to transfers to Tax Stabilization Reserve Fund)
at the close of the fiscal year for the General Fund was $183.8 million, $65.5
million above estimate. Expenditures from Commonwealth revenues for the fiscal
year, including $113.0 million of supplemental appropriations but excluding
pooled financing expenditures, totaled $16,074.7 million. Expenditures exceeded
available revenues and lapses by $253.2 million. The difference was funded from
a planned partial drawdown of the $437.0 million fiscal year adjusted beginning
unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for the 1996 fiscal year
increased by $113.9 million over the prior fiscal year to $16,338.5 million
representing a growth rate of 0.7 percent. Tax rate reductions and other tax law
changes substantially reduced the amount and rate of revenue growth for the
fiscal year. The Commonwealth has estimated that tax changes enacted for the
1996 fiscal year reduced Commonwealth revenues by $283.4 million representing
1.7 percentage points of fiscal 1996 growth in Commonwealth revenues. The most
significant tax changes enacted for the 1996 fiscal year were (i) the reduction
of the corporate net income tax rate to 9.99 percent; (ii) double weighing of
the sales factor of the corporate net income apportionment calculation; (iii) an
increase in the maximum annual allowance for a net operating loss deduction from
$0.5 million to $1.0 million; (iv) an increase in the basic exemption amount for
the capital stock and franchise tax; (v) the repeal of the tax on annuities; and
(vi) the elimination of inheritance tax on transfers of certain property to
surviving spouses.
Among the major sources of Commonwealth revenues for the 1996 fiscal year,
corporate tax receipts declined $338.4 million from receipts in the prior fiscal
year, largely due to the various tax changes enacted for these taxes. Corporate
tax changes were enacted to reduce the cost of doing business in Pennsylvania
for the purpose of encouraging business to remain in Pennsylvania and to expand
employment opportunities within the state. Sales and use tax receipts for the
fiscal year increased $155.5 million, or 2.8 percent, over receipts during
fiscal 1995. All of the increase was produced by the non-motor vehicle portion
of the tax as receipts from the sale of motor vehicles declined slightly for
fiscal 1996. Personal income tax receipts for the fiscal year increased $291.1
million, or 5.7 percent, over receipts during fiscal 1995. Personal income tax
receipts were aided by a 10.2 percent increase in nonwithholding tax payments
which generally are comprised of quarterly estimated and annual final return tax
payments. Non-tax receipts for the fiscal year increased $23.7 million for the
fiscal year. Included in that increase was $67 million in net receipts from a
tax amnesty program that was available for a portion of the 1996 fiscal year.
FISCAL 1997 FINANCIAL RESULTS (BUDGETARY BASIS).--The unappropriated balance
of Commonwealth revenues increased during the 1997 fiscal year by $432.9
million. Higher than estimated revenues and slightly lower expenditures than
budgeted caused the increase. The unappropriated balance rose from an adjusted
amount of $158.5 million at the beginning of fiscal 1997, to $591.4 million
(prior to reserves for transfer to the Tax Stabilization Reserve Fund) at the
close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund for
fiscal 1997 operations are expected to be $88.7 million, which represents the
normal fifteen percent of the ending unappropriated balance, plus an additional
$100 million authorized by the General Assembly when it enacted the fiscal 1998
budget.
D-3
<PAGE>
Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$17,320.6 million, $576.1 (3.4 percent) above the estimate made at the time the
budget was enacted. Revenue from taxes was the largest contributor to higher
than estimated receipts. Tax revenue in fiscal 1997 grew 6.1 percent over tax
revenues in fiscal 1996. This rate of increase was not adjusted for legislated
tax reductions that affected receipts during both of those fiscal years and
therefore understates the actual underlying rate of growth of tax revenue during
fiscal 1997. Receipts from the personal income tax produced the largest single
component of higher revenues for the fiscal year. Personal income collections
were $236.3 million over estimate representing a 6.9 percent increase over
fiscal 1996 receipts. Receipts of the sales and use tax were $185.6 million over
estimate representing a 6.2 percent increase. Collections of corporate taxes,
led by the capital stock and franchise and the gross receipt taxes, also
exceeded their estimates for the fiscal year. Non-tax revenues were $19.8
million (5.8 percent) over estimate mostly due to higher than anticipated
interest earnings.
Expenditures from Commonwealth revenues (excluding pooled financing
expenditures) during fiscal 1997 totaled $16,347.7 million and were close to the
estimate made in February 1997 with the presentation of the Governor's fiscal
1998 budget request. Total expenditures represent an increase over fiscal 1996
expenditures of 1.7 percent.
FISCAL 1998 BUDGET--The budget for fiscal 1998 was enacted in May 1997.
Commonwealth revenues for the fiscal year at that time were estimated to be
$17,435.4 million before reserves for tax refunds. That estimate represented an
increase over estimated fiscal 1997 Commonwealth revenues of 1.0 percent.
Although fiscal 1997 revenues exceeded the fiscal 1997 budget estimate, the
adopted fiscal 1998 budget revenue estimate remains unchanged and represents a
0.7 percent increase over actual fiscal 1997 revenues. Fiscal 1998 estimates for
Commonwealth revenues are based on an economic forecast for national economic
growth to slow through the remainder of calendar year 1997. A growth rate of
just above 1.0 percent is anticipated by the Commonwealth to be maintained for
the last two quarters of the 1998 fiscal year and result in a 1.2 percent growth
rate in real gross domestic product for the second calendar quarter of 1998 over
the second quarter of 1997. This anticipated rate of economic growth is a result
of anticipated slowing of gains in consumer spending, business investment and
residential housing. Inflation is projected to remain modest and the
unemployment rate is expected to reach 6.0 percent by the second calendar
quarter of 1998.
The rate of anticipated growth of Commonwealth revenues is also affected by
the enactment of tax reductions and tax revenue dedications effective for the
1998 fiscal year. Excluding these newly enacted changes, revenues are projected
to increase by 2.4 percent during fiscal 1998. Tax reductions enacted for the
1998 fiscal year budget totaled an estimated $170.6 million, including $16.2
million that is reflected in higher projected tax refunds. In addition, $75
million of existing sales tax revenue has been earmarked for mass transit
funding and one cent of the cigarette tax ($10.8 million) has been earmarked for
a children's health program and are no longer included in the General Fund.
Major changes to taxes enacted for fiscal 1998 include: (i) the repeal of the
sales and use tax on computer services ($79.1 million); (ii) an increase in the
amount of income that is exempt from the personal income tax for low-income
families ($25.4 million); (iii) enactment of a research and development tax
credit program for business ($15.0 million); (iv) conforming state tax laws to
federal laws for sub-chapter S and limited liability companies ($16.3 million);
and various other miscellaneous changes. Most changes are effective beginning in
July 1997 although some are effective retroactively to January 1997.
Appropriations enacted for fiscal 1998 are 3.7 percent ($618 million) above
appropriations enacted for fiscal 1997 (including supplemental appropriations).
Major funding increases provided by the fiscal 1998 budget include: (i) $166
million of appropriations for elementary and secondary education plus an
estimated $51 million in reduced employer retirement contributions payable by
local school districts due to a reduction in the contribution rate; (ii) $42
million for higher education institutions plus $16 million for student
scholarships; (iii) $70 million for higher caseload, utilization, and cost of
nursing home care; (iv) $60 million for economic development assistance through
programs providing incentive grants and loans; and (v) $38 million for
corrections including $17 million for operating costs for new and expanded
facilities. The balance of the increase is spread over many other departments
and program operations.
Based on current expectations and the adopted budget for fiscal 1998 and
excluding any estimate for appropriation lapses during the fiscal year, the
unappropriated surplus is projected to decline from $402.7 million at the
beginning of the fiscal year to $16.7 million at fiscal year-end (prior to
transfer to the Tax Stabilization Reserve Fund).
DEBT LIMITS AND OUTSTANDING DEBT.--The Pennsylvania Constitution permits the
issuance of the following types of debt: (i) debt to suppress insurrection or
rehabilitate areas affected by disaster; (ii) electorate approved debt; (iii)
debt for capital projects subject to an aggregate outstanding debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years; and
(iv) tax anticipation notes payable in the fiscal year of issuance.
Under the Pennsylvania Fiscal Code, the Auditor General is required to
certify to the Governor and the General Assembly certain information regarding
the Commonwealth's indebtedness. According to the August 29, 1997 Auditor
General certificate, the average annual tax revenues deposited in all funds in
the five fiscal years ended June 30, 1997 was approximately $19.6 billion,
outstanding net debt totaled $3.7 billion at August 31, 1997, and therefore, the
net debt limitation for the 1997 fiscal year is $30.6 billion. At August 29,
1997, the amount of debt authorized by law to be issued, but not yet incurred,
was $17.1 billion.
D-4
<PAGE>
Outstanding general obligation debt totaled $4,795.1 million at June 30,
1997, a decrease of $261.0 million from June 30, 1996. Over the ten-year period
ending June 30, 1997, total outstanding general obligation debt increased at an
annual rate of 0.5 percent. Within the most recent five-year period, outstanding
general obligation debt has decreased at an annual rate of 0.3 percent.
DEBT RATINGS.--All outstanding general obligation bonds of the Commonwealth
are rated AA- by Standard & Poor's Corporation, Aa3 by Moody's Investors Service
and AA by Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.).
CITY OF PHILADELPHIA.--The City of Philadelphia (the "City" or
"Philadelphia") is the largest city in the Commonwealth, with an estimated
population of 1,585,577 according to the 1990 Census. Philadelphia experienced a
series of general fund deficits for fiscal years 1988 through 1992 which
culminated in serious financial difficulties for the City. In its 1992
Comprehensive Annual Financial Report, Philadelphia reported a cumulative
general fund deficit of $71.4 million for fiscal year 1992.
