<PAGE>
FILE NO. 333-79299
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 1086
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 June 3, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on June 3, 1999 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 June 3, 1999
at 1:30 P.M. pursuant to Rule 487.
</TABLE>
<PAGE>
A
[Logo]
Defined Portfolios
Nuveen Florida
Insured Trust 276
<TABLE>
<S> <C>
CUSIP NUMBERS:
MONTHLY: 67065V 557
QUARTERLY: 67065V 565
SEMI-ANNUALLY: 67065V 573
</TABLE>
Prospectus Part A dated June 3, 1999
- --------------------------------------------------------------------------------
Overview
Nuveen Florida Insured Trust 276 (the "Trust") is a series of the Nuveen
Tax-Free Unit Trust, Series 1086. The Trust is a unit investment trust
consisting of a portfolio of bonds and seeks to provide income exempt from
Federal income tax and Florida intangibles tax and to conserve capital.
THIS PART A PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS WHICH IS DATED SEPTEMBER 1, 1998.
ADDITIONAL INFORMATION ABOUT THE TRUST MAY BE FOUND IN THE INFORMATION
SUPPLEMENT WHICH CAN BE OBTAINED FROM THE TRUSTEE AT 4 NEW YORK PLAZA, NEW YORK,
NY 10004-2413; (800) 257-8787. THIS INFORMATION SUPPLEMENT IS INCORPORATED BY
REFERENCE INTO THE PROSPECTUS.
<TABLE>
<S> <C>
Contents
1 Overview 5 Interest Distributions
2 Trust Summary and Financial Highlights 5 Risk Factors
2 The Trust 7 Tax Status
2 Investment Objectives 8 Volume Incentives
2 The Portfolio 8 Purchase Programs
3 Essential Information 9 Schedule of Investments
10 Statement of Condition
11 Report of Independent Public Accountants
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
</TABLE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
TRUST SUMMARY AND FINANCIAL HIGHLIGHTS
THE TRUST
Florida Insured Trust 276 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of Florida,
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 Florida
intangibles tax, to the extent indicated below.
INVESTMENT OBJECTIVES
The objectives of the Trust are income exempt from Federal income tax and
Florida intangibles tax, 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
The Portfolio of the Trust consists of 9 obligations issued by entities
located in Florida. 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 Water and/or Sewer Revenue 30.3 %
2 Utilities 28.6
1 Municipal Lease Revenue 14.3
1 General Obligation 14.0
1 Health Care Facility Revenue 11.4
1 Dedicated-Tax Supported Revenue 1.4
</TABLE>
Approximately 15.4% of the aggregate principal amount of the bonds in the
Trust (accounting for approximately 13.6% of the aggregate offering price of the
bonds) are original issue discount obligations. Certain of these original issue
discount obligations, amounting to 1.4% of the aggregate principal amount and
.5% of the aggregate offering price of the bonds in the Trust, are "zero coupon"
bonds. See "Risk Factors" herein and "SUMMARY OF PORTFOLIOS" 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.
2
<PAGE>
ESSENTIAL INFORMATION, ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT,
JUNE 2, 1999
Sponsor and Evaluator....... John Nuveen & Co. Incorporated
Trustee........................... The Chase Manhattan Bank
-------------------------------------------
<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...... $ 1,661,931
Divided by Number of Units...................... $ 94.97
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)............... $ 99.86
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 94.57
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 94.97
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.29
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.89
Average Maturity of Bonds in the Trust(2)........... 28.1 years
</TABLE>
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.8519 $ 4.8519 $ 4.8519
Less Estimated Annual Expense........ $ .2621 $ .2301 $ .2111
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.5898 $ 4.6218 $ 4.6408
Daily Rate of Accrual Per Unit........... $ .01274 $ .01283 $ .01289
ESTIMATED CURRENT RETURN(5).............. 4.60% 4.63 % 4.65 %
ESTIMATED LONG TERM RETURN(5)............ 4.72% 4.75 % 4.77 %
Trustee's Annual Fees(6)................. $ 1.5053 $ 1.1853 $ 0.9953
Date of Deposit...................................................................................June 3, 1999
Settlement Date...................................................................................June 8, 1999
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 $1,000 principal amount of Bonds
Estimated Annual Offering Expenses(8).........................................................$.03200 per Unit
</TABLE>
3
<PAGE>
NOTES TO ESSENTIAL INFORMATION:
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:
<TABLE>
<S> <C> <C> <C>
LATEST SCHEDULED PER UNIT ESTIMATED CURRENT RETURN
DELIVERY DATE RETURN OF PRINCIPAL AFTER THE FIRST YEAR
------------------ -------------------- -------------------------
FLORIDA INSURED TRUST......... JULY 6, 1999 $ .06 4.65 %
</TABLE>
(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.) 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.)
(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 "SUMMARY OF PORTFOLIOS" 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) 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.
4
<PAGE>
INTEREST DISTRIBUTIONS
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
1999 2000 PER YEAR
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 7/1 8/1 11/1 2/1 5/1
Distribution Date..................... 7/15 8/15 11/15 2/15 5/15
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .3612(1) $ 4.6465
-------- $.3870 every month --------
Quarterly Distribution Plan........... $ .3612(1) $ .3897(2) $ 1.1691 $ 1.1691 $ 1.1691 $ 4.6785
Semi-Annual Distribution Plan......... $ .3612(1) $ 1.5648(3) $ 2.3472 $ 4.6975
- ---------------------------------------------------------------------------------------------------------------------------------
</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
1-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
4-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
RISK FACTORS
Risk is inherent in all investing. Investing in a unit trust involves risk,
including the risk that you may receive little or no return on your investment
or even that you may lose part or all of your investment. Therefore, before
investing you should consider carefully the following risks that you assume when
you invest in this Trust. Because of these and other risks, the Trust should
only represent a portion of your overall portfolio and you should consider an
investment in the Trust to be a part of a longer term investment strategy that
will provide the best results when followed over a number of years. There is no
guarantee that the Trust will achieve its investment objective.
MARKET RISK: the risk that the market value of a bond or the Trust may
change rapidly and unpredictably, causing the bond or the Trust to be worth less
than its original price. Volatility in the market price of the bonds in the
Trust changes the value of the Units of the Trust. Market value may be affected
by a variety of factors including, among others, changes in the perceptions
about the issuers, changes in interest rates or inflation, changes in the
ratings of the issuers or changes in the financial condition of the issuers of
the bonds. Because the Trust is not managed, bonds in the Trust will generally
not be sold in response to market fluctuations, although bonds may be sold in
certain limited circumstances. Accordingly, an investor in the Trust may be
exposed to more market risk than an investor in certain managed investment
vehicles.
INFLATION RISK: the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the Trust's assets can decline as can the
value of the Trust's distributions.
INTEREST RATE RISK: the risk that bonds will decline in value because of a
rise in interest rates. Generally, bonds will increase in value when interest
rates decline and decrease in value when interest rates rise. Typically, bonds
with longer periods before maturity are more sensitive to interest rate changes.
CREDIT RISK: the risk that an issuer of a bond or an insurer is unable to
meet its obligation to make interest and principal payments.
CALL RISK: the risk that bonds can be prepaid or "called" by the issuer
before their stated maturity. If bonds are called, your income will decline and
you may not be able to reinvest the money you receive at as high a yield. Also,
an early call at par of a premium bond will reduce your return. Bonds in the
Trust are more likely to be called when interest rates decline. This would
result in early returns of principal to you and may result in early termination
of the Trust. The dates and prices upon which the bonds are first subject to
optional calls are provided in "Schedule of Investments." The bonds may also be
subject to special or extraordinary call provisions and "mandatory put" features
that may cause the bonds to be removed from the Trust prior to maturity.
LIQUIDITY RISK: the risk that the value of the bonds may be reduced if
trading in the bonds is limited or absent. Because the bonds will generally
trade in the over-the-counter market, there can be no assurance that a liquid
trading market will exist.
5
<PAGE>
BOND QUALITY RISK: the risk that a reduction in a bond's rating may decrease
its value and the value of your investment in the Trust.
REDUCED DIVERSIFICATION RISK: the risk that the diversification of your
investment is reduced as bonds in the Trust are called, sold or mature. This
reduction in diversification may increase the risk of loss and increase your
share of Trust expenses.
LITIGATION AND LEGISLATION RISKS: the risk that future litigation or
legislation could affect the value of the Trust. In particular, future tax
legislation could affect the value of the Trust by reducing tax rates, imposing
a flat or other form of tax, exempting investment income from tax or changing
the tax status of the bonds.
YEAR 2000 RISK: Like other investment companies, financial and business
organizations and individuals around the world the Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to the 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 the 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 the Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the bonds contained in the 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 or insurers of the bonds contained in the Trust.
CONCENTRATION RISK: the risk that the Trust is less diversified, and
therefore subject to greater risk of loss, because the Trust is concentrated in
a certain type of bond. Typically, when a certain type of bond makes up 25% or
more of the portfolio, the Trust is considered to be "concentrated" in that bond
type.
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. In addition, the Trust is considered to be concentrated in
bonds of Combination Utility Revenue Issuers whose revenues are subject to
certain risks including increased competition and traffic constraints.
The Trust is concentrated in the bonds of issuers located in the State of
Florida. Such concentration may expose Unitholders to additional risks. The
financial condition of the State of Florida is affected by various national and
local, economic, social and environmental policies and conditions and may have
an effect on the value of the Units. 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 Constitution
and statutes mandate that the State budget, as a whole, and each separate fund
within the State budget, be kept in balance from currently available revenues
each fiscal year. Additionally, the State Constitution prohibits issuance of
State obligations to fund State operations.
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 State continues to be dependent on the
construction and construction related manufacturing industries. These industries
tend to be highly cyclical and there is no assurance that Florida's rapid
population growth, which drove these industries in the past, will continue.
Tourism is also one of the State's most important industries. Because many
international travelers visit Florida, an increase in the value of the U.S.
dollar adversely affects this industry. Moreover, Florida could be impacted by
problems in the agricultural sector, including crop failures, severe weather
conditions or other agricultural-related problems, particularly with regard to
the citrus and sugar industries.
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.
The State maintains a bond rating of Aa2, AA+ and AA from Moody's, Standard
& Poor's and Fitch, respectively, on the majority of its general obligation
bonds, although the rating of a particular series of revenue bonds relates
primarily to the project, facility, or other revenue resource from which such
series derives funds for repayment.
6
<PAGE>
Further information concerning the various types of bonds contained in the
Trust is available in "SUMMARY OF PORTFOLIOS" in Part B of the Prospectus. An
additional discussion of potential risks 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.
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.
The assets of the Trust will consist solely of interest-bearing obligations
issued by or on behalf of the State of Florida, its political subdivisions and
authorities or by the Commonwealth of Puerto Rico, Guam, the Virgin Islands,
American Samoa, or the Northern Mariana Islands (the "Florida Bonds").
In the opinion of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.,
special counsel for the Trust for Florida tax matters, under existing law:
For Florida state income tax purposes, the Trust will not be subject to the
Florida income tax imposed by the Florida Code so long as the Trust has no
income subject to federal taxation. In addition, political subdivisions of
Florida do not impose any income taxes.
Because Florida does not impose an income tax on individuals, non-corporate
Unitholders will not be subject to any Florida income tax on income realized by
the Trust. Each corporate Unitholder will be subject to Florida income taxation
on its share of the income realized by the Trust notwithstanding the tax exempt
status of the interest received from any bonds under Section 103(a) of the
Internal Revenue Code of 1986 or any other federal law, unless the interest
income constitutes nonbusiness income. Nevertheless, any corporate Unitholder
that has its commercial domicile in Florida will be taxable under the Florida
Code on its share of the Trust income which constitutes nonbusiness income.
Trust Units will be subject to Florida estate tax only if owned by Florida
residents, certain natural persons not domiciled in Florida, or certain natural
persons not residents of the United States. However, the Florida estate tax is
limited to the amount of the credit allowable under the applicable Federal
Revenue Act (currently Section 2011 [and in some cases Section 2102] of the
Internal Revenue Code of 1986, as amended) for death taxes actually paid to the
several states.
Neither the Florida Bonds nor the Units will be subject to the Florida ad
valorem property tax or Florida sales or use tax.
Because Bonds issued by the State of Florida or its political subdivisions
or by the Commonwealth of Puerto Rico, Guam, the Virgin Islands, American Samoa
and the Northern Mariana Islands are exempt from Florida intangible personal
property taxation under Chapter 199, Florida Statutes, as amended, the Trust
will not be subject to Florida intangible personal property tax. In addition,
the Unitholders will not be subject to Florida intangible personal property tax
on the Units.
7
<PAGE>
VOLUME INCENTIVES
The Sponsor has made substantial enhancements to the volume incentive
program for dealer firms currently described in Part B of this Prospectus. The
following information replaces any discussion of volume incentives in Part B.
Volume incentives can be earned as a marketing allowance by eligible dealer
firms who reach cumulative firm sales or sales arrangement levels of a specified
dollar amount of Nuveen unit trusts (other than any series of the Nuveen--The
Dow 5-SM- Portfolios and Nuveen--The Dow 10-SM- Portfolios) sold in the primary
or secondary market during any quarter as set forth in the table below. Eligible
dealer firms are dealers that are providing marketing support for Nuveen unit
trusts in the form of 1) distributing or permitting the distribution of
marketing materials and other product information, 2) providing Nuveen
representatives access to the dealer's branch offices, and 3) generally
facilitating the placement of orders by the dealer's registered representatives
such as putting Nuveen unit trusts on their order entry screens. Eligible firms
will not include firms that solely provide clearing services to broker/dealer
firms. For purposes of determining the applicable volume incentive rate for a
given quarter, the dollar amount of all units sold over the current and three
previous quarters (the "Measuring Period") is aggregated. The volume incentive
received by the dealer firm will equal the dollar amount of units sold during
the current quarter times the highest applicable rate for the Measuring Period.
For firms that meet the necessary volume level, volume incentives may be given
on all applicable trades originated from or by that firm.
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT SOLD
OVER MEASURING PERIOD VOLUME INCENTIVE
- --------------------------------------- -----------------------------------------------
<S> <C>
$ 5,000,000 to $ 9,999,999 0.10% of current quarter sales
$10,000,000 to $19,999,999 0.125% of current quarter sales
$20,000,000 to $49,999,999 0.1375% of current quarter sales
$50,000,000 or more 0.15% of current quarter sales
</TABLE>
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.
PURCHASE PROGRAMS
Notwithstanding anything to the contrary in Part B of the Prospectus:
1. Units may NOT 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.,
Rittenhouse Financial Services, Inc. and The John Nuveen Company, including
in each case these individuals and their immediate family members (as
defined in this Prospectus).
2. 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, (4) officers and directors of
bank holding companies that make Units available directly or through
subsidiaries or bank affiliates, (5) officers or directors and bona fide,
full-time employees of Nuveen, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Rittenhouse Financial Services, Inc., and The John Nuveen
Company, including in each case these individuals and their spouses, minor
children, and parents, however, purchases by parents must be made through a
registered broker-dealer, and (6) any person who for at least 90 days, has
been an officer, director or bona fide employee of any vendor who provides
services to the Sponsor and who purchases Units through a registered
broker-dealer (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.