In June 1991, the Pennsylvania legislature established the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), a five-member board to assist
Philadelphia in remedying fiscal emergencies. PICA is designed to provide
assistance through the issuance of funding debt and to make factual findings and
recommendations to Philadelphia concerning its budgetary and fiscal affairs. The
legislation empowered PICA to issue notes and bonds on behalf of Philadelphia,
and also authorized Philadelphia to levy a one-percent sales tax the proceeds of
which would be used to pay off the bonds. In return for PICA's fiscal
assistance, Philadelphia is required, among other things, to establish five-year
financial plans that include balanced annual budgets. Under the legislation, if
Philadelphia does not comply with such requirements, PICA may withhold bond
revenues and certain state funding. At this time, the City is operating under a
five-year fiscal plan approved by PICA on May 20, 1997. As of September 25,
1997, PICA has issued approximately $1,761.7 million of its Special Tax Revenue
Bonds. The financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the liquidation of the
City's Cumulative General Fund balance deficit as of June 30, 1992 of $224.9
million.
No further PICA bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales expired on
December 31, 1994. PICA's authority to issue debt for the purpose of financing a
cash flow deficit expired on December 31, 1996. Its ability to refund existing
outstanding debt is unrestricted. PICA had $1,102.4 million in Special Tax
Revenue Bonds outstanding as of June 30, 1997.
The audited General fund balance of the City as of June 30, 1994, 1995 and
1996 showed a surplus of approximately $15.4 million, $80.5 million and $118.5
million, respectively.
S&P's rating on Philadelphia's general obligation bonds is "BBB." Moody's
rating is currently "Baa."
LITIGATION.--The Commonwealth is a party to numerous lawsuits in which an
adverse final decision could materially affect the Commonwealth's governmental
operations and consequently its ability to pay debt service on its obligations.
The Commonwealth also faces tort claims made possible by the limited waiver of
sovereign immunity effected by Act 152, approved September 28, 1978, as amended.
Under the Act, damages for any loss are limited to $250,000 per person and $1
million for each accident.
PENNSYLVANIA TAXABLE ESTIMATED CURRENT RETURN TABLE
The following tables show the approximate taxable estimated current returns
for individuals that are equivalent to tax-exempt estimated current returns
under combined Federal and state taxes, using published 1998 marginal Federal
tax rates and marginal state tax rates currently available and scheduled to be
in effect. The tables incorporate increased tax rates for higher-income
taxpayers that were included in the Revenue Reconciliation Act of 1993. The
combined state and Federal tax brackets shown reflect the fact that state tax
payments are currently deductible for Federal tax purposes. The table does not
reflect any local taxes or any taxes other than personal income taxes. The
tables illustrate what you would have to earn on taxable investments to equal
the tax-exempt estimated current return for your income tax bracket. A
taxpayer's marginal tax rate is affected by both his taxable income and his
adjusted gross income. Locate your adjusted gross and your taxable income (which
is your adjusted gross income reduced by any deductions and exemptions), then
locate your tax bracket based on joint or single tax filing. Read across to the
equivalent taxable estimated current return you would need to match the tax-free
income.
D-5
<PAGE>
COMBINED MARGINAL TAX RATES FOR JOINT TAXPAYERS WITH FOUR PERSONAL EXEMPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 42.35 $ 0-124.50 17.5 % 4.85 5.15 5.45 5.76 6.06 6.36 6.67 6.97
42.35-102.30 0-124.50 30.0 5.71 6.07 6.43 6.79 7.14 7.50 7.86 8.21
124.50-186.80 31.0 5.80 6.16 6.52 6.88 7.25 7.61 7.97 8.33
102.30-155.95 0-124.50 33.0 5.97 6.34 6.72 7.09 7.46 7.84 8.21 8.58
124.50-186.80 34.0 6.06 6.44 6.82 7.20 7.58 7.95 8.33 8.71
186.80-309.30 36.5 6.30 6.69 7.09 7.48 7.87 8.27 8.66 9.06
155.95-278.45 124.50-186.80 39.0 6.56 6.97 7.38 7.79 8.20 8.61 9.02 9.43
186.80-309.30 42.0 6.90 7.33 7.76 8.19 8.62 9.05 9.48 9.91
Over 309.30 39.0 2 6.56 6.97 7.38 7.79 8.20 8.61 9.02 9.43
Over 278.45 186.80-309.30 46.0 7.41 7.87 8.33 8.80 9.26 9.72 10.19 10.65
Over 309.30 42.5 3 6.96 7.39 7.83 8.26 8.70 9.13 9.57 10.00
</TABLE>
COMBINED MARGINAL TAX RATES FOR SINGLE TAXPAYERS WITH ONE PERSONAL EXEMPTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL
FEDERAL ADJUSTED COMBINED
TAXABLE GROSS STATE AND TAX-FREE ESTIMATED CURRENT RETURN
INCOME INCOME FEDERAL --------------------------------------------------------------
(1,000'S) (1,000'S) TAX RATE1 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75%
------------- ------------- ----------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25.35 $ 0-124.50 17.5 4.85 5.15 5.45 5.76 6.06 6.36 6.67 6.97
25.35- 61.40 0-124.50 30.0 5.71 6.07 6.43 6.79 7.14 7.50 7.86 8.21
61.40-128.10 0-124.50 33.0 5.97 6.34 6.72 7.09 7.46 7.84 8.21 8.58
124.50-247.00 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
128.10-278.45 124.50-247.00 39.5 6.61 7.02 7.44 7.85 8.26 8.68 9.09 9.50
Over 247.00 39.0 2 6.56 6.97 7.38 7.79 8.20 8.61 9.02 9.43
Over 278.45 Over 247.00 42.5 3 6.96 7.39 7.83 8.26 8.70 9.13 9.57 10.00
</TABLE>
- ------------------
1 The table reflects the effect of the limitations on itemized deductions
and the deduction for personal exemptions. They were designed to phase out
certain benefits of these deductions for higher income taxpayers. These
limitations, in effect, raise the current maximum marginal combined tax rate to
approximately 45.77 percent for taxpayers filing a joint return and entitled to
four personal exemptions and to approximately 42.45 percent for taxpayers filing
a single return entitled to only one personal exemption. These limitations are
subject to certain maximums, which depend on the number of exemptions claimed
and the total amount of the taxpayer's itemized deductions. For example, the
limitation on itemized deductions will not cause a taxpayer to lose more than
80% of his allowable itemized deductions, with certain exceptions.
2 Marginal combined tax rate reverts to 37.79% after the 80% cap on the
limitation on itemized deductions has been met.
3 Marginal combined tax rate reverts to 41.29% after the 80% cap on the
limitation on itemized deductions has been met.
D-6
<PAGE>
STATEMENT OF DIFFERENCES BETWEEN ELECTRONIC FILING AND PRINTED DOCUMENT.
Pursuant to Rule 499(c) (7) under the Securities Act of 1933, Registrant
hereby identifies those differences in the foregoing document between the
electronic format in which it is filed and the printed form in which it will be
circulated:
(1) The printed and distributed prospectus may be paged differently because
the printed document may contain a different amount of information on each page
from that contained in the electronic transmission.
(2) In the printed document, footnote symbols may include a "dagger" or
multiple "dagger". The "dagger" symbol is represented as # in the electronic
document.
(3) The printed and distributed prospectus will not contain the preliminary
prospectus legend included at the beginning of the first prospectus page.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
A. BONDING ARRANGEMENTS OF DEPOSITOR:
The Depositor has obtained the following Stockbrokers Blanket Bonds for its
officers, directors and employees:
<TABLE>
<S> <C>
INSURER/POLICY NO. AMOUNT
Reliance Insurance Company $26,000,000
B 262 6895
</TABLE>
B. THIS AMENDMENT OF REGISTRATION STATEMENT COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet
The cross-reference sheet
The Prospectus
The signatures
Consents of Independent Public
Accountants and Counsel as indicated
Exhibits as listed on page S-5
C. EXPLANATORY NOTE:
This Amendment No. 1 to the Registration Statement may contain multiple
separate prospectuses. Each prospectus will relate to an individual unit
investment trust and will consist of a Part A, a Part B and an Information
Supplement. Each prospectus will be identical with the exception of the
respective Part A which will contain the financial information specific to such
underlying unit investment trust.
D. UNDERTAKINGS:
1. With the exception of the information included in the state specific
appendices to the Information Supplement, which will vary depending upon the
make-up of a Fund or updated to reflect current events, any amendment to a
Fund's Information Supplement will be subject to the review of the staff of the
Securities and Exchange Commission prior to distribution; and
2. The Information Supplement to the Trust will not include third party
financial information.
S-1
<PAGE>
SIGNATURES
The Registrant, Nuveen Tax-Free Unit Trust, Series 1020 hereby identifies
Series 401, 507, 512, 515, 517, 519, 723, 814 and 823 of the Nuveen Tax-Exempt
Unit Trust (the former name of the Nuveen Tax-Free Unit Trust) for purposes of
the representations required by Rule 487 and represents the following:
(1) that the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not differ
materially in type or quality from those deposited in such previous series;
(2) that, except to the extent necessary to identify the specific portfolio
securities deposited in, and to provide essential financial information for, the
series with respect to the securities of which this Registration Statement is
being filed, this Registration Statement does not contain disclosures that
differ in any material respect from those contained in the registration
statements for such previous series as to which the effective date was
determined by the Commission or the staff; and
(3) that it has complied with Rule 460 under the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Nuveen Tax-Free Unit Trust, Series 1020 has duly caused this Amendment of
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of Chicago and State of Illinois on August 14, 1998.