8
<PAGE>
SCHEDULE OF INVESTMENTS AT THE DATE OF DEPOSIT, JUNE 3, 1999
<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>
- ---------------------------------------------------------------------------------------------------------------------------
$ 245,000 State of Florida, Full Faith and Credit, State 2009 at 101 AAA Aaa $ 218,021
Board of Education, Public Education Capital
Outlay Refunding Bonds, 1999 Series B, 4.50%
Due 6/1/24. (Original issue discount bonds
delivered on or about February 11, 1999 at a
price of 93.54% of principal amount.)(General
Obligation Bonds.)
250,000 City of Bartow, Florida, Water and Sewer 2009 at 101 AAA Aaa 245,265
Systems Revenue Bonds, Series 1999, 5.125%
Due 10/1/29.
250,000 City of Lakeland, Florida, Electric and Water 2009 at 101 AAA Aaa 237,838
Refunding Revenue Bonds, Series 1999A, 5.00%
Due 10/1/36.
30,000 Lee County, Florida, Water and Sewer Revenue 2009 at 101 AAA Aaa 28,866
Bonds, 1999 Series A, 5.00% Due 10/1/29.
250,000 The School Board of Polk County, Florida 2009 at 101 AAA Aaa 241,080
(Master Lease Program), Certificates of
Participation, Series 1999A, 5.00% Due
1/1/24.
250,000 City of Port St. Lucie, Florida, Utility System 2007 at 101 AAA Aaa 245,403
Refunding and Improvement Revenue Bonds,
Series 1997A, 5.125% Due 9/1/27.
200,000 City of South Miami (Florida) Health Facilities 2008 at 101 AAA Aaa 191,098
Authority, Hospital Revenue Bonds, Series
1998 (Baptist Health Systems Obligated
Group), 5.00% Due 11/15/28.
250,000 * City of St. Petersburg, Florida, Public Utility 2009 at 101 AAA Aaa 245,728
Refunding Revenue Bonds, Series 1999B, 5.10%
Due 10/1/21. (When issued.)
25,000 City of Tampa, Florida, Utilities Tax No Optional Call AAA Aaa 8,632
Improvement Bonds, Series 1997, 0.00% Due
10/1/19. (Original issue discount bonds
delivered on or about January 8, 1998 at a
price of 32.773% of principal amount.)
- ----------- ---------------
$ 1,750,000 $ 1,661,931
- ----------- ---------------
- ----------- ---------------
</TABLE>
* These bonds, or a portion thereof, have delivery dates beyond the normal
settlement date. Their expected delivery date is July 6, 1999. Contracts
relating to bonds with delivery dates after the date of settlement for
purchase made on the Date of Deposit constitute approximately 14% 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 April 23, 1999 to June 2, 1999. 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>
Florida Insured Trust 276............... $ 1,655,790 $ 6,141 $ 85,900 $ 1,654,968
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .40%. 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 "Risk Factors" herein and "COMPOSITION OF
TRUSTS" and "WHAT IS THE TAX STATUS OF UNITHOLDERS?" 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.)
9
<PAGE>
STATEMENT OF CONDITION, AS OF JUNE 3, 1999
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,661,931
Accrued interest to June 3, 1999 on underlying
bonds(1)........................................ 11,773
Offering costs(3)................................. 2,800
--------------
Total................................. $ 1,676,504
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
LIABILITIES:
Accrued interest to June 3, 1999 on underlying
bonds(4)..................................... $ 11,773
Accrued offering costs(3)..................... 2,800
--------------
Total................................. $ 14,573
--------------
--------------
INTEREST OF UNITHOLDERS:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,747,554
Less: Gross underwriting commission(6).... 85,623
--------------
Net amount applicable to investors............ $ 1,661,931
--------------
Total................................. $ 1,676,504
--------------
--------------
- ------------
</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.)
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
FLORIDA INSURED TRUST 276:
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
Florida Insured Trust 276 (contained in Nuveen Tax-Free Unit Trust, Series
1086), as of June 3, 1999. 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 Florida Insured Trust 276 as of June 3, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 3, 1999
11
<PAGE>
[Logo]
Defined Portfolios
Nuveen Florida
Insured Trust 276
PROSPECTUS -- PART A
JUNE 3, 1999
<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>
--------------
This Prospectus does not contain complete information about the Unit Trust
filed with the Securities and Exchange Commission in Washington, DC under the
Securities Act of 1933 and the Investment Company Act of 1940.
To obtain copies at proscribed rates--
<TABLE>
<S> <C>
Write: Public Reference Section of the Commission, 450 Fifth Street NW, Washington, DC
20549-6009
Call: (800) SEC-0330
Visit: http://www.sec.gov
</TABLE>
No person is authorized to give any information or representation about this
Trust not contained in Parts A or B of this Prospectus or the Information
Supplement, and you should not rely on any other information.
When Units of this Fund are no longer available, this Prospectus may be used
as a preliminary Prospectus for a future series, but some of the information in
this Prospectus will be changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD WHERE A SALE WOULD BE ILLEGAL.
<PAGE>
A
[Logo]
Defined Portfolios
Nuveen Massachusetts
Insured Trust 164
<TABLE>
<S> <C>
CUSIP NUMBERS:
MONTHLY: 67065D 730
QUARTERLY: 67065D 748
SEMI-ANNUALLY: 67065D 755
</TABLE>
Prospectus Part A dated June 3, 1999
- --------------------------------------------------------------------------------
Overview
Nuveen Massachusetts Insured Trust 164 (the "Trust") is a series of the Nuveen
Tax-Free Unit Trust, Series 1086. The Trust is a unit investment trust
consisting of a portfolio of bonds and seeks to provide income exempt from
Federal and Massachusetts income tax and to conserve capital.
THIS PART A PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART B OF
THE NUVEEN TAX-FREE UNIT TRUSTS PROSPECTUS WHICH IS DATED SEPTEMBER 1, 1998.
ADDITIONAL INFORMATION ABOUT THE TRUST MAY BE FOUND IN THE INFORMATION
SUPPLEMENT WHICH CAN BE OBTAINED FROM THE TRUSTEE AT 4 NEW YORK PLAZA, NEW YORK,
NY 10004-2413; (800) 257-8787. THIS INFORMATION SUPPLEMENT IS INCORPORATED BY
REFERENCE INTO THE PROSPECTUS.
<TABLE>
<S> <C>
Contents
1 Overview 5 Interest Distributions
2 Trust Summary and Financial Highlights 5 Risk Factors
2 The Trust 7 Tax Status
2 Investment Objectives 8 Volume Incentives
2 The Portfolio 8 Purchase Programs
3 Essential Information 9 Schedule of Investments
10 Statement of Condition
11 Report of Independent Public Accountants
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
</TABLE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
TRUST SUMMARY AND FINANCIAL HIGHLIGHTS
THE TRUST
Massachusetts Insured Trust 164 (the "Trust") consists of a portfolio of
interest-bearing obligations issued by or on behalf of the State of
Massachusetts, 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
Massachusetts income tax, to the extent indicated below.
INVESTMENT OBJECTIVES
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
The Portfolio of the Trust consists of 7 obligations issued by entities
located in Massachusetts. 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 Education Revenue 28.5 %
1 Bridge and Toll Road Revenue 14.3
1 General Obligation 14.3
1 Health Care Facility Revenue 14.3
1 Transportation 14.3
1 Water and/or Sewer Revenue 14.3
</TABLE>
Approximately 42.9% of the aggregate principal amount of the bonds in the
Trust (accounting for approximately 42.4% of the aggregate offering price of the
bonds) are original issue discount bonds. See "Risk Factors" herein and "SUMMARY
OF PORTFOLIOS" 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.
2
<PAGE>
ESSENTIAL INFORMATION, ON THE BUSINESS DAY PRIOR TO THE DATE OF DEPOSIT,
JUNE 2, 1999
Sponsor and Evaluator....... John Nuveen & Co. Incorporated
Trustee........................... The Chase Manhattan Bank
-------------------------------------------
<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...... $ 1,653,519
Divided by Number of Units...................... $ 94.49
Plus Sales Charge 4.9% (5.152% of the Aggregate
Offering Price of the Bonds per Unit).......... $ 4.87
Public Offering Price Per Unit(1)............... $ 99.36
Redemption Price Per Unit (exclusive of accrued
interest)......................................... $ 94.09
Sponsor's Initial Repurchase Price Per Unit
(exclusive of accrued interest)................... $ 94.49
Excess of Public Offering Price Per Unit over
Redemption Price Per Unit......................... $ 5.27
Excess of Public Offering Price Per Unit over
Sponsor's Repurchase Price Per Unit............... $ 4.87
Average Maturity of Bonds in the Trust(2)........... 29.0 years
</TABLE>
The income, expense and distribution data set forth below have been calculated
for Unitholders receiving monthly, quarterly or semi-annual distribution
options.
<TABLE>
<CAPTION>
MONTHLY QUARTERLY SEMI-ANNUAL
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Estimated Net Annual
Interest Income Per Unit
Annual Interest Income(3)............ $ 4.9643 $ 4.9643 $ 4.9643
Less Estimated Annual Expense........ $ .2572 $ .2252 $ .2062
----------- ----------- -----------
Estimated Net Annual Interest
Income(4).......................... $ 4.7071 $ 4.7391 $ 4.7581
Daily Rate of Accrual Per Unit........... $ .01307 $ .01316 $ .01321
ESTIMATED CURRENT RETURN(5).............. 4.74% 4.77 % 4.79 %
ESTIMATED LONG TERM RETURN(5)............ 4.79% 4.83 % 4.85 %
Trustee's Annual Fees(6)................. $ 1.4914 $ 1.1714 $ 0.9814
Date of Deposit...................................................................................June 3, 1999
Settlement Date...................................................................................June 8, 1999
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>
3
<PAGE>
NOTES TO ESSENTIAL INFORMATION:
(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, $.07 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.) 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.)
(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 "SUMMARY OF PORTFOLIOS" 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) 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.
4
<PAGE>
INTEREST DISTRIBUTIONS
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
1999 2000 PER YEAR
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------- --------------
Record Date*.......................... 7/1 8/1 11/1 2/1 5/1
Distribution Date..................... 7/15 8/15 11/15 2/15 5/15
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Distribution Plan............. $ .3659(1) $ 4.7071
-------- $.3921 every month --------
Quarterly Distribution Plan........... $ .3659(1) $ .3948(2) $ 1.1844 $ 1.1844 $ 1.1844 $ 4.7391
Semi-Annual Distribution Plan......... $ .3659(1) $ 1.5852(3) $ 2.3778 $ 4.7581
- ---------------------------------------------------------------------------------------------------------------------------------
</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
1-month distribution; subsequent quarterly distributions will be regular
3-month distributions.
(3) The second distribution under the semi-annual distribution plan represents a
4-month distribution; subsequent semi-annual distributions will be regular
6-month distributions.
RISK FACTORS
Risk is inherent in all investing. Investing in a unit trust involves risk,
including the risk that you may receive little or no return on your investment
or even that you may lose part or all of your investment. Therefore, before
investing you should consider carefully the following risks that you assume when
you invest in this Trust. Because of these and other risks, the Trust should
only represent a portion of your overall portfolio and you should consider an
investment in the Trust to be a part of a longer term investment strategy that
will provide the best results when followed over a number of years. There is no
guarantee that the Trust will achieve its investment objective.
MARKET RISK: the risk that the market value of a bond or the Trust may
change rapidly and unpredictably, causing the bond or the Trust to be worth less
than its original price. Volatility in the market price of the bonds in the
Trust changes the value of the Units of the Trust. Market value may be affected
by a variety of factors including, among others, changes in the perceptions
about the issuers, changes in interest rates or inflation, changes in the
ratings of the issuers or changes in the financial condition of the issuers of
the bonds. Because the Trust is not managed, bonds in the Trust will generally
not be sold in response to market fluctuations, although bonds may be sold in
certain limited circumstances. Accordingly, an investor in the Trust may be
exposed to more market risk than an investor in certain managed investment
vehicles.
INFLATION RISK: the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of the Trust's assets can decline as can the
value of the Trust's distributions.
INTEREST RATE RISK: the risk that bonds will decline in value because of a
rise in interest rates. Generally, bonds will increase in value when interest
rates decline and decrease in value when interest rates rise. Typically, bonds
with longer periods before maturity are more sensitive to interest rate changes.
CREDIT RISK: the risk that an issuer of a bond or an insurer is unable to
meet its obligation to make interest and principal payments.
CALL RISK: the risk that bonds can be prepaid or "called" by the issuer
before their stated maturity. If bonds are called, your income will decline and
you may not be able to reinvest the money you receive at as high a yield. Also,
an early call at par of a premium bond will reduce your return. Bonds in the
Trust are more likely to be called when interest rates decline. This would
result in early returns of principal to you and may result in early termination
of the Trust. The dates and prices upon which the bonds are first subject to
optional calls are provided in "Schedule of Investments." The bonds may also be
subject to special or extraordinary call provisions and "mandatory put" features
that may cause the bonds to be removed from the Trust prior to maturity.
LIQUIDITY RISK: the risk that the value of the bonds may be reduced if
trading in the bonds is limited or absent. Because the bonds will generally
trade in the over-the-counter market, there can be no assurance that a liquid
trading market will exist.
5
<PAGE>
BOND QUALITY RISK: the risk that a reduction in a bond's rating may decrease
its value and the value of your investment in the Trust.
REDUCED DIVERSIFICATION RISK: the risk that the diversification of your
investment is reduced as bonds in the Trust are called, sold or mature. This
reduction in diversification may increase the risk of loss and increase your
share of Trust expenses.
LITIGATION AND LEGISLATION RISKS: the risk that future litigation or
legislation could affect the value of the Trust. In particular, future tax
legislation could affect the value of the Trust by reducing tax rates, imposing
a flat or other form of tax, exempting investment income from tax or changing
the tax status of the bonds.
YEAR 2000 RISK: Like other investment companies, financial and business
organizations and individuals around the world the Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee or other service
providers to the 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 the 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 the Trust.
The Year 2000 Problem is expected to impact corporations and other parties,
which may include issuers of the bonds contained in the 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 or insurers of the bonds contained in the Trust.
CONCENTRATION RISK: the risk that the Trust is less diversified, and
therefore subject to greater risk of loss, because the Trust is concentrated in
a certain type of bond. Typically, when a certain type of bond makes up 25% or
more of the portfolio, the Trust is considered to be "concentrated" in that bond
type.
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.
The Trust is concentrated in the bonds of issuers located in the State of
Massachusetts. Such concentration may expose Unitholders to additional risks.
The financial condition of the State of Massachusetts is affected by various
national and local, economic, social and environmental policies and conditions
and may have an effect on the value of the Units. Additionally, limitations
imposed by statute and voter initiative upon the Commonwealth and its local
governments concerning taxes, bond indebtedness and other matters may constrain
the revenue-generating capacity of the Commonwealth and its local governments
and, therefore, the ability of the issuers of the bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the bonds, are
affected by numerous factors. The employment in the Commonwealth has been and
continues to be significantly and adversely affected by reductions in federal
government spending on defense-related industries. The Commonwealth has many
material future liabilities, including an underfunded retirement system and
Medicaid expenditures.
The Commonwealth is a party to numerous lawsuits in which an adverse final
decision could materially affect the Commonwealth's governmental operations and
consequently its ability to pay debt service on its obligations.
In recent years, the Commonwealth of Massachusetts and certain of its public
bodies and municipalities, particularly the City of Boston have faced serious
financial difficulties which have affected the credit standing and borrowing
abilities of Massachusetts and its respective entities and may have contributed
to higher interest rates on debt obligations. Standard and Poor's currently
rates the Commonwealth's uninsured general obligation bonds at A+, while Moody's
rates these obligations at A1.
Further information concerning the various types of bonds contained in the
Trust is available in "SUMMARY OF PORTFOLIOS" in Part B of the Prospectus. An
additional discussion of potential risks 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.
6
<PAGE>
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.
In the opinion of Edwards & Angell, special Massachusetts counsel to the
Trust, based on rulings by the Commissioner of Revenue and under existing law:
For Massachusetts income tax purposes, each Trust will be treated as a
corporate trust under Section 8 of Chapter 62 of the Massachusetts General Laws
("M.G.L.") and not as a grantor trust under Section 10(e) of M.G.L. Chapter 62.
The Trust will not be held to be engaging in business in Massachusetts
within the meaning of said Section 8 and will, therefore, not be subject to
Massachusetts income tax.
Unitholders who are subject to Massachusetts income taxation under M.G.L.
Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross income
to the extent that such earnings or distributions represent tax-exempt interest
excludable from gross income for Federal income tax purposes received by the
Trust on obligations issued by Massachusetts, its counties, municipalities,
authorities, political subdivisions or instrumentalities or by Puerto Rico, the
Virgin Islands, Guam, the Northern Mariana Islands or other possessions of the
United States within the meaning of Section 103(c) of the Internal Revenue Code
of 1986, as amended ("Massachusetts Obligations").
Unitholders who are subject to Massachusetts income taxation under M.G.L.
Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross income
to the extent that such earnings or distributions are derived from the proceeds
of insurance obtained by the Sponsor of the Trust or by the issuer or
underwriter of an obligation held by the Trust that represent maturing interest
on defaulted obligations held by the Trustee, if and to the same extent that
such earnings or distributions would have been excludable from the gross income
of such Unitholders if derived from interest paid by the issuer of the defaulted
obligation.
Unitholders which are corporations subject to taxation under M.G.L. Chapter
63 will be required to include their respective shares of the earnings of or
distributions from the Trust in their Massachusetts gross income to the extent
that such earnings or distributions represent interest from bonds, notes or
indebtedness of any state, including Massachusetts, except for interest which is
specifically exempted from such tax by the acts authorizing issuance of said
Massachusetts Obligations.
The Trust's capital gains and/or capital losses which are includable in the
Federal gross income of Unitholders who are subject to Massachusetts income
taxation under M.G.L. Chapter 62, or Unitholders which are corporations subject
to Massachusetts taxation under M.G.L. Chapter 63 will be included as capital
gains and/or losses in the Unitholders' Massachusetts gross income, except for
capital gain which is specifically exempted from taxation under such Chapters by
the acts authorizing issuance of said Massachusetts Obligations.
Unitholders which are corporations subject to tax under M.G.L. Chapter 63
and which are tangible property corporations will not be required to include the
Units when determining the value of their tangible property. Unitholders which
are intangible property corporations will be required to include the Units when
determining their net worth.
Gains or losses realized on sales or redemptions of Units by Unitholders who
are subject to Massachusetts income taxation under M.G.L. Chapter 62, or
Unitholders which are corporations subject to Massachusetts income taxation
under M.G.L. Chapter 63, will be includable in their Massachusetts gross income.
In determining such gain or loss Unitholders will, to the same extent required
for Federal tax purposes, have to adjust their tax bases for their Units for
accrued interest received, if any, on Massachusetts Obligations delivered to the
Trustee after the Unitholders pay for their Units, for amortization of premiums,
if any, on Massachusetts Obligations held by the Trust, and for accrued original
issue discount with respect to each Massachusetts Obligation which, at the time
the Massachusetts Obligation was issued, had original issue discount.
The Units of the Trust are not subject to any property tax levied by
Massachusetts or any political subdivision thereof, nor to any income tax levied
by any such political subdivision. They are includable in the gross estate of a
deceased holder who is a resident of Massachusetts for purposes of the
Massachusetts Estate Tax.
7
<PAGE>
VOLUME INCENTIVES
The Sponsor has made substantial enhancements to the volume incentive
program for dealer firms currently described in Part B of this Prospectus. The
following information replaces any discussion of volume incentives in Part B.
Volume incentives can be earned as a marketing allowance by eligible dealer
firms who reach cumulative firm sales or sales arrangement levels of a specified
dollar amount of Nuveen unit trusts (other than any series of the Nuveen--The
Dow 5-SM- Portfolios and Nuveen--The Dow 10-SM- Portfolios) sold in the primary
or secondary market during any quarter as set forth in the table below. Eligible
dealer firms are dealers that are providing marketing support for Nuveen unit
trusts in the form of 1) distributing or permitting the distribution of
marketing materials and other product information, 2) providing Nuveen
representatives access to the dealer's branch offices, and 3) generally
facilitating the placement of orders by the dealer's registered representatives
such as putting Nuveen unit trusts on their order entry screens. Eligible firms
will not include firms that solely provide clearing services to broker/dealer
firms. For purposes of determining the applicable volume incentive rate for a
given quarter, the dollar amount of all units sold over the current and three
previous quarters (the "Measuring Period") is aggregated. The volume incentive
received by the dealer firm will equal the dollar amount of units sold during
the current quarter times the highest applicable rate for the Measuring Period.
For firms that meet the necessary volume level, volume incentives may be given
on all applicable trades originated from or by that firm.
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT SOLD
OVER MEASURING PERIOD VOLUME INCENTIVE
- --------------------------------------- -----------------------------------------------
<S> <C>
$ 5,000,000 to $ 9,999,999 0.10% of current quarter sales
$10,000,000 to $19,999,999 0.125% of current quarter sales
$20,000,000 to $49,999,999 0.1375% of current quarter sales
$50,000,000 or more 0.15% of current quarter sales
</TABLE>
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.
PURCHASE PROGRAMS
Notwithstanding anything to the contrary in Part B of the Prospectus:
1. Units may NOT 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.,
Rittenhouse Financial Services, Inc. and The John Nuveen Company, including
in each case these individuals and their immediate family members (as
defined in this Prospectus).
2. 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, (4) officers and directors of
bank holding companies that make Units available directly or through
subsidiaries or bank affiliates, (5) officers or directors and bona fide,
full-time employees of Nuveen, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Rittenhouse Financial Services, Inc., and The John Nuveen
Company, including in each case these individuals and their spouses, minor
children, and parents, however, purchases by parents must be made through a
registered broker-dealer, and (6) any person who for at least 90 days, has
been an officer, director or bona fide employee of any vendor who provides
services to the Sponsor and who purchases Units through a registered
broker-dealer (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.
8
<PAGE>
SCHEDULE OF INVESTMENTS AT THE DATE OF DEPOSIT, JUNE 3, 1999
<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 Massachusetts Bay Transportation Authority, 2007 at 101 AAA Aaa $ 239,705
General Transportation System Bonds, 1997
Series C, 5.00% Due 3/1/24. (Original issue
discount bonds delivered on or about August
14, 1997 at a price of 94.727% of principal
amount.)(General Obligation Bonds.)
250,000 Massachusetts Development Finance Agency 2009 at 102 AAA Aaa 236,975
(Brooks School Issue), Revenue Bonds, 1999
Series B, 5.00% Due 7/1/29.
250,000 Massachusetts Health and Educational Facilities 2008 at 101 AAA Aaa 239,853
Authority, Revenue Bonds, Bentley College
Issue, Series J, 5.00% Due 7/1/23.
250,000 Massachusetts Health and Educational Facilities 2008 at 101 AAA Aaa 226,638
Authority, Revenue Bonds, Southcoast Health
System Obligated Group Issue, Series A, 4.75%
Due 7/1/27. (Original issue discount bonds
delivered on or about February 4, 1998 at a
price of 93.825% of principal amount.)
250,000 Massachusetts Port Authority, Revenue Bonds, 2008 at 101 AAA Aaa 238,218
Series 1998-D, 5.00% Due 7/1/28.
250,000 Massachusetts Turnpike Authority, Metropolitan 2007 at 102 AAA Aaa 233,970
Highway System Revenue Bonds, 1997 Series A
(Senior), 5.00% Due 1/1/37. (Original issue
discount bonds delivered on or about October
2, 1997 at a price of 91.237% of principal
amount.)
250,000 Boston Water and Sewer Commission 2008 at 101 AAA Aaa 238,160
(Massachusetts), General Revenue Bonds
(Senior Series), 1998 Series D, 5.00% Due
11/1/28.
- ----------- ---------------
$ 1,750,000 $ 1,653,519
- ----------- ---------------
- ----------- ---------------
</TABLE>
- ------------
(1) The Sponsor's contracts to purchase bonds were entered into on June 2,
1999. 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>
Massachusetts Insured Trust 164......... $ 1,646,350 $ 7,169 $ 86,875 $ 1,646,519
</TABLE>
In addition, the difference between the Trustee's determination of Offering
Price and Bid Price (as a percentage of principal amount) is .40%. 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 "Risk Factors" herein and "COMPOSITION OF
TRUSTS" and "WHAT IS THE TAX STATUS OF UNITHOLDERS?" 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.)
9
<PAGE>
STATEMENT OF CONDITION, AS OF JUNE 3, 1999
<TABLE>
<S> <C>
TRUST PROPERTY
Sponsor's contracts to purchase bonds, backed by
an irrevocable letter of credit(1)(2)........... $ 1,653,519
Accrued interest to June 3, 1999 on underlying
bonds(1)........................................ 29,389
Offering costs(3)................................. 2,500
--------------
Total................................. $ 1,685,408
--------------
--------------
LIABILITIES AND INTEREST OF UNITHOLDERS
LIABILITIES:
Accrued interest to June 3, 1999 on underlying
bonds(4)..................................... $ 29,389
Accrued offering costs(3)..................... 2,500
--------------
Total................................. $ 31,889
--------------
--------------
INTEREST OF UNITHOLDERS:
Units of fractional undivided interest
outstanding (17,500)
Cost to investors(5)........................ $ 1,738,708
Less: Gross underwriting commission(6).... 85,189
--------------
Net amount applicable to investors............ $ 1,653,519
--------------
Total................................. $ 1,685,408
--------------
--------------
- ------------
</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.)
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF JOHN NUVEEN & CO. INCORPORATED AND UNITHOLDERS OF
MASSACHUSETTS INSURED TRUST 164:
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
Massachusetts Insured Trust 164 (contained in Nuveen Tax-Free Unit Trust, Series
1086), as of June 3, 1999. 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 Massachusetts Insured Trust 164 as of June 3, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 3, 1999
11
<PAGE>
[Logo]
Defined Portfolios
Nuveen Massachusetts
Insured Trust 164
PROSPECTUS -- PART A
JUNE 3, 1999
<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>
--------------
This Prospectus does not contain complete information about the Unit Trust
filed with the Securities and Exchange Commission in Washington, DC under the
Securities Act of 1933 and the Investment Company Act of 1940.
To obtain copies at proscribed rates--
<TABLE>
<S> <C>
Write: Public Reference Section of the Commission, 450 Fifth Street NW, Washington, DC
20549-6009
Call: (800) SEC-0330
Visit: http://www.sec.gov
</TABLE>
No person is authorized to give any information or representation about this
Trust not contained in Parts A or B of this Prospectus or the Information
Supplement, and you should not rely on any other information.
When Units of this Fund are no longer available, this Prospectus may be used
as a preliminary Prospectus for a future series, but some of the information in
this Prospectus will be changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD WHERE A SALE WOULD BE ILLEGAL.
<PAGE>
B
<TABLE>
<S> <C>
Defined Portfolios
Nuveen Tax-Free Unit Trusts
Prospectus Part B dated September 1, 1998
</TABLE>
THE PROSPECTUS FOR A NUVEEN UNIT TRUST IS DIVIDED INTO TWO PARTS. PART A OF
THE PROSPECTUS RELATES EXCLUSIVELY TO A PARTICULAR TRUST AND PROVIDES SPECIFIC
INFORMATION REGARDING THE TRUST'S PORTFOLIO, INVESTMENT OBJECTIVE, EXPENSES,
FINANCIAL HIGHLIGHTS, INTEREST DISTRIBUTIONS, ESTIMATED RETURNS, RISK FACTORS
and tax status. Part B of the Prospectus provides more general information
regarding the Nuveen Tax-Free Unit Trusts. You should read both Parts of the
Prospectus and retain them for future reference. Except as provided in Part A of
the Prospectus, the information contained in this Part B will apply to each
Trust.
Additional information about the Trusts is provided in the Information
Supplement. You can receive an Information Supplement by calling The Chase
Manhattan Bank (the "TRUSTEE") at (800) 257-8787.
NUVEEN DEFINED PORTFOLIOS
TAX-FREE INCOME. Each Nuveen Tax-Free Unit Trust consists of a diversified
portfolio of municipal bonds. (See "Schedule of Investments" in Part A of the
Prospectus for a list of the Bonds included in a Trust.) Under existing law, the
interest income to a Trust and to Unitholders is exempt from federal income tax.
In addition, interest income of a State Trust is exempt to the extent indicated
in Part A of the Prospectus from state and, in some cases, local income taxes.
INSURED TRUSTS. All Bonds in each Nuveen Insured Trust are covered by insurance
policies obtained from MBIA Insurance Corporation. These policies guarantee the
payment of principal and interest when due. The insurance policies remain
effective for the entire life of a Bond. Because of the insurance, the Bonds in
an Insured Trust receive a "AAA" rating from Standard & Poor's Ratings Service,
a division of The McGraw-Hill Companies, Inc. ("STANDARD & POOR'S") and Fitch
IBCA, Inc. ("FITCH") and "Aaa" by Moody's Investors Service, Inc. ("MOODY'S").
Please note that the insurance relates only to the Bonds in the Insured Trusts
and not to the Units or the market value of the Units. (See "Why and How are the
Bonds Insured?")
TRADITIONAL TRUSTS. Each Traditional Trust consists of a diversified portfolio
of Bonds rated in the category of "A" or better by Standard & Poor's, Moody's or
Fitch.
MINIMUM INVESTMENT--$5,000 or 50 Units, whichever is less.
REDEEMABLE UNITS. Units of a Trust are redeemable at the offices of the Trustee
at prices based upon the bid prices of the Bonds. (See "How Units May be
Redeemed Without Charge.")