NUVEEN TAX-FREE UNIT TRUST, SERIES
1020
(Registrant)
By JOHN NUVEEN & CO. INCORPORATED
(Depositor)
By: Thomas C. Muntz
--------------------------------------
Vice President
Attest: Karen L. Healy
--------------------------------------
Assistant Secretary
S-2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
of Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE* DATE
<S> <C> <C> <C>
Timothy T. Schwertfeger Chairman, Board of Directors )
Chief Executive Officer and )
Director )
)
Anthony T. Dean President, Chief Operating )
Officer and Director ) Larry Woods Martin
) Attorney-In-Fact**
)
John P. Amboian Chief Financial Officer and ) August 14, 1998
Executive Vice President )
)
)
Margaret E. Wilson Vice President and Controller
)
)
)
)
</TABLE>
- --------------
* The titles of the persons named herein represent their capacity in and
relationship to John Nuveen & Co. Incorporated, the Depositor.
** The powers of attorney for Messrs. Amboian, Dean and Schwertfeger were filed
as Exhibit 6 to form N-8b-2 (File No. 811-08103) and for Ms. Wilson as Exhibit
6.2 to Nuveen Unit Trusts, Series 12 (File No. 333-49197).
S-3
<PAGE>
1020
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The consent of Arthur Andersen LLP to the use of its name in the Prospectus
included in the Registration Statement is filed by this amendment as Exhibit 4.4
to the Registration Statement.
CONSENT OF CHAPMAN AND CUTLER
The consent of Chapman and Cutler to the use of its name in the Prospectus
included in the Registration Statement is contained in its opinions filed by
this amendment as Exhibits 3.1 and 3.2 to the Registration Statement.
CONSENT OF STATE COUNSEL
The consents of special counsel to the Fund for state tax matters to the use
of their names in the Prospectus included in the Registration Statement are
contained in their opinions filed by this amendment as Exhibit 3.3 to the
Registration Statement.
CONSENT OF STANDARD & POOR'S,
A DIVISION OF THE MCGRAW-HILL COMPANIES
The consent of Standard & Poor's, a Division of The McGraw-Hill Companies,
to the use of its name in the Prospectus included in the Registration Statement
is filed by this amendment as Exhibit 4.1 to the Registration Statement.
CONSENT OF KENNY S&P EVALUATION SERVICES
The consent of Kenny S&P Evaluation Services to the use of its name in the
Prospectus included in the Registration Statement is filed by this amendment as
Exhibit 4.2 to the Registration Statement.
CONSENT OF CARTER, LEDYARD & MILBURN
The consent of Carter, Ledyard & Milburn to the use of its name in the
Prospectus included in the Registration Statement is filed by this amendment as
Exhibit 4.3 to the Registration Statement.
S-4
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
1.1(a) Copy of Standard Terms and Conditions of Trust between John Nuveen & Co. Incorporated,
Depositor, and The Chase Manhattan Bank, Trustee (as Exibit 1.1 (a) to the Sponsor's
Registration Statement on Form S-6 relating to Series 823 of the Fund (file No.
33-62325) and incorporated herein by reference).
1.1(b) Trust Indenture and Agreement.
2.1 Copy of Certificate of Ownership (Included in Exhibit 1.1(a) on pages 2 to 8,
inclusive, and incorporated herein by reference).
3.1 Opinion of counsel as to legality of securities being registered.
3.2 Opinion of counsel as to Federal income tax status of securities being registered.
3.3 Opinions of special state counsel to the Fund for state tax matters as to income tax
status to residents of the respective states of the units of the respective trusts and
consents to the use of their names in the Prospectus.
4.1 Consent of Standard & Poor's, a Division of The McGraw-Hill Companies.
4.2 Consent of Kenny S&P Evaluation Services.
4.3 Consent of Carter, Ledyard & Milburn.
4.4 Consent of Arthur Andersen LLP
6.1 List of Directors and Officers of Depositor and other related information (incorporated
by reference to Form S-6 [File No. 33-62325] filed on September 7, 1995 on behalf of
Nuveen Tax-Free Unit Trust, Series 823).
</TABLE>
S-5
<PAGE>
EXHIBIT 1.1(B)
NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
TRUST INDENTURE AND AGREEMENT
DATED AUGUST 14, 1998
This Trust Indenture and Agreement by and between John Nuveen & Co.
Incorporated, as Depositor and The Chase Manhattan Bank, as Trustee, sets forth
certain provisions in full and incorporates other provisions by reference to the
document entitled "Standard Terms and Conditions of Trust for Nuveen Tax-Free
Unit Trust, Series 823 and subsequent Series, effective September 7, 1995"
(herein called the "Standard Terms and Conditions of Trust"), and such
provisions as are set forth in full and such provisions as are incorporated by
reference constitute a single instrument. All references herein to Articles and
Sections are to Articles and Sections of the Standard Terms and Conditions of
Trust.
WITNESSETH THAT:
In consideration of the promises and of the mutual agreements herein
contained, the Depositor and the Trustee, agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the provisions contained in
the Standard Terms and Conditions of Trust are herein incorporated by reference
in their entirety and shall be deemed to be a part of this instrument as fully
and to the same extent as though said provisions had been set forth in full in
this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Section 1.01(1) listed in Schedule A hereto have
been deposited in trust under this Trust Indenture and Agreement.
(b) The fractional undivided interest in and ownership of the Trust Fund
represented by each Unit for a Trust on the Initial Date of Deposit is the
amount set forth under the captions "Essential Information -- Fractional
Undivided Interest in the Trust per Unit" in the Prospectus.
(c) The number of Units created of a Trust are as set forth under the
caption "Essential Information -- Number of Units" in the Prospectus for each
Trust.
(d) Notwithstanding anything to the contrary in the Standard Terms and
Conditions of Trust, the phrase "Nuveen Tax-Exempt Unit Trust" shall be hereby
replaced with the phrase "Nuveen Tax-Free Unit Trust."
<PAGE>
In Witness Whereof, John Nuveen & Co. Incorporated, has caused this Trust
Indenture and Agreement for Nuveen Tax-Free Unit Trust, Series 1020 to be
executed by its President, one of its Vice Presidents or one of its Assistant
Vice Presidents and its corporate seal to be hereto affixed and attested by its
Secretary or its Assistant Secretary and The Chase Manhattan Bank has caused
this Trust Indenture and Agreement to be executed by one of its Vice Presidents
or Second Vice Presidents and its corporate seal to be hereto affixed and
attested to by one of its Assistant Treasurers; all as of the day, month and
year first above written.
John Nuveen & Co. Incorporated,
Depositor
By Anna Kucinskis
Authorized Officer
(Seal)
Attest:
By Karen L. Healy
Assistant Secretary
The Chase Manhattan Bank, Trustee
By Cary Klivan
Vice President
(Seal)
Attest:
By Robert E. Lisk
Assistant Treasurer
SCHEDULE A TO THE TRUST INDENTURE AND AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
(Note: Incorporated herein and made a part hereof is the "Schedule of
Investments" as set forth for each Trust in the Prospectus.)
<PAGE>
EXHIBIT 3.1
(ON CHAPMAN AND CUTLER LETTERHEAD)
August 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
RE: NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
Gentlemen:
We have served as counsel for you, as depositor of Nuveen Tax-Free Unit
Trust, Series 1020 (hereinafter referred to as the "Fund"), in connection with
the issuance under the Trust Indenture and Agreement dated the date hereof
between John Nuveen & Co. Incorporated, as Depositor, and The Chase Manhattan
Bank, as Trustee, of Units of fractional undivided interest in the one or more
Trusts of said Fund (hereinafter referred to as the "Units").
In connection therewith, we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Indenture and Agreement and the
establishment of book entry positions and the execution and issuance of
certificates evidencing the Units in the Trusts of the Fund have been duly
authorized; and
2. The book entry positions and certificates evidencing the Units in the
Trusts of the Fund when duly established or duly executed and delivered by the
Depositor and the Trustee in accordance with the aforementioned Trust Indenture
and Agreement, will constitute valid and binding obligations of such Trusts and
the Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-60569) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
<PAGE>
EXHIBIT 3.2
(ON CHAPMAN AND CUTLER LETTERHEAD)
August 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
RE: Nuveen Tax-Free Unit Trust, Series 1020
Gentlemen:
We have served as counsel for you, as Depositor of Nuveen Tax-Free Unit
Trust, Series 1020 (the "Fund") in connection with the issuance under the Trust
Indenture and Agreement, dated the date hereof between John Nuveen & Co.
Incorporated, as Depositor, and The Chase Manhattan Bank, as Trustee, of Units
of fractional undivided interest (the "Units"), as evidenced by a book entry
position or certificate, if requested by the purchaser of Units, in the one or
more Trusts of said Fund.
We have also served as counsel for you in connection with all previous
Series of the Nuveen Tax-Free Unit Trust and as such have previously examined
such pertinent records and documents and matters of law as we have deemed
necessary, including (but not limited to) the Trust Indenture and Agreements
with respect to those series. We have also examined such pertinent records and
documents and matters of law as we have deemed necessary including (but not
limited to) the Trust Indenture and Agreement relating to Nuveen Tax-Free Unit
Trust, Series 1020.
We have concluded that the Trust Indenture and Agreement for the Fund and
its counterpart in each of the prior issues of Nuveen Tax-Free Unit Trust are in
all material respects substantially identical. For purposes of the following
opinions, it is assumed that each asset of the Trust is debt, the interest on
which is excluded from gross income for federal income tax purposes.
Based upon the foregoing, and upon such matters of law as we consider to be
applicable, we are of the opinion that, under existing federal income law:
(i) Each of the Trusts will not be an association taxable as a corporation
but will be governed by the provisions of Subchapter J (relating to Trusts) of
Chapter 1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share of each
asset of the respective Trust of the Fund in the proportion that the number of
Units of such Trust held by him bears to the total number of outstanding Units
of such Trust. Under Subpart E, Subchapter J of Chapter 1 of the Code, income of
each Trust will be treated as income of each Unitholder of the Trust in the
proportion described, and an item of Trust income will have the same character
in the hands of a Unitholder as it would have in the hands of the Trustee.
Accordingly, to the extent that the income of a Trust consists of interest and
original issue discount excludable from gross income under Section 103 of the
Code, such income will be excludable from Federal gross income of the
Unitholder, except in the case of a Unitholder who is a substantial user (or a
person related to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity bonds held by the
Trust. In the case of such Unitholder who is a substantial user (and no other)
interest received with respect to his Units attributable to such industrial
development bonds or such private activity bonds is includable in his gross
income. To the extent the Trust holds bonds that are "specified private activity
bonds" within the meaning of Section 57(a)(5) of the Code, a Unitholder's pro
rata portion of the income on such Bonds will be included as an item of tax
preference in the computation of the alternative minimum tax applied to all
taxpayers (including non-corporate taxpayers) subject to the alternative minimum
tax. Moreover, in the case of certain corporations, interest on all of the Bonds
is included in computing the alternative minimum tax pursuant to Sections 56(c)
of the Code and the branch profits tax imposed by Section 884 of the Code with
respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon redemption or
sale of his Units. Such gain or loss is measured by comparing the proceeds of
such redemption or sale with the adjusted basis of the Units. If a Bond is
acquired with accrued interest, that portion of the price paid for the accrued
interest is added to the tax basis of the Bond. When this accrued interest is
received, it is treated as a return of capital and reduces the tax basis of the
Bond. If a Bond is purchased for a premium, the amount of the premium is added
to the tax basis of the Bond. Bond premium is amortized over the remaining term
of the Bond, and the tax basis of the Bond is reduced each tax year by the
amount of the premium amortized in that tax year. Accordingly, Unitholders must
reduce the tax basis of their Units for their share of accrued interest received
by the Trust, if any, on Bonds delivered after the Unitholders pay for their
Units to the extent that such interest accrued on such Bonds before the date the
Trust acquired ownership of the Bonds (and the amount of this reduction may
exceed the amount of accrued interest paid to the seller) and, consequently,
such Unitholders may have an increase in taxable gain
<PAGE>
or reduction in capital loss upon the disposition of such Units. Such gain or
loss is measured by comparing the proceeds of such redemption or sale with the
adjusted basis of such Units. In addition, such basis will be increased by both
the Unitholder's aliquot share of the accrued original issue discount (and
market discount, if the Unitholder elects to include market discount in income
as it accrues) with respect to each Bond held by the Trust with respect to which
there was original issue discount at the time the Bond was issued (or which was
purchased with market discount) and reduced by the annual amortization of bond
premium, if any, on Bonds held by the Trust.
(iv) If the Trustee disposes of a Trust asset (whether by sale, payment on
maturity, redemption or otherwise) gain or loss is recognized to the Unitholder
and the amount thereof is measured by comparing the Unitholder's aliquot share
of the total proceeds from the transaction with his basis for his fractional
interest in the asset disposed of. Such basis is ascertained by apportioning the
tax basis for his Units among each of the Trust assets (as of the date on which
his Units were acquired) ratably according to their values as of the valuation
date nearest the date on which he purchased such Units. A Unitholder's basis in
his Units and of his fractional interest in each Trust asset must be reduced by
the amount of his aliquot share of accrued interest received by the Trust, if
any, on Bonds delivered after the Unitholders pay for their Units to the extent
that such interest accrued on the Bonds before the Trust acquired ownership of
the Bonds (and the amount of this reduction may exceed the amount of accrued
interest paid to the seller) must be reduced by the annual amortization of bond
premium, if any, on Bonds held by the Trust; and must be increased by the
Unitholder's share of accrued original issue discount (and market discount, if
the Unitholder elects to include market discount in income as it accrues) with
respect to each Bond which, at the time the Bond was issued, had original issue
discount (or which was purchased with market discount).
(v) In the case of any Bond held by the Trust where the "stated redemption
price at maturity" exceeds the "issue price," such excess shall be original
issue discount. With respect to each Unitholder, upon the purchase of his Units
subsequent to the original issuance of Bonds held by the Trust Section
1272(a)(7) of the Code provides for a reduction in the accrued "daily portion"
of such original issue discount upon the purchase of a Bond subsequent to the
Bond's original issue, under certain circumstances. In the case of any Bond held
by the Trust the interest on which is excludable from gross income under Section
103 of the Code, any original issue discount which accrues with respect thereto
will be treated as interest which is excludable from gross income under Section
103 of the Code.
(vi) In the case of Trusts for which MBIA Insurance Corporation ("MBIA")
insurance with respect to each of the Bonds deposited therein has been obtained
by the Depositor or the issuer or underwriter of the Bonds, we have examined the
form of MBIA's policy or several policies of insurance (the "Policies") which
have been delivered to the Trustee. Assuming issuance of Policies in such form,
in our opinion, any amounts paid under said Policies representing maturing
interest on defaulted Bonds held by the Trustee will be excludable from Federal
gross income if, and to the same extent as, such interest would have been so
excludable if paid in normal course of business by the respective issuer of the
defaulted Bonds, provided that, at the time such policies are purchased, the
amounts paid for such policies are reasonable, customary and consistent with the
reasonable expectation that the issuer of the Bonds, rather than the insurer,
will pay debt service on the Bonds. Paragraph (ii) of this opinion is
accordingly applicable to Policy proceeds representing maturing interest.
(vii) Certain bonds in the portfolio of the Trust have been insured by the
issuers, underwriters, the Sponsor or others against default in the prompt
payment of principal and interest (the "Insured Bonds"). Such Insured Bonds are
so designated on the portfolio pages in the Prospectus for each Trust. Insurance
on Insured Bonds is effective so long as such Bonds remain outstanding. For each
of these Insured Bonds, we have been advised that the aggregate principal amount
of such Bonds listed on the portfolio page was acquired by the Trust and are
part of the series of such Insured Bonds in the listed aggregate principal
amount. Based upon the assumption that the Insured Bonds of the Trust are part
of a series covered by an insurance policy, it is our opinion that any amounts
received by the Trust representing maturing interest on such Insured Bonds will
be excludable from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid in normal course by the Issuer
provided that, at the time such policies are purchased, the amounts paid for
such policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Insured Bonds, rather than the insurer will
pay debt service on the Bonds. Paragraph (ii) of this opinion is accordingly
applicable to such payment representing maturing interest.
Because the Trusts do not include any "private activity bonds" within the
meaning of Section 57(a)(5) of the Code issued on or after August 8, 1986, none
of the Trust Fund's interest income shall be treated as an item of tax
preference when computing the alternative minimum tax. In the case of
corporations, for taxable years beginning after December 31, 1986, the
alternative minimum tax and the Superfund Tax depend upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments.
<PAGE>
Pursuant to Section 56(c) of the Code, one of the adjustment items used in
computing AMTI of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust or REMIC) for tax years
beginning in 1989 is an amount equal to 75% of the excess of such corporation's
"adjusted current earnings" over an amount equal to its AMTI (before such
adjustment item and the alternative tax net operating loss deduction). "Adjusted
current earnings" includes all tax-exempt interest, including interest on all
Bonds in the Trust, and tax-exempt original issue discount.
Sections 1288 and 1272 of the Code provide a complex set of rules governing
the accrual of original issue discount. These rules provide that original issue
discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price"). The application of these rules will also vary depending on the
value of the bond on the date a Unitholder acquires his Units, and the price the
Unitholder pays for his Units.
Effective for tax returns filed after December 31, 1987, all taxpayers are
required to disclose to the Internal Revenue Service the amount of tax-exempt
interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year of
100% of the otherwise deductible interest on indebtedness incurred or continued
by financial institutions, to which either Section 585 or Section 593 of the
Code applies, to purchase or carry obligations acquired after August 7, 1986
(with certain exceptions), the interest on which is exempt from Federal income
taxes for such taxable year. Under rules prescribed by Section 265, the amount
of interest otherwise deductible by such financial institutions in any taxable
year which is deemed to be attributable to tax-exempt obligations acquired after
August 7, 1986, will generally be the amount that bears the same ratio to the
interest deduction otherwise allowable (determined without regard to Section
265) to the taxpayer for the taxable year as the taxpayer's average adjusted
basis (within the meaning of Section 1016) of tax-exempt obligations acquired
after August 7, 1986, bears to such average adjusted basis for all assets of the
taxpayer.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units is not
deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Units. However, these rules
generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects tax-exempt
bonds to the market discount rules of the Code effective for bonds purchased
after April 30, 1993. In general, market discount is the amount (if any) by
which the stated redemption price at maturity exceeds an investor's purchase
price (except to the extent that such difference, if any, is attributable to
original issue discount not yet accrued) subject to a statutory de minimis rule.
Market discount can arise based on the price a Trust pays for Bonds or the price
a Unitholder pays for his or her Units. Under the Tax Act, accretion of market
discount is taxable as ordinary income; under prior law, the accretion had been
treated as capital gain. Market discount that accretes while a Trust holds a
Bond would be recognized as ordinary income by the Unitholders when principal
payments are received on the Bond, upon sale or at redemption (including early
redemption), or upon the sale or redemption of his or her Units, unless a
Unitholder elects to include market discount in taxable income as it accrues.