DISTRIBUTIONS. Interest received by a Trust will be paid semi-annually, unless
you elect to receive distributions monthly or quarterly. Distributions of funds
in the principal account will ordinarily be made semi-annually. (See "When are
Distributions Made to Unitholders?")
PUBLIC OFFERING PRICE. Public Offering Price of a Trust during the Initial
Offering Period is based upon the offering prices of the Bonds in the Trust plus
an upfront sales charge. For Units purchased in the secondary market, the Public
Offering Price is based upon the bid prices of the Bonds in the Trust. Accrued
interest on the Bonds in the Portfolio 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. (See "How is the Public Offering Price
Determined?")
------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<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
COMPOSITION OF TRUSTS 6
WHY AND HOW ARE THE BONDS INSURED? 8
HOW IS THE PUBLIC OFFERING PRICE DETERMINED? 9
MARKET FOR UNITS 12
WHAT IS ACCRUED INTEREST? 12
WHAT ARE ESTIMATED LONG TERM RETURN AND ESTIMATED
CURRENT RETURN? 13
HOW WAS THE PRICE OF THE BONDS DETERMINED AT THE
DATE
OF DEPOSIT? 14
WHAT IS THE TAX STATUS OF UNITHOLDERS? 14
WHAT ARE NORMAL TRUST OPERATING EXPENSES? 17
WHEN ARE DISTRIBUTIONS MADE TO UNITHOLDERS? 18
ACCUMULATION PLAN 19
HOW DETAILED ARE REPORTS TO UNITHOLDERS? 19
UNIT VALUE AND EVALUATION 19
HOW UNITS OF THE TRUSTS ARE DISTRIBUTED TO THE
PUBLIC 20
OWNERSHIP AND TRANSFER OF UNITS 21
HOW UNITS MAY BE REDEEMED WITHOUT CHARGE 22
HOW UNITS MAY BE PURCHASED BY THE SPONSOR 23
HOW BONDS MAY BE REMOVED FROM THE TRUSTS 23
INFORMATION ABOUT THE TRUSTEE 23
INFORMATION ABOUT THE SPONSOR 24
OTHER INFORMATION 25
</TABLE>
2
<PAGE>
J Tax-Free Unit Trusts
<TABLE>
<CAPTION>
TOPICAL INDEX PAGE
<C> <S> <C> <C>
Accrued Interest 12
Accumulation Plan 19
Information
Bond Ratings, Description of Supplement
Bonds, Initial Determination of Offering Price 14
Bonds, How Selected 4
Bonds, Limited Right of Substitution 7
Bonds, Removal from a Trust 23
Call Provisions of Portfolio Bonds 7
Capital Gains Taxability 14
Composition of Trusts 6
Dealer Discounts 20
Distributions to Unitholders 18
Part
Distribution Payment Dates A,18
Distribution of Units to the Public 20
Essential Information Regarding the Trusts Part A
Part
Estimated Long Term Return and Estimated Current Return A,13
Evaluation 19
Expenses for Normal Trust Operation 17
Indenture, Amendment of 25
Indenture, Termination of 25
Insurance on the Bonds 8
Part
Interest Account Distributions A,18
Legal Opinion 25
Limitations on Liabilities of Sponsor and Trustee 24
Market for Units 12
Minimum Transaction 20
Objectives of the Trusts 4
Optional Distribution Plan 18
Other Information 25
Ownership and Transfer of Units 21
Principal Account Distributions 18
Public Offering Price of Units 9
Purchase of Units by Sponsor 23
Quantity Purchases 9
Part
Record Dates A,18
Redemption of Units Without Charge 22
Report of Independent Public Accountants Part A
Reports to Unitholders 19
RISK FACTORS Part A
Sales Charge 10
Schedules of Investments Part A
Sponsor, Information About 24
State Tax Status Part A
Statements of Condition Part A
Successor Trustees and Sponsors 24
Supplemental Information 25
Tax Status of Unitholders 14
Trustee, Information About 23
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").
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" herein and "RISK FACTORS" in Part A of the Prospectus
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?")
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Each Trust consists of municipal bonds. As set forth in "RISK FACTORS" 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 or
the ratings of such Bonds. For economic risks specific to the individual Trusts,
see "RISK FACTORS" in 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.
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
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<PAGE>
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.
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 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
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<PAGE>
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. 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.
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.)
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
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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.
Effective February 17, 1998, MBIA, Inc. 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.
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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.
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, 1998.
(000'S OMITTED)
<TABLE>
<CAPTION>
NEW YORK NEW YORK NEW YORK
STATUTORY STATUTORY POLICYHOLDERS
ASSETS LIABILITIES SURPLUS
------------ ------------ --------------
<S> <C> <C> <C>
The Travelers Casualty & Surety Company (formerly The AEtna Casualty &
Surety Company)........................................................... $ 12,099,838 $ 9,318,112 $ 2,781,726
Fireman's Fund Insurance Company........................................... 10,380,078 7,327,508 3,052,570
The Travelers Indemnity Company............................................ 11,283,583 8,593,024 2,690,559
CIGNA Property and Casualty Company (formerly Aetna Insurance Company)..... 2,325,253 1,440,522 884,731
The Continental Insurance Company.......................................... 2,443,794 1,820,590 623,204
------------ ------------ --------------
Total.............................................................. $ 38,532,546 $ 28,499,756 $ 10,032,790
------------ ------------ --------------
------------ ------------ --------------
</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
9
<PAGE>
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 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
----------------------------- ----------------------------- ------------
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
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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>
PERCENT
OF NET
AMOUNT
NUMBER OF UNITS* INVESTED
- ---------------------------------------- ------------
<S> <C>
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
----------------------------- -----------------------------
PERCENT PERCENT PERCENT PERCENT
OF OF NET OF OF NET
OFFERING AMOUNT OFFERING AMOUNT
NUMBER OF UNITS* PRICE INVESTED PRICE INVESTED
- ---------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
10
<PAGE>
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*
-----------------------------------------------------------------------------------------------------
$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
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
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
11
<PAGE>
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 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
12
<PAGE>
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.
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
13
<PAGE>
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
review of the Trusts 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.
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 accrued interest or
accrued original issue discount, if any.)
For purposes of the following opinions, it is assumed that each asset of the
Trusts is debt, the interest on which is excluded for Federal income tax
purposes.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under existing
law as of the date of this Prospectus:
(1) the Trusts are not 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 Internal Revenue
Code of 1986, as amended (the "Code") will retain its status for Federal
income tax purposes when received by the Trusts and 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 each asset of such Trust under Subpart E, subchapter J of
Chapter 1 of the Code and will have a taxable event when such Trust
disposes of a Bond or when the Unitholder redeems or sells Units. If the
Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all the assets of the Trust involved
including his pro rata portion of all the Bonds represented by the Unit.
The Taxpayer Relief Act of 1997 includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, offsetting notional principal
contracts, futures or forward contracts, or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss)
and for purposes of determining the holding period. Unitholders should
consult their own tax advisors with regard to any such constructive
sales rules. Unitholders must reduce the tax basis of their Units for
their share of accrued interest received by the respective Trust, if
any, on Bonds delivered after the date the Unitholders pay for their
Units to the extent that such interest accrued on such Bonds before the
date the Trust acquired ownership of the Bonds (and the amount of this
reduction may exceed the amount of accrued interest paid to the seller)
and, consequently, such Unitholders may have an increase in taxable gain
or reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Bonds (whether by sale, payment at
maturity, redemption or otherwise), gain or loss is recognized to the
Unitholder
14
<PAGE>
(subject to various non-recognition provisions of the Code). The amount
of any such gain or loss is measured by comparing the Unitholder's pro
rata share of the total proceeds from such disposition with the
Unitholder's basis for his or her fractional interest in the asset
disposed of. In the case of a Unitholder who purchases Units, such basis
(before adjustment for accrued 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 the 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; Unitholders should
consult their own tax advisors with regard to the calculation of basis;
and
(3) any amounts paid on defaulted Bonds held by the Trustee under policies
of insurance issued with respect to such Bonds which represent 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 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.
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 Bonds 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 "1993 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 1993
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.
CERTAIN TAX MATTERS APPLICABLE TO CORPORATE UNITHOLDERS. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax for
taxable years beginning after December 31, 1986 depend upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used in computing
AMTI of a corporation (other than an S corporation, Regulated Investment
Company, Real Estate Investment Trust, REMIC or FASIT) is an amount equal to 75%
of the excess of such corporation's "adjusted current earnings" over an amount
equal to its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes all tax-exempt
interest, including interest on all Bonds in the Trust. Under current Code
provisions, the Superfund Tax does not apply to tax years beginning on or after
January 1, 1996. Legislative proposals have been introduced that would reinstate
the Superfund Tax for taxable years after December 31, 1997 and before January
1, 2009. 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.
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
15
<PAGE>
(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. Legislative proposals have been made that would extend the financial
institution rules to certain other corporations, including securities dealers
and other financial intermediaries. 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.
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.
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 are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
TAX ACT") provides 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. Capital
gains realized from assets held for one year or less are taxed at the same rates
as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
For purposes of computing the alternative minimum tax for individuals and
corporations and the Superfund Tax for corporations, interest on certain private
activity bonds (which includes most industrial and housing revenue bonds) issued
on or after August 8, 1996 is included as an item of tax preference. However,
the assets of the Trust do not include any such private activity bonds issued on
or after that date.
In general, Section 86 of the Code, provides that 50% of Social Security
benefits are includible in gross income to the extent that the sum of "modified
adjusted gross income" plus 50% of the Social Security benefits received exceeds
a "base amount." The base amount is $25,000 for unmarried taxpayers, $32,000 for
married taxpayers filing a joint return and zero for married taxpayers who do
not live apart at all times during the taxable year and who file separate
returns. Modified adjusted gross income is adjusted gross income determined
without regard to certain otherwise allowable deductions and exclusions from
gross income and by including tax-exempt interest. To the extent that Social
Security benefits are includible in gross income, they will be treated as any
other item of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus 50%
of Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from the Trusts, will be subject to tax. A taxpayer whose adjusted
gross income already exceeds the base amount or the adjusted base amount must
include 50% or 85%, respectively, of his Social Security benefits in gross
income whether or not he receives any tax-exempt interest. A taxpayer whose
modified adjusted gross income (after inclusion of tax-exempt interest) does not
exceed the base amount need not include any Social Security benefits in gross
income.
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
16
<PAGE>
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.
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.
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 (the "Sponsor's Evaluation Fee").
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, provided,
however, that for services performed prior to the record date for the second
distribution from the Interest Account indicated under "Interest
Distributions" in Part A of the Prospectus, the Trustee's compensation shall
be computed in respect of all Units outstanding at the rate specified for
the monthly plan of distribution. The Trustee's compensation with respect to
each Trust is computed on the basis of the largest principal amount of Bonds
in the Trust at any time during the period with respect to which such
compensation is being computed. 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). In addition, the Sponsor's Evaluation Fee and the
Trustee's Fee may be 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 or if such index no longer exists, a comparable index. The Trustee
has the use of funds, if any, being held in the Interest and 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.
The Trusts (and therefore Unitholders) will bear all or a portion of
their offering costs, including 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 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.
17
<PAGE>
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 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.
18
<PAGE>
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
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.
19
<PAGE>
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
--------------------------------------------------------------------
NATIONAL LONG INTER- SHORT INTER-
AND STATE MEDIATE INTERMEDIATE MEDIATE SHORT TERM
NUMBER OF UNITS* TRUSTS TRUSTS TRUSTS TRUSTS TRUSTS
- ------------------------------ ---------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
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*
-----------------------------------------------------------------------------------------
$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
- -------------------------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 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.
20
<PAGE>
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 in Certificated form unless the
Unitholder expressly requests that the purchased Units be evidenced by book
entry positions recorded on the books and records of the Trustee. 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.
21
<PAGE>
REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATES.
To obtain a new Certificate replacing one that has been lost, stolen, or
destroyed, the Unitholder must furnish the Trustee with sufficient
indemnification and pay such expenses as the Trustee may incur. This
indemnification must be in the form of an Open Penalty Bond of
Indemnification. The premium for such an indemnity bond may vary, but
currently amounts to 1% of the market value of the Units represented by the
Certificate. In the case however, of a Trust as to which notice of
termination has been given, the premium currently amounts to 0.5% of the
market value of the Units represented by such Certificate.
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%.
22
<PAGE>
The right of redemption may be suspended and payment postponed for any
period during which the Securities and Exchange Commission determines that
trading in the municipal bond market is restricted or an emergency exists,
as a result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit.
Under regulations issued by the Internal Revenue Service, the Trustee
will be required to withhold a specified percentage of the principal amount
of a Unit redemption if the Trustee has not been furnished the redeeming
Unitholder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal Revenue
Service and may be recovered by the Unitholder only when filing his or her
tax return. Under normal circumstances the Trustee obtains the Unitholder's
tax identification number from the selling broker at the time the
Certificate or Book Entry Return Confirmation is issued, and this number is
printed on the Certificate or Book Entry Return Confirmation and on
distribution statements. If a Unitholder's tax identification number does
not appear as described above, or if it is incorrect, the Unitholder should
contact the Trustee before redeeming Units to determine what action, if any,
is required to avoid this "back-up withholding."
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 "RISK FACTORS" in Part A of this Prospectus and
"SUMMARY OF PORTFOLIOS" herein 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.
The Trustee has assumed no responsibility for the accuracy, adequacy and
completeness of the information not furnished by it contained in this
Prospectus.
23
<PAGE>
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE
The Sponsor and the Trustee shall be under no liability to Unitholders for
taking any action or for refraining from any action in good faith pursuant
to the Indenture, or for errors in judgment, but shall be liable only for
their own negligence, lack of good faith or willful misconduct. The Trustee
shall not be liable for depreciation or loss incurred by reason of the sale
by the Trustee of any of the Bonds. In the event of the failure of the
Sponsor to act under the Indenture, the Trustee may act thereunder and shall
not be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest thereon
or upon it as Trustee under the Indenture or upon or in respect of any Trust
which the Trustee may be required to pay under any present or future law of
the United States of America or of any other taxing authority having
jurisdiction. In addition, the Indenture contains other customary provisions
limiting the liability of the Trustee.
SUCCESSOR TRUSTEES AND SPONSORS
The Trustee or any successor trustee may resign by executing an instrument
of resignation in writing and filing same with the Sponsor and mailing a
copy of a notice of resignation to all Unitholders then of record. Upon
receiving such notice, the Sponsor is required to promptly appoint a
successor trustee. If the Trustee becomes incapable of acting or is adjudged
a bankrupt or insolvent, or a receiver or other public officer shall take
charge of its property or affairs, the Sponsor may remove the Trustee and
appoint a successor by written instrument. The resignation or removal of a
trustee and the appointment of a successor trustee shall become effective
only when the successor trustee accepts its appointment as such. Any
successor trustee shall be a corporation authorized to exercise corporate
trust powers, having capital, surplus and undivided profits of not less than
$5,000,000. Any corporation into which a trustee may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which a trustee shall be a party, shall be the successor
trustee.
If upon resignation of a trustee no successor has been appointed and has
accepted the appointment within 30 days after notification, the retiring
trustee may apply to a court of competent jurisdiction for the appointment
of a successor.
If the Sponsor fails to undertake any of its duties under the Indenture,
and no express provision is made for action by the Trustee in such event,
the Trustee may, in addition to its other powers under the Indenture (1)
appoint a successor sponsor or (2) terminate the Indenture and liquidate the
Trusts.
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.
24
<PAGE>
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 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.
25
<PAGE>
<TABLE>
<S> <C>
J
Defined Portfolios
</TABLE>
J
Tax-Free Unit Trusts
PROSPECTUS -- PART B
SEPTEMBER 1, 1998
<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>
--------------
This Prospectus does not contain complete information about the Unit Trust
filed with the Securities and Exchange Commission in Washington, DC under the
Securities Act of 1933 and the Investment Company Act of 1940.
To obtain copies at proscribed rates--
<TABLE>
<S> <C>
Write: Public Reference Section of the Commission, 450 Fifth Street NW, Washington, DC 20549-6009
Call: (800) SEC-0330
Visit: http://www.sec.gov
</TABLE>
No person is authorized to give any information or representation about the
Trusts not contained in Parts A or B of this Prospectus or the Information
Supplement, and you should not rely on any other information.
When Units of this Fund are no longer available, this Prospectus may be used
as a preliminary Prospectus for a future series, but some of the information in
this Prospectus will be changed for that series.
UNITS OF ANY FUTURE SERIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
UNTIL THAT SERIES HAS BECOME EFFECTIVE WITH THE SECURITIES AND EXCHANGE
COMMISSION. NO UNITS CAN BE SOLD WHERE A SALE WOULD BE ILLEGAL.
<PAGE>
NUVEEN TAX-FREE UNIT TRUSTS
---------------------------------------------
INFORMATION SUPPLEMENT
NUVEEN SERIES 1086
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 June 3, 1999.
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 -- Florida Disclosure..................................... A-1
Appendix B -- Massachusetts Disclosure............................... B-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
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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
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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.
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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
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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.
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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, 1998, the Insurer had admitted assets of $6.5 billion
(audited), total liabilities of $4.2 billion (audited), and total capital and
surplus of $2.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1999, the Insurer had admitted assets of $6.7
billion (unaudited), total liabilities of $4.4 billion (unaudited), and total
capital and surplus of $2.3 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.
YEAR 2000 READINESS DISCLOSURE
MBIA, Inc. is actively managing a high-priority Year 2000 (Y2K) program. The
company has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA has a budget of $1.13 million for its 1998-2000 Y2K efforts. Expenditures
are proceeding as anticipated, and we do not expect the project budget to
materially exceed this amount. MBIA has initiated a comprehensive Y2K plan that
includes assessment, remediation, testing and contingency planning. This plan
covers "mission-critical" internally developed systems, vendor software,
hardware and certain third-party entities through which we conduct our business.
Testing to date indicates that functions critical to the financial guarantee
business, both domestic and international, were Y2K-ready as of December 31,
1998. Additional testing will continue throughout 1999.
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
financial strength 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.
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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 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
8
<PAGE>
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
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
9
<PAGE>
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.
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.
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<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.
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<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 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:
FLORIDA INSURED TRUST 276
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $99.92 = 100.080
Investment Offering price and # of units purchased
(as of 06/02/99) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
100.080 X $4.6465 = $465.02
# of units purchased Annual income per unit annual income
(monthly plan)
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE OF HOW TO CALCULATE YOUR ESTIMATED INCOME:
MASSACHUSETTS INSURED TRUST 164
<S> <C> <C> <C> <C>
$10,000 DIVIDED BY $99.43 = 100.573
Investment Offering price and # of units purchased
(as of 06/02/99) accrued interest
<CAPTION>
<S> <C> <C> <C> <C>
100.573 X $4.7071 = $473.41
# of units purchased Annual income per unit annual income
(monthly plan)
</TABLE>
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<PAGE>
APPENDIX A
FLORIDA DISCLOSURE
ECONOMIC FACTORS--FLORIDA
POPULATION. In 1980, Florida was the seventh most populous state in the
U.S. The State has grown dramatically since then and as of April 1, 1997, ranks
fourth with an estimated population of 14.7 million. Florida's attraction, as
both a growth and retirement state, has kept net migration at an average of
224,240 new residents a year from 1987 through 1996, with a low of 138,000 in
1992. Net migration in 1996 was 255,000. The U.S. average population increase
since 1984 is about 1% annually, while Florida's average annual rate of increase
is about 1.8%. Florida continues to be one of the fastest growing of the largest
states. This strong population growth is one reason the State's economy is
performing better than the nation as a whole. In addition to attracting senior
citizens to Florida as a place for retirement, the State is also recognized as
attracting a significant number of working age individuals. Since 1987, the
prime working age population (18-44) has grown at an average annual rate of more
than 2.0%. The share of Florida's total working age population (18-64) to total
State population is approximately 60%. This share is not expected to change
appreciably into the twenty-first century.
INCOME. The State's personal income has been growing strongly the last
several years and has generally out performed both the U.S. as a whole and the
southeast in particular, according to the U.S. Department of Commerce and the
Florida Consensus Economic Estimating Conference. This is because Florida's
population has been growing at a very strong pace and, since the early 70's, the
State's economy has diversified so as to provide a broader economic base. As a
result, Florida's real per capita personal income has tracked closely with the
national average and has tracked above the southeast. From 1992 to 1997,
Florida's total nominal personal income grew by 36.6% and per capita income
expanded approximately 25.9%. For the nation, total and per capita personal
income increased by 30.2% and 24.1%, respectively.
Because Florida has a proportionately greater retirement age population,
property income (dividends, interest, and rent) and transfer payments (Social
Security and pension benefits, among other sources of income) are relatively
more important sources of income. Transfer payments are typically less sensitive
to the business cycle than employment income and, therefore, act as stabilizing
forces in weak economic periods.
Personal income is frequently used to make comparisons among the states.
However, using personal income to compare Florida to other states can be
misleading, because Florida's personal income is systematically underestimated.
Current contributions by employers to pension plans are included in personal
income, while payments from pension plans are excluded to avoid double
accounting. Because Florida retirees are more likely to be collecting on
benefits earned in another state, Florida personal income is underestimated as a
result.
The State's per capita personal income in 1997 of $24,795 was slightly below
the national average of $25,298 and significantly ahead of that for the
southeast United States, which was $22,776. Real personal income in the State is
forecasted to increase 4.9% in 1998-99 and 3.5% in 1999-00. Real personal income
per capita in the State is projected to grow at 3.1% in 1998-99 and 1.8% in
1999-00. The Florida economy appears to be growing in line with, but stronger
than, the U.S. economy and is expected to experience steady if unspectacular
growth over the next couple years.
EMPLOYMENT. Since 1991, the State's population has increased an estimated
11.5%, while the number of employed persons increased 13.3%. In that same
period, Florida's total non-farm employment has grown approximately 21.2%. Since
1991, the non-farm job creation rate in the State is more than twice that of the
nation as a whole. Contributing to this is the State's rapid rate of growth in
employment and income is international trade. Changes to its economy have also
contributed to the State's strong performance. The State is gradually becoming
less dependent on employment related to construction, agriculture, or
manufacturing, and more dependent on employment related to trade and services.
Presently, services constitute 34.9% and trade 25.6% of the State's total
non-farm jobs. While the southeast and the nation have a greater proportion of
manufacturing jobs, which tend to pay higher wages, service jobs tend to be less
sensitive to swings in the business cycle. The State has a concentration of
manufacturing jobs in high-tech and high value-added sectors, such as electrical
and electronic equipment, as well as printing and publishing. These type of
manufacturing jobs tend to be less cyclical. The State's unemployment rate
throughout the 1980's tracked below or about the same as the nation's. In the
nineties, the trend was reversed, until 1995, when the State's unemployment rate
again tracked below the nation's. According to the U.S. Department of Commerce,
the Florida Department of Labor and Employment Security, and the Florida
Consensus Economic Estimating Conference (together the "Organization") the
State's unemployment rate was 4.8% during 1997, while the national average was
4.9%. As of October 1997, the Organization estimates that the unemployment rate
will be 4.5% in 1998-99 and 4.7% in 1999-00.
The State's economy is expected to grow at a moderate rate along with the
nation, but is expected to out perform the nation as a whole. Total non-farm
employment in Florida is expected to increase 3.4% in 1998-99 and 2.9% in
1999-00. Trade and services, the two largest, account for more than half of the
total non-farm employment. Employment in the
A-1
<PAGE>
service sectors should experience an increase of 5.5% in 1998-99, while growing
4.4% in 1999-00. Trade is expected to expand 2.8% in 1999 and 2.8% in 2000. The
service sector is now the State's largest employment category.
CONSTRUCTION. The State's economy has in the past been highly dependent on
the construction industry and construction related manufacturing. This
dependency has declined in recent years and continues to do so as a result of
continued diversification of the State's economy. For example, in 1980, total
contract construction employment as a share of total non-farm employment was
about 7.5%, and in 1997, the share had edged downward to 5.7%. This trend is
expected to continue as the State's economy continues to diversify. Florida,
nevertheless, has a dynamic construction industry, with single and multi-family
housing starts accounting for about 9.2% of total U.S. housing starts in 1997
while the State's population is 5.5% of the nation's. Florida's housing starts
in 1997 were 132,813.
A driving force behind the State's construction industry has been the
State's rapid rate of population growth. Although the State currently is the
fourth most populous state, its annual population growth is now projected to
slow somewhat as the number of people moving into the State is expected to
average 257,000 a year throughout the 1990's. This population trend should
provide fuel for business and home builders to keep construction activity lively
in Florida in the next few years. However, other factors do influence the level
of construction in the State. For example, federal tax reform in 1986 and other
changes to the federal income tax code have eliminated tax deductions for owners
of more than two residential real estate properties and have lengthened
depreciation schedules on investment and commercial properties. Economic growth
and existing supplies of homes and buildings also contribute to the level of
construction in the State.
Single and multi-family housing starts in 1998-99 are projected to reach a
combined level of 144,000, decreasing slightly to 143,000 next year. Total
construction expenditures are forecasted to increase 8.6% this year and increase
2.5% next year.
TOURISM. Tourism is one of the State's most important industries.
Approximately 47 million tourists visited the State in 1997, as reported by the
Florida Department of Commerce. In terms of business activities and State tax
revenues, tourists in Florida in 1996 represented an estimated 4.8 million
additional residents. Visitors to the State tend to arrive slightly more by air
than by auto. The State's tourist industry over the years has become more
sophisticated, attracting visitors year-round and, to a degree, reducing its
seasonality. Tourist arrivals are forecasted to increase by 2.0% in 1998-99 and
1.7% the next fiscal year. Tourist arrivals to Florida by air are expected to
increase by 4.1% this year and increase by 3.9% next year, while arrivals by car
are expected to increase by 0.6% this year and decrease 1.0% next year. By the
end of the State's current fiscal year, 49.7 million domestic and international
tourists are expected to have visited the State. In 1999-00, tourist arrivals
should approximate 50.6 million.
REVENUES AND EXPENSES. Estimated fiscal year 1998-99 General Revenue plus
Working Capital and Budget Stabilization funds available to the State total
$19,463.7 million, a 5.1% increase over 1997-98. Of the total General Revenue
plus Working Capital and Budget Stabilization funds available to the State,
$17,692.4 million of that is Estimated Revenues which represents an increase of
4.4% over the previous year's Estimated Revenues. With effective General
Revenues plus Working Capital Fund and Budget Stabilization appropriations at
$18,185.0 million, including a $100.9 million transfer to the Budget
Stabilization Fund, unencumbered reserves at the end of 1998-99 are estimated at
$1,379.6 million. Estimated fiscal year 1999-00 General Revenue plus Working
Capital and Budget Stabilization funds available total $19,923.7 million, a 2.4%
increase over 1998-99. The $18,386.1 million in Estimated Revenues represents an
increase of 3.9% over the previous year's Estimated Revenues.
In fiscal year 1996-97, approximately 67% of the State's total direct
revenue to its three operating funds was derived from State taxes and fees, with
Federal grants and other special revenue accounting for the balance. State sales
and use tax, corporate income tax, intangible personal property tax, beverage
tax, and estate tax amounted to 68%, 8%, 4%, 3%, and 3%, respectively, of total
General Revenue Funds available during fiscal 1996-97. In that same year,
expenditures for education, health and welfare, and public safety amounted to
approximately 53%, 26%, and 14%, respectively, of total expenditures from the
General Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's single
largest source of tax receipts. Slightly less than 10% of the State's sales and
use tax is designated for local governments and is distributed to the respective
counties in which collected for use by the counties, and the municipalities
therein. In addition to this distribution, local governments may (by referendum)
assess a 0.5% or a 1.0% discretionary sales surtax within their county. Proceeds
from this local option sales tax are earmarked for funding local infrastructure
programs and acquiring land for public recreation or conservation or protection
of natural resources as provided under applicable Florida law. Certain charter
counties have other taxing powers in addition, and non-consolidated counties
with a population in excess of 800,000 may levy a local option sales tax to fund
indigent health care. It alone cannot exceed 0.5% and when combined with the
infrastructure surtax cannot exceed 1.0%. For the fiscal year ended June 30,
1997, sales and use tax receipts (exclusive of the tax on gasoline and special
fuels) totalled $12,089 million, an increase of 5.5% over fiscal year 1995-96.
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The second largest source of State tax receipts is the tax on motor fuels.
However, these revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State's General Revenue Fund.
The State imposes an alcoholic beverage, wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $447.2 million in fiscal year ending June 30, 1997.
Ninety-eight percent of the revenues collected from this tax are deposited into
the State's General Revenue Fund.
The State imposes a corporate income tax. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1997, receipts from this source were $1,362.3 million, an increase of
17.2% from fiscal year 1995-96.
The State imposes a documentary stamp tax on deeds and other documents
relating to realty, corporate shares, bonds, certificates of indebtedness,
promissory notes, wage assignments, and retail charge accounts. The documentary
stamp tax collections totalled $844.2 million during fiscal year 1996-97, an
8.9% increase from the previous fiscal year. For fiscal year 1996-97, 62.63% of
these taxes were deposited to the General Revenue Fund.
The State imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts utilities tax collections are
credited to the State's Public Education Capital Outlay and Debt Service Trust
Fund. In fiscal year 1996-97, this amounted to $575.7 million, an increase of
6.0% over the previous fiscal year.
The State imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens in Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida real
property. The annual rate of tax is 2 mils (a mil is $1.00 of tax per $1,000.00
of property value). Second, the State imposes a non-recurring 2 mil tax on
mortgages and other obligations secured by liens on Florida real property. In
fiscal year 1996-97, total intangible personal property tax collections were
$952.4 million, a 6.3% increase from the prior year. Of the net tax proceeds,
66.5% are distributed to the General Revenue Fund.