We have not examined any of the Bonds to be deposited and held in the Trust
or the proceedings for the issuance thereof or the opinions of bond counsel with
respect thereto, and therefore express no opinion as to the exemption from State
income taxes of interest on the Bonds if received directly by a Unitholder.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-60569) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
<PAGE>
EXHIBIT 3.3
(ON ORRICK, HERRINGTON & SUTCLIFFE, L.L.P. LETTERHEAD)
AUGUST 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
The Chase Manhattan Bank
Nuveen Administration Department
4 New York Plaza - 3rd Floor
New York, New York 10004-2413
Re: Nuveen Tax-Free Unit Trust, Series 1020
California Insured Trust 308
Dear Sirs:
We have acted as special California counsel for John Nuveen & Co.
Incorporated, as Depositor of the above captioned trust(s) (each a "Trust"), in
connection with the issuance under the Trust Agreement dated August 14, 1998,
among John Nuveen & Co. Incorporated, as Depositor, and The Chase Manhattan
Bank, as Trustee, of units of fractional undivided interest in each Trust (the
"Units") in exchange for certain bonds, as well as "regular-way" and
"when-issued" contracts for the purchase of bonds (such bonds and contracts are
hereinafter referred to collectively as the "Securities").
In connection therewith, we have examined such corporate records,
certificates and other documents and such questions of law as we have deemed
necessary or appropriate for the purpose of this opinion, and, on the basis of
such examination, and upon existing provisions of the Revenue and Taxation Code
of the State of California, with respect to each Trust, we are of the opinion
that:
1.--The Trust is not an association taxable as a corporation and the income
of the Trust will be treated as the income of the unitholders under the income
tax laws of California.
2.--Interest on the underlying Securities (which may include bonds or other
obligations issued by the governments of Puerto Rico, the Virgin Islands, Guam,
or the Northern Mariana Islands) which is exempt from tax under California
personal income tax and property tax laws when received by the Trust will, under
such laws, retain its status as tax-exempt interest when distributed to
unitholders. However, interest on the underlying securities attributed to a
unitholder which is a corporation subject to the California franchise tax laws
may be includable in such corporation's gross income for purposes of determining
its California franchise tax.
3.--Under California income tax law, each unitholder in the Trust will have
a taxable event when the Trust disposes of a security (whether by sale,
exchange, redemption, or payment at maturity) or when the unitholder redeems or
sells Units. Because of the requirement that tax cost basis be reduced to
reflect amortization of bond premium, under some circumstances a unitholder may
realize taxable gain when units are sold or redeemed for an amount equal to, or
less than, their original cost. The total tax cost of each Unit to a unitholder
is allocated among each of the bond issues held in the Trust (in accordance with
the proportion of the Trust comprised by each bond issue) in order to determine
his per unit tax cost for each bond issue; and the tax cost reduction
requirements relating to amortization of bond premium will apply separately to
the per unit cost of each bond issue. Unitholders' bases in their Units, and the
bases for their fractional interest in each Trust asset, may have to be adjusted
for their pro rata share of accrued interest received, if any, on securities
delivered after the unitholders' respective settlement dates.
4.--Under the California personal property tax laws, bonds (including the
Securities) or any interest therein is exempt from such tax.
5.--Proceeds paid under an insurance policy, if any, issued to the Trustee
of the Trust with respect to the Securities which represent maturing interest on
defaulted obligations held by the Trustee will be exempt from California
personal income tax if, and to the same extent as, such interest would have been
so exempt if paid by the issuer of the defaulted obligations.
<PAGE>
6.--Under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units of the
Trust is not deductible for the purposes of the California personal income tax.
While there presently is no California authority interpreting this provision,
Section 17280(b)(2) directs the California Francise Tax Board to prescribe
regulations determining the proper allocation and apportionment of interest
costs for this purpose. The Franchise Tax Board has not yet proposed or
prescribed such regulations. In interpreting the generally similar Federal
provision, the Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying of Units
(although the Service has not contended that a deduction for interest on
indebtedness incurred to purchase or improve a personal residence or to purchase
goods or services for personal consumption will be disallowed). In the absence
of conflicting regulations or other California authority, the California
Franchise Tax Board generally has interpreted California statutory tax
provisions in accord with Internal Revenue Service interpretations of similar
Federal provisions.
Opinions relating to the validity of securities and the exemption of
interest thereon from State of California income tax are rendered by bond
counsel to the issuing authority at the time securities are issued and we have
relied solely upon such opinions, or, as to securities not yet delivered, forms
of such opinions contained in official statements relating to such securities.
Except in certain instances in which we acted as bond counsel to issuers of
securities, and as such made a review of proceedings relating to the issuance of
certain securities at the time of their issuance, we have not made any review of
proceedings relating to the issuance of securities or the bases of bond
counsels' opinions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-60569) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE, L.L.P.
(BY KENNETH G. WHYBURN)
<PAGE>
EXHIBIT 3.3
(ON SHERMAN & HOWARD L.L.C. LETTERHEAD)
AUGUST 14, 1998
Nuveen Tax-Free Unit Trust,
Series 1020
c/o Chase Manhattan Bank
Nuveen Administration Department
4 New York Plaza-3rd Floor
New York, New York 10004-2413
RE: Colorado Insured Trust 73
Ladies and Gentlemen:
We have acted as special counsel to the Nuveen Tax-Free Unit Trust, Series
1020 (the "Fund") with respect to certain applications of the income tax law of
the State of Colorado to the above captioned Trust(s) created as part of the
Fund (the "Colorado Trust(s)") and to the holders of certificates or registered
holders of book entry positions evidencing ownership of fractional undivided
interest ("Units") in the Colorado Trust(s) who are residents of the State of
Colorado ("Colorado Unitholders").
In this connection, we have examined the form of an opinion of Chapman and
Cutler, counsel for John Nuveen & Co. Incorporated, the Depositor, to be dated
today, as to the federal tax status of the several constituent trusts of the
Fund and the holders of Units, including the Colorado Trust(s) and the Colorado
Unitholders. Chapman and Cutler has advised us that its opinion, as executed and
delivered, will be in all material respects identical to such form. We have also
examined such pertinent materials and matters of law as we deemed necessary in
order to enable us to express the opinions hereinafter set forth.
It is our understanding that a Colorado Trust will consist of obligations
which were issued by the State of Colorado or its political subdivisions or by
the United States or possessions of the United States, including Puerto Rico,
the Virgin Islands and Guam ("Bonds"). The following opinion assumes that the
Colorado Trust(s) will have no income other than (i) interest income on the
Bonds, (ii) insurance proceeds, if any, referred to in paragraph (3) below, and
(iii) gain on the disposition of such Bonds.
Based on the foregoing and, with your permission, in reliance upon the
opinion of Chapman and Cutler referred to above, it is our opinion that
application of existing Colorado income tax law would be as follows:
The Chapman and Cutler opinion concludes that each trust, including the
Colorado Trust(s), will be governed by the provisions of subchapter J of chapter
1, Internal Revenue Code of 1986 (the "Code"). Although there are no Colorado
income tax statutes similar to subchapter J of chapter 1 of the Code, the
Colorado statutory provisions generally operate to reach the same result that is
reached under the federal system. The income, deduction, and credit items
directly reportable by the "owner" of a trust under the federal rules are also
directly reportable by that same person under Colorado rules. Conversely, items
of income, deduction, and credit not reportable for federal purposes typically
are not reported for Colorado purposes. For resident individuals, estates, and
trusts, Colorado law imposes a tax on federal taxable income, as defined in the
Code, with specific modifications. For corporations, a tax is imposed on net
income derived from sources within Colorado. A corporation's net income is
defined as federal taxable income, again with certain modifications. There are
two modifications relevent to this opinion. First, interest income less
amortization of premium on obligations of any state or any politcal subdivision
thereof must be added to federal taxable income; however, interest income on
obligations of the State of Colorado or a political subdivision thereof which
are issued on or after May 1, 1980 is specifically excluded from this
modification. Interest income on obligations of the State of Colorado or a
political subdivision thereof which were issued before May 1, 1980 is also
excluded from this modification to the extent that such interest is specifically
exempt from income taxation under the laws of the State of Colorado authorizing
the issuance of such obligations. The second relevent modification is that
interest income on obligations of the United States and its possessions is
subtracted from federal taxable income to the extent it was included in federal
taxable income.
<PAGE>
Colorado also imposes on individuals, estates, and trusts an alternative
minimum tax based on the federal alternative minimum taxable income determined
pursuant to Section 55 of the Code. As with the modifications to federal taxable
income pertaining to interest income on Colorado exempt obligations, interest
income on obligations of the State of Colorado and political sudivisions thereof
which are issued on or after May 1, 1980, or which were issued prior to May 1,
1980 but have interest specifically exempt from income taxation under the
Colorado laws authorizing the issuance of such obligations, is not included in
the modification that otherwise requires that interest income from obligations
of states or political subdivisions thereof be added to federal alternative
minimum taxable income. Furthermore, interest income on obligations of the
United States and its possessions is subtracted from federal alternative minimum
taxable income.
Because Colorado income tax law is based upon the federal law and in light
of the opinion of Chapman and Cutler, the Colorado Trust(s) will not be
association(s) taxable as corporation(s) for purposes of Colorado income
taxation.
With respect to Colorado Unitholders, in view of the relationship between
federal and Colorado tax computations described above and the opinion of Chapman
and Cutler referred to above:
1.--Each Colorado Unitholder will be treated as owning a share of each asset
of the Colorado Unitholder's respective Colorado Trust for Colorado income tax
purposes, in the proportion that the number of Units of such Colorado Trust held
by the Unitholder bears to the total number of outstanding Units of the Colorado
Trust, and the income of the Colorado Trust will therefore be treated as the
income of each Colorado Unitholder under Colorado law in the proportion
described;
2.--Interest on Bonds that would not be included in the base subject to
Colorado income tax or Colorado alternative minimum tax when paid directly to a
Colorado Unitholder will not be included in the base subject to Colorado income
tax or alternative minimum tax when received by a Colorado Trust and attributed
to such Colorado Unitholder and when distributed to such Colorado Unitholder;
3.--Proceeds paid under an insurance policy, if any, issued to the issuer of
the Bonds involved, to the Depositor prior to deposit of the Bonds in a Colorado
Trust, or to a Colorado Trust, which proceeds represent maturing interest on
defaulted Bonds and which proceeds would not be included in the base subject to
Colorado income tax or Colorado alternative minimum tax when paid directly to a
Colorado Unitholder will not be included in the base subject to Colorado income
and alternative minimum tax when received by a Colorado Trust and attributed to
such Colorado Unitholder and when distributed to such Colorado Unitholder;
4.--Each Colorado Unitholder will realize gain or loss taxable in Colorado
when the Colorado Unitholder's respective Colorado Trust disposes of a Bond
(whether by sale, exchange, redemption, or payment at maturity) or when the
Colorado Unitholder redeems or sells Units at a price that differs from original
cost as adjusted for amortization of bond discount or premium and other basis
adjustments (including any basis reduction that may be required to reflect a
Colorado Unitholder's share of interest, if any, accruing on Bonds during the
interval between the Colorado Unitholder's settlement date and the date such
Bonds are delivered to the Colorado Trust, if later);
5.--Tax cost reduction requirements relating to amortization of bond premium
may, under some circumstances, result in Colorado Unitholders realizing gain
taxable in Colorado when their Units are sold or redeemed for an amount equal to
or less than their original cost; and
6.--If interest on indebtedness incurred or continued by a Colorado
Unitholder to purchase Units in the Colorado Trust is not deductible for federal
income tax purposes, it will not be deductible for Colorado income tax purposes.
We have not examined any of the Bonds to be deposited in the Colorado
Trusts(s) and express no opinion as to whether the interest (or, if applicable,
insurance proceeds representing interest) on any such Bonds would in fact be
included in the base subject to Colorado income tax or Colorado alternative
minimum tax if directly received by a Colorado Unitholder.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-60569) relating to the Units referred to
above and to the use of our name and the reference to our firm in such
Registration Statement, and in the related Prospectus, under the "Tax Status"
heading for each
<PAGE>
Colorado Trust in the Fund. In addition, we authorize Chase Manhattan Bank to
rely upon this opinion in its capacity as Trustee of the Fund.
Very truly yours,
SHERMAN & HOWARD L.L.C.
<PAGE>
EXHIBIT 3.3
(ON DICKINSON, WRIGHT, MOON, VAN DUSEN & FREEMAN LETTERHEAD)
AUGUST 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
Re: Nuveen Tax-Free Unit Trust, Series 1020
Michigan Insured Trust 75
Gentlemen:
We have acted as special Michigan counsel to the captioned Trust(s)(the
"Michigan Trust(s)") of Nuveen Tax-Free Unit Trust - Series 1020 (the "Fund")
concerning a Registration Statement (No. 333-60569) on Form S-6 under the
Securities Act of 1933, as amended, covering the issuance by the Michigan
Trust(s) of Units of fractional undivided interest in the Michigan Trust(s) (the
"Units").
The Michigan Trust(s) has (have) been organized under a Trust Indenture and
Agreement dated as of August 14, 1998 between John Nuveen & Co. Incorporated, as
Depositor ("Nuveen"), and The Chase Manhattan Bank, as Trustee ("Trustee"). The
Fund will contain several trusts, including the Michigan Trust(s), which will
issue the Units. The Units of the Michigan Trust(s) will be purchased by various
investors (the "Unitholders"). Each Unit of a Michigan Trust represents a
fractional undivided interest in a Michigan Trust. The Michigan Trust(s) and the
other trusts each will be administered as a distinct entity with separate
certificates, investments, expenses, books and records. Further, Nuveen, the
Trustee and Municipal Bond Investors Assurance Corporation will enter into an
agreement for any Michigan Insured Trust providing for the provision of
insurance (the "Insurance") against the nonpayment of principal and interest
when due.
The assets of a Michigan Trust will consist of interest-bearing obligations
issued by or on behalf of the State of Michigan, and counties, municipalities,
authorities and political subdivisions thereof, and, in limited instances, bonds
issued by Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands or
possessions of the United States (the "Bonds"). Distributions of the interest
received by a Michigan Trust will generally be made semi-annually unless the
Unitholder elects otherwise. We have been advised by Nuveen that in the opinion
of bond counsel to each issuer, the interest on all Bonds in a Michigan Trust is
exempt from Federal income tax under existing law.
Chapman and Cutler, counsel for Nuveen, has advised us that for federal
income tax purposes a Michigan Trust will not be taxable as an association but
will be governed by the provisions of Subchapter J (relating to Trusts) of
Chapter 1 of the Internal Revenue Code of 1986, as amended. Each Unitholder will
be considered the owner of a pro rata portion of the Unitholder's repective
Michigan Trust and will be subject to tax on the income therefrom under the
provisions of Subpart E of Subchapter J of Chapter 1 of the Internal Revenue
Code of 1986, as amended. A Michigan Trust itself will not be subject to federal
income taxes. For federal income tax purposes, each item of income from a
Michigan Trust will have the same character in the hands of a Unitholder as it
would have in the hands of the Trustee. Accordingly, to the extent that the
income of a Michigan Trust consists of interest excludable from gross income
under Section 103 of the Internal Revenue Code of 1986, as amended, such income
will be excludable from federal gross income of the Unitholder. In addition, if
Insurance has been obtained, Chapman and Cutler has examined the form of the
policy of Insurance being issued with respect to the Bonds and based thereon has
advised us that any amounts paid under the Insurance representing maturing
interest on defaulted obligations held by the Trustee will be excludable from
federal gross income if, and to the same extent as, such interest would have
been so excludable if paid by the respective issuer.
Based upon the above information which, with Nuveen's consent, we have
relied upon, it is our opinion that for Michigan state and local tax purposes, a
Michigan Trust will be recognized as a trust not taxable as a corporation.
<PAGE>
We are further of the opinion that under existing law:
Under the Michigan income tax act, the Michigan single business tax act, the
Michigan intangibles tax act, the Michigan city income tax act (which authorizes
the only income tax ordinance which may be adopted by cities in Michigan), and
under the law which authorizes a "first class" school district to levy an excise
tax upon income, the Michigan Trust(s) will not be subject to tax. The income of
a Michigan Trust will be treated as the income of the Unitholders and be deemed
to have been received by them when received by their respective Michigan Trust.
Interest on the Bonds in a Michigan Trust which is exempt from Federal
income tax is exempt from Michigan state and local income taxes and from the
Michigan single business tax. Further, any amounts paid under any Insurance
representing maturing interest on defaulted obligations held by the Trustee will
be excludable from Michigan state and local income taxes and from the Michigan
single business tax if, and to the same extent as, such interest would have been
so excludable if paid by the respective issuer.
For purposes of the foregoing Michigan tax laws (corporations and financial
institutions are not subject to the Michigan income tax), each Unitholder will
be considered to have received his pro rata share of Bond interest when it is
received by the Unitholder's respective Michigan Trust, and each Unitholder will
have a taxable event when the Unitholder's respective Michigan Trust disposes of
a Bond (whether by sale, exchange, redemption or payment at maturity) or when
the Unitholder redeems or sells Units. Due to the requirement that tax cost be
reduced to reflect amortization of bond premium, under some circumstances a
Unitholder may realize taxable gain when Units are sold or redeemed for an
amount equal to, or less than, their original cost. The tax cost of each Unit to
a Unitholder will be allocated for purposes of these Michigan tax laws in the
same manner as the cost is allocated for Federal income tax purposes.
Pursuant to the position of the Michigan Department of Treasury in a
bulletin dated December 19, 1986, the portion of the tax exempt bond fund
represented by the Bonds will be exempt from the Michigan Intangibles Tax. The
Department of Treasury has not indicated a position with respect to treatment of
amounts paid under a policy of insurance with respect to maturing interest on
defaulted obligations (which amounts would have been exludable if paid by the
respective issuer) for purposes of determining the income base for the Michigan
Intangibles Tax.
If a Unitholder is subject to the Michigan single business tax (i.e. is
engaged in a "business activity" as defined in the Michigan single business tax
act) and has a taxable event for Federal income tax purposes when a Michigan
Trust sells or exchanges Bonds or the Unitholder sells or exchanges Units, such
event may impact on the adjusted tax base upon which the single business tax is
computed. Any capital gain or loss realized from such taxable event which was
included in the computation of the Unitholder's Federal taxable income, plus the
portion, if any, of such capital gain excluded in such computation and minus the
portion, if any, of such capital loss not deducted in such computation for the
year the loss occurred, will be included in the adjusted tax base. The adjusted
tax base of any person other than a corporation is affected by any gain or loss
realized from the taxable event only to the extent that the resulting Federal
taxable income is derived from "business activity".
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-60569) relating to the Units and to the
reference to our Firm as special Michigan counsel in the Registration Statement
and in the related Prospectus.