The State imposes an estate tax on the estate of a decedent for the
privilege of transferring property at death. All receipts of the estate tax are
credited to the General Revenue Fund. For the fiscal year that ended June 30,
1997, receipts from this source were $546.9 million, an increase of 30% from
fiscal year 1995-96.
The State began its own lottery in 1988. State law requires that lottery
revenues be distributed 50% to the public in prizes, 38.0% for use in enhancing
education, and the balance, 12.0%, for costs of administering the lottery.
Fiscal year 1996-97 lottery ticket sales totalled $2.09 billion, providing
education with approximately $792.3 million.
DEBT-BALANCED BUDGET REQUIREMENT. At the end of fiscal 1997, approximately
$7,892.1 million in principal amount of debt secured by the full faith and
credit of the State was outstanding. In addition, since July 1, 1997, the State
issued about $1,645.4 million in principal amount of full faith and credit
bonds.
The State Constitution and statutes mandate that the State budget, as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute, he must certify his
opinion to the Administrative Commission, which then is authorized to reduce all
State agency budgets and releases by a sufficient amount to prevent a deficit in
any fund. Additionally, the State Constitution prohibits issuance of State
obligations to fund State operations.
LITIGATION: DEFICIT FUND EQUITY. Currently under litigation are several
issues relating to State actions or State taxes that put at risk a portion of
General Revenue Fund monies. There is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on the
State's financial position. A brief summary of these matters follows.
LITIGATION.
NATHAN M. HAMEROFF, M.D., ET AL. V. AGENCY FOR HEALTHCARE
ADMINISTRATION, ET AL. The plaintiff challenged the constitutionality of
Florida's Public Medical Assistance Trust Fund annual assessment on net
operating revenue of free standing out-patient facilities offering
sophisticated radiology services. The trial has not been scheduled. If the
State is unsuccessful in its action, the potential refund liability could
approximate $70 million.
DEFICIT FUND EQUITY.
The Florida Casualty Insurance Risk Management Trust Fund has deficit
retained earnings of approximately $567 million. These represent long term
liabilities of the State as a whole. These liabilities include claims
pertaining to state employee Workers' Compensation, federal civil rights,
and general and automotive liability.
The State maintains a bond rating of Aa2, AA+, and AA from Moody's
Investor's Service, Standard & Poor's Corporation, and Fitch, respectively, on
the majority of its general obligation bonds, although the rating of a
particular series of revenue bonds relates primarily to the project, facility,
or other revenue source from which such series derives funds for repayment.
While these ratings and some of the information presented above indicate that
the State is in
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satisfactory economic health, there can be no assurance that there will not be a
decline in economic conditions or that particular Florida Municipal Obligations
purchased by the Fund will not be adversely affected by any such changes.
The sources for the information presented above include official statements
and financial statements of the State of Florida. While John Nuveen & Co.,
Incorporated has not independently verified this information, John Nuveen & Co.,
Incorporated has no reason to believe that the information is not correct in all
material respects.
FLORIDA 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 published 1999 marginal Federal tax rates*. 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.
- ---------
* The State of Florida does not impose an income tax on individuals.
However, Florida does impose an intangible personal property tax, which is not
included in these tables because it is generally based on property value rather
than 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- 43.05 $ 0-126.60 15.0 % 4.71 5.00 5.29 5.59 5.88 6.18 6.47 6.76
43.05-104.05 0-126.60 28.0 5.56 5.90 6.25 6.60 6.94 7.29 7.64 7.99
126.60-189.95 29.0 5.63 5.99 6.34 6.69 7.04 7.39 7.75 8.10
104.05-158.55 0-126.60 31.0 5.80 6.16 6.52 6.88 7.25 7.61 7.97 8.33
126.60-189.95 32.0 5.88 6.25 6.62 6.99 7.35 7.72 8.09 8.46
189.95-312.45 34.5 6.11 6.49 6.87 7.25 7.63 8.02 8.40 8.78
158.55-283.15 126.60-189.95 37.0 6.35 6.75 7.14 7.54 7.94 8.33 8.73 9.13
189.95-312.45 40.5 6.72 7.14 7.56 7.98 8.40 8.82 9.24 9.66
Over 312.45 37.0 2 6.35 6.75 7.14 7.54 7.94 8.33 8.73 9.13
Over 283.15 186.95-312.45 44.5 7.21 7.66 8.11 8.56 9.01 9.46 9.91 10.36
Over 312.45 41.0 3 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
</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- 25.75 $ 0-126.60 15.0 % 4.71 5.00 5.29 5.59 5.88 6.18 6.47 6.76
25.75- 62.45 0-126.60 28.0 5.56 5.90 6.25 6.60 6.94 7.29 7.64 7.99
62.45-130.25 0-126.60 31.0 5.80 6.16 6.52 6.88 7.25 7.61 7.97 8.33
126.60-249.10 32.5 5.93 6.30 6.67 7.04 7.41 7.78 8.15 8.52
130.25-283.15 126.60-249.10 38.0 6.45 6.85 7.26 7.66 8.06 8.47 8.87 9.27
Over 249.10 37.0 2 6.35 6.75 7.14 7.54 7.94 8.33 8.73 9.13
Over 283.15 Over 249.10 41.0 3 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
</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 Federal tax rate to
approximately 44.27 percent for taxpayers filing a joint return and entitled to
four personal exemptions and to approximately 40.79 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 Federal tax rate reverts to 36.00% after the 80% cap on the limitation on
itemized deductions has been met.
3 Federal tax rate reverts to 39.60% after the 80% cap on the limitation on
itemized deductions has been met.
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APPENDIX B
MASSACHUSETTS DISCLOSURE
ECONOMIC FACTORS--MASSACHUSETTS
Except to the extent the Massachusetts Trust invests in temporary
investments, the Massachusetts Trust will invest substantially all of its net
assets in Massachusetts Municipal Obligations. The Massachusetts Trust is
therefore susceptible to political, economic or regulatory factors affecting
issuers of Massachusetts Municipal Obligations. Without intending to be
complete, the following briefly summarizes the current financial situation, as
well as some of the complex factors affecting the financial situation, in the
Commonwealth of Massachusetts (the "COMMONWEALTH"). It is derived from sources
that are generally available to investors and is based in part on information
obtained from various agencies in Massachusetts. No independent verification has
been made of the accuracy or completeness of the following information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on Commonwealth or local
governmental finances generally, will not adversely affect the market value of
Massachusetts Obligations in the Trust or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
Since 1988, there has been a significant slowdown in the Commonwealth's
economy, as indicated by a rise in unemployment, a slowing of its per capita
income growth and declining state revenues. Since fiscal 1991, the
Commonwealth's revenues for state government programs have exceeded
expenditures; however, no assurance can be given that lower than expected tax
revenues will not resume and continue.
1996 FISCAL YEAR BUDGET. On July 21, 1995, the Governor signed the
Commonwealth's budget for fiscal 1996. The fiscal 1996 budget is based on
estimated budgeted revenues and other sources of approximately $16.778 billion,
which includes fiscal 1996 tax revenues of $11.653 billion. Estimated fiscal
1996 tax revenues are approximately $490 million, or 4.3% higher than estimated
fiscal 1995 tax revenues.
Fiscal 1996 non-tax revenues are projected to total $5.158 billion,
approximately $66 million, or 1.3% less than fiscal 1995 non-tax revenues of
approximately $5.224 billion. Federal reimbursements are projected to decrease
by approximately $1 million from approximately $2.970 billion in fiscal 1995 to
approximately $2.969 billion in fiscal 1996, primarily as a result of increased
reimbursements for Medicare spending, offset by a reduction in reimbursements
received in 1995 for one-time Medicare expenses incurred in fiscal 1994 and
fiscal 1995. Fiscal 1996 departmental revenues are projected to decline by
approximately $94 million, or 7.4%, from approximately $1.273 billion in fiscal
1995 to approximately $1.179 billion in fiscal 1996. Major changes in projected
non-tax received for fiscal 1996 include a decline in motor vehicle license and
registration fees, reduction of abandoned property revenues and a decrease due
to non-recurring revenues received in fiscal 1995 from hospitals and nursing
homes as part of Medicare fiscal rate settlements and other reimbursements by
municipal hospitals to the state.
Fiscal 1996 appropriations in the Annual Appropriations Act total
approximately $16.847 billion, including approximately $25 million in
gubernatorial vetoes overridden by the legislature. In the final supplemental
budget for fiscal 1995, approved on August 24, 1995, another $71.1 million of
appropriations were continued for use in 1996.
As of February 1, 1996, the Governor had signed into law fiscal 1996
supplemental appropriations totalling approximately $23.5 million, including
approximately $12.6 million to fund higher education collective bargaining
contracts and $5.6 million for the Department of Social Services. These
appropriations were offset by approximately $10.4 million in line item
reductions, including a reduction of $9.8 million for the state's debt service
contract assistance to the MBTA. Both the House and Senate have passed
supplemental appropriation bills totalling $64.8 million primarily relating to
snow and ice removal costs incurred by both the Commonwealth and cities and
towns. The bills are currently awaiting resolution by a conference committee of
the House and Senate. On January 26, 1996 and February 9, 1996, the Governor
filed additional supplemental appropriation bills totalling approximately $7.3
million for costs relating to prison overcrowding relief as well as
reimbursement costs associated with a court settlement. No action has been taken
on these bills by either branch of the Legislature.
As of May 28, 1996, fiscal 1996 projected spending is approximately $16.963
billion, including approximately $153.2 million reserved for contingencies.
Projected revenues are approximately $16.851 billion. The fiscal 1996 tax
revenue projection is $11.684 billion, which represents an increase of
approximately $80 million from the earlier estimate, based upon tax revenue
collections through April 1996.
The fiscal 1996 budget is based on numerous spending and revenue estimates
the achievement of which cannot be assured.
1995 FISCAL YEAR. Budgeted revenues and other sources, including non-tax
revenues, collected in fiscal 1995 were approximately $16.387 billion,
approximately $837 million, or 5.4% above fiscal 1994 revenues of $15.550
billion. Fiscal 1995 tax revenues collections were approximately $11.163
billion, approximately $12 million above the Department of
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Revenue's revised fiscal year 1995 tax revenue estimate of $10.151 billion and
$556 million, or 5.2% above fiscal year tax revenues of $10.607 billion.
Budgeted expenditures and other uses of funds in fiscal 1995 were
approximately $16.251 billion, approximately $728 million, or 4.7% above fiscal
1994 budgeted expenditures and uses of $15.523 billion.
The Commonwealth ended fiscal 1995 with an operating gain of $137 million
and an ending fund balance of $726 million.
On February 10, 1995, the Governor signed into law certain reforms to the
Commonwealth's program for Aid to Families with Dependent Children ("AFDC")
which will take effect on July 1, 1995, subject to federal approval of certain
waivers. The revised program reduces AFDC benefits to able bodied recipients by
2.75%, while allowing them to keep a larger portion of their earned wages,
requires approximately 22,000 able-bodied parents of school-aged children to
work or perform community service for 20 hours per week and requires
approximately 16,000 recipients who have children between the ages of two and
six to participate in an education or training program or perform community
service. The plan also establishes a pilot program for up to 2,000 participants
that offers tax credits and wage subsidies to employers who hire welfare
recipients. Parents who find employment will be provided with extended medical
benefits and day care benefits for up to one year. The plan mandates paternal
identification, expands funding for anti-fraud initiatives, and requires parents
on AFDC to immunize their children. Parents who are disabled, caring for a
disabled child, have a child under the age of two, or are teen-agers living at
home and attending high school, will continue to receive cash assistance. Since
most provisions of the new law do not take effect until July 1, 1995, the
Executive Office for Administration projects that the reforms will not
materially affect fiscal 1995 public assistance spending. The fiscal 1995
expenditure estimate of $16.449 billion includes $247.8 million appropriated to
fund the Commonwealth's public assistance programs for the last four months of
fiscal 1995. The Commonwealth is currently evaluating the new law's impact on
fiscal 1996 projected spending for public assistance programs.
On November 8, 1994, the voters in the statewide general election approved
an initiative petition that would slightly increase the portion of the gasoline
tax revenue credited to the Highway Fund, one of the Commonwealth's three major
budgetary funds, prohibit the transfer of money from the Highway Fund to other
funds for non-highway purposes and not permit including the Highway Fund balance
in the computation "consolidated net surplus" for purposes of state finance
laws. The initiative petition also provides that no more than 15% of gasoline
tax revenues may be used for mass transportation purposes, such as expenditures
related to the Massachusetts Bay Transit Authority. The Executive Office of
Administration and Finance is analyzing the effect, if any, this initiative
petition, which became law on December 8, 1994, may have on the fiscal 1995
budget and it currently does not expect it to have any materially adverse
impact. This is not a constitutional amendment and is subject to amendment or
repeal by the Legislature, which may also, notwithstanding the terms of the
petition, appropriate moneys from the Highway Fund in such amounts and for such
purposes as it determines, subject only to a constitutional restriction that
such moneys be used for highways or mass transit purposes.
1994 FISCAL YEAR. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year 1994
tax revenue estimate of $10.694 billion and $677 million above fiscal 1993 tax
revenues of $9.930 billion. Budgeted revenues and other sources, including
non-tax revenues, collected in fiscal 1994 were approximately $15.550 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to fiscal 1994 while tax revenues increased by 6.8% for the same period.
Budgeted expenditures and other uses of funds in fiscal 1994 were approximately
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599 million.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects the annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion to be
approximately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868
million in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $896
million in appropriations to satisfy this legislation.
1993 FISCAL YEAR. The Commonwealth's budgeted expenditures and other uses
were approximately $14.696 billion in fiscal 1993, which is approximately $1.280
billion or 9.6% higher than fiscal 1992 expenditures and other uses. Final
fiscal 1993 budgeted expenditures were $23 million lower than the initial July
1992 estimates of fiscal 1993 budgeted expenditures. Budgeted revenues and other
sources for fiscal 1993 totalled approximately $14.710 billion, including tax
revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues increased
by 4.7% for the same period. Overall, fiscal 1993 ended with a surplus of
revenues and
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other sources over expenditures and other uses of $13.1 million and aggregate
ending fund balances in the budgeted operating funds of the Commonwealth of
approximately $562.5 million. After payment in full of the distribution of local
aid to the Commonwealth's cities and towns ("Local Aid") and the retirement of
short term debt, the Commonwealth showed a year end cash position of
approximately $622.2 million, as compared to a projected position of $485.1
million.