Very truly yours,
DICKINSON, WRIGHT, MOON, VAN DUSEN & FREEMAN
<PAGE>
EXHIBIT 3.3
(ON DECHERT PRICE & RHOADS LETTERHEAD)
AUGUST 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
RE: Nuveen Tax-Free Unit Trust, Series 1020
Pennsylvania Insured Trust 238
Gentlemen:
You have requested our opinion as to the Pennsylvania tax aspects of the
above-captioned Trust(s) (the "Pennsylvania Trust(s)") which is (are) a part of
the Nuveen Tax-Free Unit Trust Series 1020 ("Fund"). The Fund is organized under
the Trust Indenture and Agreement, of even date, between John Nuveen & Co.
Incorporated, as Depositor, and The Chase Manhattan Bank, as Trustee. The Fund
will contain several trusts, including the Pennsylvania Trust(s), which will
issue Units of fractional undivided interests. The Units will be purchased by
various investors ("Unit Holder"). Each Unit of the Pennsylvania Trust(s)
represents a fractional undivided interest in the principal and net income of
such Trust(s) in the ratio of ten Units for each $1,000 of value of the
obligations initially acquired by such Trust(s). Each Pennsylvania Trust will be
administered as a distinct entity with separate certificates, investments,
expenses, books and records.
The proceeds of the sale of the Units will be invested primarily in
interest-bearing obligations issued by or on behalf of the Commonwealth of
Pennsylvania, its agencies and instrumentalities, or political subdivisions
thereof, including any county, city, borough, town, township, school disrict,
municipality, and local housing or parking authority in the Commonwealth of
Pennsylvania or issued by Puerto Rico, the Virgin Islands, Guam or the Northern
Mariana Islands ("Bonds"). Distributions of the interest received by the Trust
will be made semi-annually unless the Unit Holder elects otherwise. In the
opinion of bond counsel to each issuer, the interest on all bonds in the Trust
is exempt fromn federal income tax under existing law.
You have advised us that for federal income tax purposes each Pennsylvania
Trust will not be taxable as an association but will be governed by the
provisions of Subchapter J (relating to Trusts) of Chapter 1 of the Internal
Revenue Code of 1986. Each Unit Holder will be considered the owner of a pro
rata portion of the Unit Holder's respective Pennsylvania Trust and will be
subject to tax on the income therefrom under the provisions of Subpart E of
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986. A Pennsylvania
Trust itself will not be subject to federal income taxes. For federal income tax
purposes, each item of trust income will have the same character in the hands of
a Unit Holder as it would have in the hands of the Trustee. Accordingly, to the
extent that the income of a Pennsylvania Trust consists of interest excludable
from gross income under Section 103 of the Internal Revenue Code of 1986, such
income will be excludable from federal gross income of the Unit Holder.
Based upon the above facts, it is our opinion that for Pennsylvania state
and local tax purposes, a Pennsylvania Trust will be recognized as a trust not
taxable as a corporation. It will, therefore, not be subject to the Pennsylvania
Capital Stock/Franchise Tax or the Pennsylvania Corporate Net Income Tax. Since
all of the income of a Trust is either itself income exempt from Pennsylvania
Personal Income Tax, as described below, or is required by the terms of the
Trust to be distributed to the holders of Units, a Trust should not be subject
to Pennsylvania Personal Income Tax. The Philadelphia School District Investment
Income Tax described below, is not imposed on trusts.
Various personal property taxes are in effect in Pennsylvania, however, each
of them exempts, inter alia, Bonds, cash, checking and savings accounts in and
certificates of deposit issued by commercial banks, savings institutions or
trust companies and United States Treasury obligations. In general, these taxes
apply to a specified list of items of intangible personal property including,
inter alia, mortgages and other evidences of indebtedness and shares of stock
issued by business corporations not doing business in Pennsylvania. The taxes
referred to above include the County Personal Property Tax imposed on residents
of Pennsylvania by the Act of June 17, 1913, P.L. 507, as amended, the
additional personal property taxes imposed on Pittsburgh residents by the School
District of Pittsburgh under the Act of June 20, 1947, P.L. 733, as amended, and
by the City of Pittsburgh by Ordinance No. 599 of December 28, 1967, under the
Act
<PAGE>
of December 31, 1965, P.L. 1257, and any additional personal property taxes that
the School District of Philadelphia may reimpose on Philadelphia residents under
the authority contained in the Act of May 23, 1949, P.L. 1676, as amended. Units
evidencing fractional undivided interests in a Pennsylvania Trust will not be
subject to any of these personal property taxes to the extent of that proportion
of a Pennsylvania Trust represented by Bonds and other exempt assets. Only that
proportion of the Units represented by taxable assets will be subject to the
personal property taxes. Pennsylvania Trust Units may be taxable under the
Pennsylvania inheritance and estate taxes.
The interest and gain from obligations issued by the Commonwealth of
Pennsylvania or by its political subdivisions or by any public authority of
either are exempt from tax under the Act of August 31, 1971, P.L. 395, Act No.
94. However, that Act was repealed by the Act of December 3, 1993, P.L. 473, Act
No. 68 ("Act 68 of 1993") with respect to obligations issued on or after
February 1, 1994. Pursuant to Act 68 of 1993, profits, gains or income derived
from the sale, exchange or other disposition of exempt government obligations
issued after February 1, 1994 will be subject to state or local taxation
although interest and "income" derived from the exempt obligations will continue
to be exempt from all state and local taxation. Therefore, the proportion of
income representing interest from Bonds distributable to Unit Holders is not
taxable under the Pennsylvania Personal Income Tax imposed by Article III of the
Pennsylvania "Tax Reform Code of 1971", as amended by the Act of August 31,
1971, P.L. 362, Act No. 93, or under the Corporate Net Income Tax imposed on
corporations by Article IV of the Tax Reform Code. Similarly, such interest will
not be taxable under the Philadelphia School District Investment Income Tax
imposed on Philadelphia resident individuals under the authority of the Act of
August 9, 1963, P.L. 640, as implemented by Section 19-1804 of the Philadelphia
Code, as amended, and resolutions of the Board of Education of the School
District of Philadelphia made pursuant to the ordinances, and such interest will
not be subject to any of the taxes on net income from business activities in
Philadelphia under Philadelphia Code Sections 19-1500 and 19-2600, imposing a
Net Profits Tax and a Business Privilege Tax respectively. The City and School
District of Pittsburgh do not impose any taxes on unearned income.
Under the Pennsylvania Personal Income Tax Law, personal income tax is
imposed upon the following specified classes of income: (1) compensation for
services, (2) net profits from the operation of a business, profession, or other
activity, (3) net gains or income from the disposition of property, (4) net
gains or income in the form of rents and royalties, (5) dividends, (6) interest
from obligations not otherwise exempt, (7) gambling and lottery winnings, (8)
net gains or income from estates or trusts which fall under any of the preceding
classifications. Although there is no published authority on the question, it is
our opinion that any insurance proceeds paid in lieu of interest on defaulted
tax-exempt obligations will be exempt from Pennsylvania Personal Income Tax
either as payment in lieu of tax-exempt interest or as payments of insurance
proceeds which are not included in any of the classes of income specified as
taxable under the Pennsylvania Personal Income Tax Law. Since Pennsylvania
Corporate Net Income Tax is imposed upon the corporation's net income for
federal income tax purposes, because such insurance proceeds will be excluded
from the federal income tax base, such proceeds will not be subject to the
Pennsylvania Corporate Net Income Tax. Finally, since proceeds from insurance
policies are expressly excluded from the Philadelphia School District Investment
Income Tax, insurance proceeds paid to replace defaulted payments under any
Bonds held by the Pennsylvania Trust(s) will not be subject to this tax.
Under Act 68 of 1993, a Unit Holder's share of gain upon disposition of a
Bond issued on or after February 1, 1994 by the Pennsylvania Trust, whether by
sale, exchange, redemption or payment at maturity, will be taxable under the
Pennsylvania Personal Income Tax. Gains on the disposition of Bonds issued
before February 1, 1994 will continue to be exempt. See 72 P.S. Section
7303(a)(3) and 61 Pa. Code Section. 121.9(b)(3). While there is no published
authority with respect to the treatment of such gains for purposes of the
Philadelphia School District Investment Income Tax, it is our opinion that gains
upon dispositions of Bonds issued before February 1, 1994 are exempt from this
tax under Act of August 31, 1971, P.L. 395, Act No. 94, and, if the question
were litigated, the Pennsylvania courts should so hold. Gains on the disposition
of Bonds issued on or after February 1, 1994 will be taxable. In any event, the
Philadelphia School District Investment Income Tax has no application to any
gain on the disposition of property held for more than six months.
In C.C. Collings & Co., Inc. v. Commonwealth of Pennsylvania, 514 A.2d 1373
(1986), and two related cases, the Supreme Court of Pennsylvania held that gains
or losses from the sale of obligations of the Commonwealth of Pennsylvania, its
political subdivisions, instrumentalities and agencies are not subject to
<PAGE>
the Corporate Net Income Tax. Profits, gains or income derived from the sale,
exchange or other disposition of those exempt obligations issued on or after
February 1, 1994, however, will be subject to tax pursuant to Act 68 of 1993.
There is no published authority under any of the Pennsylvania state and
local income taxes described above with respect to gain from the redemption or
sale of a Unit. To the extent that such gain represents the Unit Holder's share
of any unrealized gain on the Bonds issued before February 1, 1994 and held by
the Trust, it is our opinion that such gain is exempt from the above-described
Pennsylvania state and local income taxes and, if the question were litigated,
the Pennsylvania courts should so hold. To the extent that such gain is
attributable to unrealized gain on Bonds issued on or after February 1, 1994,
such gain will be taxable under such taxes. In any event, the Philadelphia
School District Investment Income Tax has no application to any gain on the
disposition of property held for more than six months.