1992 FISCAL YEAR. The Commonwealth's budgeted expenditures and other uses
were approximately $13.4 billion in fiscal 1992, which is $238.7 million or 1.7%
lower than fiscal 1991 budgeted expenditures. Final fiscal 1992 budgeted
expenditures were $300 million more than the initial July 1991 estimates of
budgetary expenditures, due in part to increases in certain human services
programs, including an increase of $268.7 million for the Medicaid program and
$50.0 million for mental retardation consent decree requirements. Budgeted
revenues and other sources for fiscal 1992 totalled approximately $13.7 billion
(including tax revenues of approximately $9.5 billion), reflecting an increase
of approximately 0.7% from fiscal 1991 to 1992 and an increase of 5.4% in tax
revenues for the same period. Overall, fiscal 1992 is estimated to have ended
with an excess of revenues and other sources over expenditures and other uses of
$312.3 million. After payment in full of Local Aid in the amount of $514.0
million due on June 30, 1992, retirement of the Commonwealth's outstanding
commercial paper (except for approximately $50 million of bond anticipation
notes) and certain other short term borrowings, as of June 30, 1992, the end of
fiscal 1992, the Commonwealth showed a year-end cash position of approximately
$731 million, as compared with the Commonwealth's cash balance of $182.3 million
at the end of fiscal 1991.
1991 FISCAL YEAR. Budgeted expenditures for fiscal 1991 were approximately
$13.659 billion, as against budgeted revenues and other sources of approximately
$13.634 billion. The Commonwealth suffered an operating loss of approximately
$21.2 million. Application of the adjusted fiscal 1990 fund balances of $258.3
million resulted in a fiscal 1991 budgetary surplus of $237.1 million. State law
requires that approximately $59.2 million of the fiscal year ending balances of
$237.1 million be placed in the Stabilization Fund, a reserve from which funds
can be appropriated (i) to make up any difference between actual state revenues
in any fiscal year in which actual revenues fall below the allowable amount,
(ii) to replace state and local losses by federal funds or (iii) for any event,
as determined by the legislature, which threatens the health, safety or welfare
of the people or the fiscal stability of the Commonwealth or any of its
political subdivisions.
Upon taking office in January 1991, the new Governor proposed a series of
legislative and administrative actions, including withholding of allotments
under Section 9C of Chapter 29 of the General Laws, intended to eliminate the
projected deficits. The new Governor's review of the Commonwealth's budget
indicated projected spending of approximately $14.1 billion with an estimated
$850 million in budget balancing measures that would be needed prior to the
close of fiscal 1991. At that time, estimated tax revenues were revised to
approximately $8.8 billion, $903 million less than was estimated at the time the
fiscal 1991 budget was adopted. The Legislature adopted a number of the
Governor's recommendations and the Governor took certain administrative actions
not requiring legislative approval, including the adoption of a state employee
furlough program. It is estimated by the Commonwealth that spending reductions
achieved through savings initiatives and withholding of allotments total
approximately $484.3 million in aggregate for fiscal 1991. However, these
savings and reductions may be impacted negatively by litigation pursued by third
parties concerning the Governor's actions under Section 9C of Chapter 29 of the
General Laws and with regard to the state employee furlough program.
In addition, the new administration in May 1991 filed an amendment to its
Medicaid state plan that enables it to claim 50% federal reimbursement on
uncompensated care payments for certain hospitals in the Commonwealth. As a
result, in fiscal 1991, the Commonwealth obtained additional non-tax revenues in
the form of federal reimbursements equal to approximately $513 million on
account of uncompensated care payments. This reimbursement claim was based upon
recent amendments of federal law contained in the Omnibus Budget Reconciliation
Act of 1990 and, consequently, on relatively undeveloped federal laws,
regulations and guidelines. At the request of the federal Health Care Financing
Administration, the Office of Inspector General of the United States Department
of Health and Human Services has commenced an audit of the reimbursement. The
administration, which had reviewed the matter with the Health Care Financing
Administration prior to claiming the reimbursement, believes that the
Commonwealth will prevail in the audit. If the Commonwealth does not prevail,
the Commonwealth would have the right to contest an appeal, but could be
required to pay all or part of Medicaid reimbursements with interest and to have
such amount deducted from future reimbursement payments.
EMPLOYMENT. Reversing a trend of relatively low unemployment during the
early and mid 1980's, the Massachusetts unemployment rate beginning in 1990
increased significantly to where the Commonwealth's unemployment rate exceeded
the national unemployment rate. During 1990, the Massachusetts unemployment rate
increased from 4.5% in January to 6.1% in July to 6.7% in August. During 1991,
the Massachusetts unemployment rate averaged 9.0% while the average United
States unemployment rate was 6.7%. The Massachusetts unemployment rate during
1992 averaged 8.5% while the average United States unemployment rate was 7.4%.
Since 1993, the average monthly unemployment rate has
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declined steadily. The Massachusetts unemployment rate in February 1996 was
5.0%, as compared with the United States unemployment rate of 5.5% for the same
period. Other factors which may significantly and adversely affect the
employment rate in the Commonwealth include reductions in federal government
spending on defense-related industries. Due to this and other considerations,
there can be no assurance that unemployment in the Commonwealth will not
increase in the future.
DEBT RATINGS. S&P currently rates the Commonwealth's uninsured general
obligation bonds at A+. At the same time, S&P currently rates state and agency
notes at SP1. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its S&P rating, with its decline beginning in May 1989, when S&P
lowered its rating on the Commonwealth's general obligation bonds and other
Commonwealth obligations from AA+ to AA and continuing a series of further
reductions until March 1992, when the rating was affirmed at BBB.
Moody's currently rates the Commonwealth's uninsured general obligation
bonds at A1. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its rating by Moody's since May 1989. In May 1989, Moody's lowered
its rating on the Commonwealth's notes from MIG-1 to MIG-2, and its rating on
the Commonwealth's commercial paper from P-1 to P-2. On June 21, 1989, Moody's
reduced the Commonwealth's general obligation rating from Aa to A. On November
15, 1989, Moody's reduced the rating on the Commonwealth's general obligations
from A to Baa1, and on March 9, 1990, Moody's reduced the rating of the
Commonwealth's general obligation bonds from Baa1 to Baa.
There can be no assurance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and
municipalities have faced serious financial difficulties which have affected the
credit standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt obligations.
The continuation of, or an increase in, such financial difficulties could result
in declines in the market values of, or default on, existing obligations
including Massachusetts Obligations in the Trust. Should there be during the
term of the Trust a financial crisis relating to Massachusetts, its public
bodies or municipalities, the market value and marketability of all outstanding
bonds issued by the Commonwealth and its public authorities or municipalities
including the Massachusetts Obligations in the Trust and interest income to the
Trust could be adversely affected.
TOTAL BOND AND NOTE LIABILITIES. The total general obligation bond
indebtedness of the Commonwealth (including Dedicated Income Tax Debt and
Special Obligation Debt) as of April 1, 1996 was approximately $10.093 billion.
There were also outstanding approximately $240 million in general obligation
notes and other short term general obligation debt. The total bond and note
liabilities of the Commonwealth as of April 1, 1996, including guaranteed bond
and contingent liabilities, was approximately $13.818 billion.
DEBT SERVICE. During the 1980s, capital expenditures were increased
substantially, which has had a short term impact on the cash needs of the
Commonwealth and also accounts for a significant rise in debt service during
that period. In November, 1988, the Executive Office for Administration and
Finance established an administrative limit on state-financed capital spending
in the Capital Projects Fund of $925 million per fiscal year. Capital
expenditures were $847.0 million, $694.1 million, $575.9 million, $760.6 million
and $902.2 million in fiscal 1991, fiscal 1992, fiscal 1993, fiscal 1994 and
fiscal 1995, respectively. Commonwealth-financed capital expenditures are
projected to be approximately $898.0 million in fiscal 1996. Debt service
expenditures for fiscal 1991, fiscal 1992, fiscal 1993, fiscal 1994 and fiscal
1995 were $942.3 million, $898.3 million, $1.140 billion, $1.149 billion, and
$1.231 billion, respectively, and are projected to be approximately $1.199
billion for fiscal 1996. The amounts represented do not include debt service on
notes issued to finance certain Medicare-related liabilities, certain debt
service contract assistance payment to Massachusetts Bay Transportation
Authority ($205.5 million projected in fiscal 1996), the Massachusetts
Convention Center ($24.6 million projected in fiscal 1996), the Massachusetts
Government Land Bank ($6.0 million projected in fiscal 1996), the Massachusetts
Water Pollution Abatement Trust ($16.6 million projected in fiscal 1996), and
grants to municipalities under the school building assistance program to defray
a portion of the debt service costs on local school bonds ($174.5 million
projected in fiscal 1996).
In January 1990, legislation was passed to impose a limit on debt service
beginning in fiscal 1991, providing that no more than 10% of the total
appropriations in any fiscal year may be expended for payment of interest and
principal on general obligation debt (excluding the Fiscal Recovery Bonds). The
percentage of total appropriations expended from the budgeted operating funds
for debt service (excluding debt service on Fiscal Recovery Bonds) for fiscal
1994 is 5.6%, which is projected to increase to 5.9% in fiscal 1995.
CERTAIN LIABILITIES. Among the material future liabilities of the
Commonwealth are significant unfunded general liabilities of its retirement
systems and a program to fund such liabilities; a program whereby, starting in
1978, the Commonwealth began assuming full financial responsibility for all
costs of the administration of justice within the Commonwealth; continuing
demands to raise aggregate aid to cities, towns, schools and other districts and
transit
B-4
<PAGE>
authorities above current levels; and Medicaid expenditures which have increased
each year since the program was initiated. The Commonwealth has signed consent
decrees to continue improving mental health care and programs for the mentally
retarded in order to meet federal standards, including those governing receipt
of federal reimbursements under various programs, and the parties in those cases
have worked cooperatively to resolve the disputed issues.
As a result of comprehensive legislation approved in January, 1988, the
Commonwealth is required, beginning in fiscal 1989 to fund future pension
liabilities currently and to amortize the Commonwealth's unfunded liabilities
over 40 years. The funding schedule must provide for annual payments in each of
the ten years ending fiscal 1998 which are at least equal to the total estimated
pay-as-you-go pension costs in each year. As a result of this requirement, the
funding requirements for fiscal 1996, 1997, and 1998 are estimates to be
increased to approximately $1.007 billion, $1.061 billion and $1.128 billion,
respectively.
LITIGATION. The Commonwealth is engaged in various lawsuits involving
environmental and related laws, including an action brought on behalf of the
U.S. Environmental Protection Agency alleging violations of the Clean Water Act
and seeking to enforce the clean-up of Boston Harbor. The MWRA, successor in
liability to the Metropolitan District Commission, has assumed primary
responsibility for developing and implementing a court-approved plan for the
construction of the treatment facilities necessary to achieve compliance with
federal requirements. Under the Clean Water Act, the Commonwealth may be liable
for costs of compliance in these or any other Clean Water cases if the MWRA or a
municipality is prevented from raising revenues necessary to comply with a
judgment. The MWRA currently projects that the total cost of construction of the
treatment facilities required under the court's order is approximately $3.557
billion in current dollars, with approximately $1.046 billion to be spent on or
after June 30, 1995. On October 18, 1995, the court entered an order which
reduced the MWRA's obligation to build certain additional secondary treatment
facilities, which is estimated by the MWRA will save ratepayers approximately
$165 million.
The Department of Public Welfare has been sued for the alleged unlawful
denial of personal care attendant services to certain disabled Medicaid
recipients. The Superior Court has denied the plaintiff's motion for preliminary
injunction and has also denied the plaintiff's motion for class certification.
If the plaintiffs were to prevail on their claims and the Commonwealth were
required to provide all of the services sought by the plaintiffs to all
similarly situated persons, it would substantially increase the annual cost to
the Commonwealth if these services are eventually required. The Department of
Public Welfare currently estimates this increase to be as much as $200 million
per year.
There are also actions pending in which recipients of human services
benefits, such as welfare recipients, the mentally retarded, the elderly, the
handicapped, children, residents of state hospitals and inmates of corrections
institutions, seek expanded levels of services and benefits and in which
providers of services to such recipients challenge the rates at which they are
reimbursed by the Commonwealth. To the extent that such actions result in
judgments requiring the Commonwealth to provide expanded services or benefits or
pay increased rates, additional operating and capital expenditures might be
needed to implement such judgments.
In 1995, the Spaulding Rehabilitation Hospital ("Spaulding") filed an action
to enforce an agreement to acquire its property by eminent domain in connection
with the Central Artery/Third Harbor Tunnel Project. If successful, Spaulding
could recover the fair market value of its property in addition to its
relocation costs with respect to its personal property. The Commonwealth
estimates its potential liability at approximately $50 million.
The Commonwealth faces an additional potential liability of approximately
$40 million in connection with a taking by the Massachusetts Highway Department
related to the relocation of Northern Avenue in Boston.
In addition, there are several tax matters in litigation which could result
in significant refunds to taxpayers if decisions unfavorable to the Commonwealth
are rendered. In BAYBANK, ET AL. V. COMMISSIONER OF REVENUE, the banks challenge
the inclusion of income from tax exempt obligations in the measure of the bank
excise tax. The Appellate Tax Board issued findings of fact and a report in
favor of the Commissioner of Revenue on September 30, 1993. The case is pending
before the Supreme Judicial Court. The potential liability is approximately $55
million, including similarly situated banks and tax years after 1990.
In NATIONAL ASSOCIATION OF GOVERNMENT EMPLOYEES V. COMMONWEALTH, the
Superior Court declared that a line item in the Commonwealth's general
appropriations act for fiscal 1994 that increased the state employees'
percentage share of their group health insurance premiums from 10% to 15%
violated the terms of several collective bargaining agreements, and therefore
was invalid under the United States Constitution as regards employees covered by
the agreements. On February 9, 1995, the Supreme Judicial Court vacated the
Superior Court's decision and declared that the fiscal 1994 line item did not
violate the contracts clause. In June, 1995, the United States Supreme Court
denied the plaintiff's writ of certiorari. Several other unions have filed a
companion suit asserting that the premium increase similarly violated other
collective bargaining agreements. The latter suit is in its initial stages.
Prior to the Supreme Judicial Court's decision the Commonwealth's aggregate
liability is estimated to be approximately $32 million.
B-5
<PAGE>
A variety of other civil suits pending against the Commonwealth may also
affect its future liabilities. These include challenges to the Commonwealth's
allocation of school aid under Section 9C of Chapter 29 of the General Laws and
to adopt a state employee furlough program. No prediction is possible as to the
ultimate outcome of these proceedings.
On March 22, 1995, the Supreme Judicial Court held in PERINI CORPORATION V.
COMMISSION OF REVENUES that certain deductions from the net worth measure of the
Massachusetts corporate excise tax violate the Commerce Clause of the United
States Constitution. On October 2, 1995, the United States Supreme Court denied
the Commonwealth's petition for writ of certiorari. The Department of Revenue
estimates that tax revenues in the amount of $40 to $55 million may be abated as
a result of the Supreme Judicial Court's decision.
Many factors, in addition to those cited above, have or may have a bearing
upon the financial condition of the Commonwealth, including social and economic
conditions, many of which are not within the control of the Commonwealth.
EXPENDITURE AND TAX LIMITATION MEASURES. Limits have been established on
state tax revenues by legislation approved by the Governor on October 25, 1986
and by an initiative petition approved by the voters on November 4, 1986. The
Executive Office for Administration and Finance currently estimates that state
tax revenues will not reach the limit imposed by either the initiative petition
or the legislative enactment in fiscal 1992.