Interest on obligations of Puerto Rico, the Virgin Islands, Guam, or the
Northern Mariana Islands is, under federal law, exempt from taxation by states
and municipalities. Federal law does not expressly exclude from taxation gain
realized upon the disposition of such obligations. Therefore, a disposition of
such obligations by a Pennsylvania Trust could be a taxable event to a Holder
under each of the Pennsylvania state and local income taxes discussed in the
preceding paragraphs. See Willcuts v. Bunn, 282 U.S. 216 (1931); U.S. v.
Stewart, 311 U.S. 60 (1940). Similarly, to the extent that gain on the
redemption or sale of a Unit represents unrealized gain on such obligations held
by a Pennsylvania Trust, such gain could be taxable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (No. 333-60569) relating to the Units referred to above,
and to the reference to our firm as special Pennsylvania tax counsel in said
Registration Statement and in the related Prospectus.
Very truly yours,
DECHERT PRICE & RHOADS
<PAGE>
EXHIBIT 4.1
(ON STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES LETTERHEAD)
August 14, 1998
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, IL 60606
RE: NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
Gentlemen:
This is in response to your request regarding the above-captioned fund which
consists of separate underlying unit investment trusts (the "Trusts"), SEC file
# 333-60569.
We have reviewed the information presented to us and have assigned a "AAA"
rating to the units of each insured trust and a "AAA" rating to the securities
contained in each insured Trust. The ratings are direct reflections of the
portfolio of each insured trust, which will be composed solely of securities
covered by bond insurance policies that insure against default in the payment of
principal and interest on the securities contained in each insured trust for as
long as they remain outstanding. We understand that the bonds described in the
prospectus are the same as those in the attached list. Since such policies have
been issued by MBIA which has been assigned a 'AAA' claims paying ability rating
by S&P, S&P has assigned a "AAA" rating to the units of each insured trust and a
"AAA" rating to the securities contained in each insured trust.
Standard & Poor's will maintain surveillance on the "AAA" rating until
thirteen months from the initial Date of Deposit. On this date the rating will
be automatically withdrawn by Standard & Poor's unless a post effective letter
is requested by the trust.
You have permission to use the name of Standard & Poor's, a Division of The
McGraw-Hill Companies and the above-assigned rating in connection with your
dissemination of information relating to the insured trusts provided that it is
understood that the ratings are not "market" ratings nor recommendations to buy,
hold or sell the units of the insured trusts or the securities contained in the
insured trusts. Further, it should be understood the rating on the units of each
insured trust does not take into account the extent to which the trust's
expenses or portfolio asset sales for less than the trust's purchase price will
reduce payment to the unit holders of the interest and principal required to be
paid on the portfolio assets. S&P reserves the right to advise its own clients,
subscribers, and the public of the ratings. S&P relies on the sponsor and its
counsel, accountants, and other experts for the accuracy and completeness of the
information submitted in connection with the ratings. S&P does not independently
verify the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of Standard &
Poor's, a Division of The McGraw-Hill Companies in connection with the rating
assigned to the units of each insured trust in the registration statement or
prospectus relating to the units and the trusts. However, this letter should not
be construed as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard & Poor's, a Division
of The McGraw-Hill Companies in connection with the ratings assigned to the
securities contained in the insured trusts. You are hereby authorized to file a
copy of this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final prospectus as soon
as it becomes available. Should we not receive them within a reasonable amount
of time after the closing or should they not conform to the certification
received by us, we reserve the right to nullify the ratings.
Very truly yours,
STANDARD & POOR'S, A DIVISION
OF THE MCGRAW-HILL COMPANIES
By Sanford Bragg
<PAGE>
EXHIBIT 4.2
(On J. J. Kenny Co., Inc. Letterhead)
August 14, 1998
John Nuveen & Company
333 West Wacker Drive
Chicago, IL 60606
Re: Nuveen Tax-Free Unit Trust, Series 1020
Gentlemen:
We have examined the registration statement File No. 333-60569 for the
above-captioned trust. We hereby acknowledge that Kenny S&P Evaluation Services,
a division of J. J. Kenny Co., Inc. is currently acting as the evaluator for the
trust. We hereby consent to the use in the Registration Statement of the
reference to Kenny S&P Evaluation Services, a division of J. J. Kenny Co., Inc.
as evaluator.
In addition, we hereby confirm that the ratings indicated in the
Registration Statement for the respective bonds comprising the trust portfolio
are the ratings currently indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
Frank A. Ciccotto
<PAGE>
EXHIBIT 4.3
(ON CARTER LEDYARD & MILBURN LETTERHEAD)
August 14, 1998
Nuveen Tax-Free Unit Trust, Series 1020
c/o John Nuveen & Co. Incorporated,
as Depositor of
Nuveen Tax-Free Unit Trust, Series 1020
333 W. Wacker Drive
Chicago, Illinois 60606
RE: Nuveen Tax-Free Unit Trust, Series 1020
Dear Sirs:
We hereby consent to the reference to our firm under the caption "What is
the Tax Status of Unitholders?" in the Registration Statement and related
Prospectus of Nuveen Tax-Free Unit Trust, Series 1020 for the registration of
units of fractional undivided interest in the Fund in the aggregate principal
amount as set forth in the Closing Memorandum dated today's date.
Very truly yours,
CARTER, LEDYARD & MILBURN
<PAGE>
EXHIBIT 4.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
California Insured Trust 308 which is incorporated in the Prospectus dated
August 14, 1998 and is qualified in its entirety by reference to such
prospectus.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> California Insured
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 1,654,089
<INVESTMENTS-AT-VALUE> 1,660,633
<RECEIVABLES> 22,322
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,685,455
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,322
<TOTAL-LIABILITIES> 22,322
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 17,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,660,633
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 94.89
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Colorado
Insured Trust 73 which is incorporated in the Prospectus dated August 14, 1998
and is qualified in its entirety by reference to such prospectus.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> Colorado Insured
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 1,680,960
<INVESTMENTS-AT-VALUE> 1,685,484
<RECEIVABLES> 17,832
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,705,916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,832
<TOTAL-LIABILITIES> 17,832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 17,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,685,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 96.31
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Michigan
Insured Trust 75 which is incorporated in the Prospectus dated August 14, 1998
and is qualified in its entirety by reference to such prospectus.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> Michigan Insured
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 1,654,447
<INVESTMENTS-AT-VALUE> 1,660,245
<RECEIVABLES> 22,426
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,685,271
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,426
<TOTAL-LIABILITIES> 22,426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 17,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,660,245
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 94.87
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Pennsylvania Insured Trust 238 which is incorporated in the Prospectus dated
August 14, 1998 and is qualified in its entirety by reference to such
prospectus.
</LEGEND>
<SERIES>
<NUMBER> 004
<NAME> Pennsylvania Insured
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 1,666,479
<INVESTMENTS-AT-VALUE> 1,670,816
<RECEIVABLES> 14,049
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,687,365
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,049
<TOTAL-LIABILITIES> 14,049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 17,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,670,816
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 95.48
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
MEMORANDUM
NUVEEN TAX-FREE UNIT TRUST, SERIES 1020
FILE NO. 333-60569
The Prospectus and the Indenture filed with Amendment No. 1 of the
Registration Statement on Form S-6 have been revised to reflect information
regarding the execution of the Indenture and the deposit of bonds on August 14,
1998, and to set forth certain statistical data based thereon. In addition,
there are a number of other changes from the Prospectus as originally filed to
which reference is made, including the increase in the size of the Fund, a
corresponding increase in the number of Units and a change in the individual
trusts constituting the Fund. All references to the Units, prices and related
statistical data will apply to each trust of the Fund and the Units thereof
individually.
Except for such updating, an effort has been made to set forth below each of
the changes and also to reflect the same by marking the Prospectus transmitted
with the Amendment. Also, differences between the Final Prospectus relating to
the previous series of the Nuveen Tax-Exempt Unit Trust and the subject
Prospectus have been indicated.
FORM S-6
FACING SHEET. The file number is now shown.
THE PROSPECTUS
PART A-PAGE 2.--The "Estimated Long-Term Return" and "Estimated Current
Return" to Unitholders under each Trust under each of the distribution plans are
stated.
PART A-PAGES 1-2.--Essential information for each of the Trusts, including
applicable footnotes, has been completed for this Series.
PART A-PAGES 1-2.--The date of the Indenture has been inserted in Section 1
along with the size and number of Units of each of the Trusts.
PART A-PAGES 1-7 et seq.--The following information for each Trust appears
on the pages relating to such trust:
The estimated daily accrual of interest under the plans of distribution for
each of the Trusts
Data regarding the composition of the portfolio of each Trust
Disclosure regarding the states' economic and legislative matters relevant
to investors of state trusts
Concentrations of issues by purpose in each Trust
The approximate percentage of the bonds in the portfolio of each Trust
acquired in distributions where the Sponsor was either the sole underwriter
or manager or member of the underwriting syndicate
The percentage of "when issued" bonds in the portfolio of each Trust
The schedule of investments for each Trust, including the notes thereto
Descriptions of the opinions of the special tax counsel for state trusts
The Record Dates and Distribution Dates for interest distributions for each
Trust
The Statements of Condition for each Trust and the Accountant's Report with
regard thereto.
The amount of the Trustee's Fee
CHAPMAN AND CUTLER
Chicago, Illinois
August 14, 1998