Proposition 2 1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns, and large
increases in state aid to offset such revenue losses. According to the Executive
Office for Administration and Finance, all of the 351 cities and towns have now
achieved a property tax level of no more than 2.5% of full property values.
Under the terms of Proposition 2 1/2, the property tax levy can now be increased
annually for all cities and towns, almost all by 2.5% of the prior fiscal year's
tax levy plus 2.5% of the value of new properties and of significant
improvements to property. Legislation has also been enacted providing for
certain local option taxes. A voter initiative petition approved at the
statewide general election in November, 1990 further regulates the distribution
of Local Aid of no less than 40% of collections from individual income taxes,
sales and use taxes, corporate excise taxes, and the balance of the state
lottery fund. If implemented in accordance with its terms (including
appropriation of the necessary funds), the petition as approved would shift
several hundred million dollars to direct Local Aid.
OTHER TAX MEASURES. To provide revenue to pay debt service on both the
deficit and Medicaid-related borrowings and to fund certain direct Medicaid
expenditures, legislation was enacted imposing an additional tax on certain
types of personal income for 1989 and 1990 taxable years at rates of 0.375% and
0.75% respectively, effectively raising the tax rate of 1989 from 5% to 5.375%
and for 1990 to 5.75%. Recent legislation has effectively further increased tax
rates to 5.95% for tax year 1990 to 6.25% for tax year 1991 and returning to
5.95% for tax year 1992 and subsequent tax years. The tax is applicable to all
personal income except income derived from dividends, capital gains,
unemployment compensation, alimony, rent, interest, pensions, annuities and
IRA/Keogh distributions. The income tax rate on other interest (excluding
interest on obligations of the United States and of the Commonwealth and its
subdivisions), dividends and net capital gains (after a 50% reduction) was
increased from 10% to 12% for tax year 1990 and subsequent years, by recently
enacted legislation.
ESTATE TAX REVISIONS. The fiscal 1993 budget included legislation which
gradually phases out the current Massachusetts estate tax and replaces it with a
"sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for state taxes allowed for federal estate tax purposes. The estate tax
is phased out by means of annual increases in the basic exemption from the
current $200,000 level. The exemption is increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the
legislation includes a full marital deduction starting July 1, 1994. Currently
the marital deduction is limited to 50% of the Massachusetts adjusted gross
estate. The static fiscal impact of the phase out of the estate tax was
estimated to be approximately $24.8 million in fiscal 1994 and is estimated to
be approximately $72.5 million in fiscal 1995.
OTHER ISSUERS OF MASSACHUSETTS OBLIGATIONS. There are a number of state
agencies, instrumentalities and political subdivisions of the Commonwealth that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the Commonwealth. The brief
summary above does not address, nor does it attempt to address, any difficulties
and the financial situations of those other issuers of Massachusetts
Obligations.
B-6
<PAGE>
MASSACHUSETTS 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 1999 marginal Federal
tax rates and marginal state tax rates currently available and scheduled to be
in effect. The combined state and Federal tax brackets shown reflect the fact
that state tax payments are currently deductible for Federal tax purposes. The
Massachusetts state tax rate shown is the rate at which interest is taxed.
Certain other types of income are taxed at other rates. 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- 43.05 $ 0-126.60 20.0 % 5.00 5.31 5.63 5.94 6.25 6.56 6.88 7.19
43.05-104.05 0-126.60 32.5 5.93 6.30 6.67 7.04 7.41 7.78 8.15 8.52
126.60-189.95 33.0 5.97 6.34 6.72 7.09 7.46 7.84 8.21 8.58
104.05-158.55 0-126.60 35.0 6.15 6.54 6.92 7.31 7.69 8.08 8.46 8.85
126.60-189.95 36.0 6.25 6.64 7.03 7.42 7.81 8.20 8.59 8.98
189.95-312.45 38.5 6.50 6.91 7.32 7.72 8.13 8.54 8.94 9.35
158.55-283.15 126.60-189.95 41.0 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
189.95-312.45 44.0 7.14 7.59 8.04 8.48 8.93 9.38 9.82 10.27
Over 312.45 41.0 3 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
Over 283.15 189.95-312.45 47.5 7.62 8.10 8.57 9.05 9.52 10.00 10.48 10.95
Over 312.45 44.5 7.21 7.66 8.11 8.56 9.01 9.46 9.91 10.36
</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- 25.75 $ 0-126.60 20.0 % 5.00 5.31 5.63 5.94 6.25 6.56 6.88 7.19
25.75- 62.45 0-126.60 32.5 5.93 6.30 6.67 7.04 7.41 7.78 8.15 8.52
62.45-130.25 0-126.60 35.0 6.15 6.54 6.92 7.31 7.69 8.08 8.46 8.85
126.60-249.10 36.5 6.30 6.69 7.09 7.48 7.87 8.27 8.66 9.06
130.25-283.15 126.60-249.10 41.5 6.84 7.26 7.69 8.12 8.55 8.97 9.40 9.83
Over 249.10 41.0 2 6.78 7.20 7.63 8.05 8.47 8.90 9.32 9.75
Over 283.15 Over 249.10 44.5 3 7.21 7.66 8.11 8.56 9.01 9.46 9.91 10.36
</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 state and
Federal tax rate to approximately 47.59 percent for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately 44.50
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 state and Federal tax rate reverts to 39.81% after the 80% cap on
the limitation on itemized deductions has been met.
3 Combined state and Federal tax rate reverts to 43.19% after the 80% cap on
the limitation on itemized deductions has been met.
B-7
<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 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. 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 1086 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 1086 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 June 3, 1999.
NUVEEN TAX-FREE UNIT TRUST, SERIES
1086
(Registrant)
By JOHN NUVEEN & CO. INCORPORATED
(Depositor)
By: Robert K. Burke
--------------------------------------
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 )
)
John P. Amboian Chief Financial Officer and ) Larry W. Martin
Executive Vice President ) Attorney-In-Fact**
)
) June 3, 1999
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 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>
1086
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 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 4.1 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 4.2 to the Registration Statement.
CONSENT OF ARTHUR ANDERSEN LLP
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 4.3
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.
3.4 Corporate opinion of Trustee's counsel.
3.5 Opinion of Trustee's counsel as to New York tax status.
4.1 Consent of Kenny S&P Evaluation Services.
4.2 Consent of Carter, Ledyard & Milburn.
4.3 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 1086
TRUST INDENTURE AND AGREEMENT
DATED JUNE 3, 1999
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 1086 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 Alfred Miller
Assistant 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 1086
(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)
June 3, 1999
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
RE: NUVEEN TAX-FREE UNIT TRUST, SERIES 1086
Gentlemen:
We have served as counsel for you, as depositor of Nuveen Tax-Free Unit
Trust, Series 1086 (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. 333-79299) 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)
June 3, 1999
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
RE: Nuveen Tax-Free Unit Trust, Series 1086
Gentlemen:
We have served as counsel for you, as Depositor of Nuveen Tax-Free Unit
Trust, Series 1086 (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 1086.
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. 333-79299) 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 CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER, P.A. LETTERHEAD)
JUNE 3, 1999
Nuveen Tax-Free Unit Trust, Series 1086
Florida Insured Trust 276
John Nuveen & Co. Incorporated
333 W. Wacker Drive
Chicago, Illinois 60606
Attn: Gifford R. Zimmerman
Assistant General Counsel and
Vice President
Re: Florida Insured Trust 276
Gentlemen:
We have acted as special Florida counsel to Nuveen Tax-Free Unit Trust,
Series 1086 including the above-captioned trust (the "Fund") in connection with
the issuance by the Fund of units of fractional undivided interests in the Fund
(the "Units"). In that connection, you have requested our opinion as to the
application of Florida state and local taxes to the Trust (as hereinafter
defined) and to investors who purchase units in the Trust.
We have not been furnished with a copy of the Registration Statement or the
prospectus, which is a part of the Registration Statement, relating to the
issuance by the Fund of the Units. However, you have authorized us to assume
that the proposed offer and sale of the Units, including the units of the
Florida Trust, will be carried out in that same manner and upon the same terms
and conditions as those described in any prospectus for a previous Nuveen
Tax-Free Unit Trust that contained a Florida Insured Trust. In addition, you
have authorized us to assume and we have assumed that:
(a)--The Fund has been organized under a Trust Indenture and Agreement
between John Nuveen & Co., Incorporated (the "Depositor") and The Chase
Manhattan Bank (the "Trustee").
(b)--The Fund will issue the Units in several State Trusts; one of which is
the Florida Insured Trust (the "Trust").
(c)--The Units will be purchased by various investors who may be individuals
or corporations.
(d)--Each Unit of the Trust represents a fractional undivided interest in
the principal and net income of the Trust in the ratio of ten Units for each
$1,000 principal amount of the obligations initially acquired by the Trust.
(e)--Each Trust will be administered as a distinct entity with separate
certificates, investments, expenses, books, and records.
(f)--The assets of the Trust will consist solely of interest-bearing
obligations issued by or on behalf of the State of Florida, its political
subdivisions, and authorities or by the Commonwealth of Puerto Rico, Guam or the
Virgin Islands.
(g)--Distributions of interest received by the Trust will be made
semi-annually, unless the Unitholder elects otherwise.
(h) The interest on all Bonds in the Trust will be exempt from Federal
income tax.(N.1)
(i)--The Bonds have been issued in strict compliance with all requirements
of Florida, Federal or territorial law.
(j)--The Fund is a registered investment company under the Investment
Company Act of 1940, as amended.
In rendering our opinion, you have advised us that Messrs. Chapman and
Cutler have rendered the following opinions and have authorized us to rely upon
such opinions and we have relied upon such opinions that:
<PAGE>
(a)--The 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.
(b)--Each Unitholder will be considered as owning a pro-rata share of each
asset of the Trust to which such Unit relates in the proportion that the number
of Units of the Trust held by him bears to the total number of outstanding Units
of the Trust and will be subject to Federal income 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.
(c)--The Trust will not be subject to Federal income taxes.
(d)--For Federal income tax purposes, each 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 the Trust consists of
interest excludable from Federal 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 Unitholders.
(e)--For Federal income tax purposes, each Unitholder will have a taxable
event when, upon redemption or sale of his Units, he receives cash or other
property. Gain or loss will be measured by comparing the proceeds of such a
redemption or sale with the Unitholder's adjusted basis for the Unit. Before
adjustment, generally this basis would be cost, if the Unitholder had purchased
his Units, plus his share of certain advances by the Trustee to the Trust and
certain accrued original issue discount. For Federal income tax purposes, if the
Trustee disposes of a Trust asset (whether by sale, payment on maturity,
retirement, or otherwise), gain or loss will be recognized by each Unitholder,
and such gain or loss is computed by measuring the Unitholder's aliquot share of
the total proceeds from the transaction against his basis for his fractional
interest in the asset disposed of (such basis being determined by apportioning
the basis for his Units among all of the Trust's assets ratably according to
their values as of the valuation date nearest the date on which he purchased the
Units). A Unitholder's basis in his Units and the basis for his fractional
interest in each Trust asset must be reduced by the amount of his aliquot share
of interest received, if any, on Bonds delivered after the Unitholder's
settlement date to the extent that such interest accrued on the Bonds during the
period from the Unitholder's settlement date to the date such Bonds are
delivered to the Trust and must be reduced annually by amortization of premiums,
if any, on obligations held by the Trust.
For the purposes of this letter:
(a)--"Florida Code" shall mean the Florida Income Tax Code, Chapter 220,
Florida Statutes, as amended. In the Florida Income Tax Code, Chapter 220,
Florida Statutes, the Florida Legistature has adopted, retroactively to January
1, 1997, the Internal Revenue Code of 1986, as amended and in effect on January
1, 1997, as the Internal Revenue Code under which a Corporate Unitholder must
compute its income for purposes of Florida corporate income taxation.
(b)--"Code" shall mean the Internal Revenue Code of 1986, as amended and in
effect on January 1, 1997.
(c)--"Non-Corporate Unitholder" shall mean a Unitholder of the Florida Trust
who is an individual not subject to the income tax on corporations imposed by
the Florida Code.
(d)--"Corporate Unitholder" shall mean a Unitholder of the Florida Trust
that is a corporation subject to the income tax on corporations imposed by the
Florida Code.
(e)--"Nonbusiness Income" is defined in the Florida Code and shall mean
rents and royalties from real or tangible personal property, capital gains,
interest, dividends, and patent and copyright royalties, to the extent that they
do not arise from transactions and activities in the regular course of a
Corporate Unitholder's trade or business. The term Nonbusiness Income does not
include income from tangible and intangible property if the acquisition,
management, and disposition of the property constitute integral parts of a
Corporate Unitholder's regular trade or business operations, or any amounts
which could be included in apportionable income without violating the due
process clause of the United States Constitution. For purposes of this
definition, "income" means gross receipts less all expenses directly or
indirectly attributable thereto.
(f)--"Commercial domicile" shall mean the place that a corporation maintains
its principal place of business. The term "commercial domicile" is not
specifically defined in Florida law for Florida corporate
<PAGE>
income tax purposes. However, the Florida Supreme Court has on at least two
occasions attributed meaning to this phrase, and recently enacted legislation
amending Florida's intangible personal property tax law defines this phrase. The
Court has implied that a corporation's commercial domicile is its principal
place of business, Department of Revenue v. Amrep Corp., 358 So.2d 1343, 1350
(Fla. 1978). The Court also stated in another case that a particular
corporation's domicile was in New York City where its head office and the actual
seat of its over-all business government was located and from where its
executive officers regularly exercised their complete authority and controlled
and directed all activities of the corporation, wherever carried on. Gay v.
Bessemer Properties, Inc., 32 So.2d 587, 591 (Fla. 1947). In recently enacted
legislation, a corporation is considered to acquire a commercial domicile in
Florida "when it maintains its chief or principal office in [Florida] where
executive or management functions are performed or where the course of business
operations is determined." Section 199.175 (1)(b), Florida Statutes (1989).
Based solely upon the assumptions you have permitted us to make and the
opinions of Messrs. Chapman and Cutler upon which you have authorized us to
rely, we are of the opinion that:
(a)--For Florida state income tax purposes, the Trust will not be subject to
the income tax imposed by the Florida Code so long as the Trust has no income
subject to federal income taxation. In addition, political subdivisions of
Florida do not impose any income taxes.
(b)--Because Florida does not impose an income tax on individuals,
Non-Corporate Unitholders will not be subject to any Florida income tax on
income realized by the Trust. Each Corporate Unitholder will be subject to
Florida income taxation on its share of the income realized by the Trust
notwithstanding the tax exempt status of the interest received from any bonds
under Section 103(a) of the Code or any other federal law, unless the interest
income constitutes Nonbusiness Income. Nevertheless, any Corporate Unitholder
that has its commercial domicile in Florida will be taxable under the Florida
Code on its share of the Trust income which constitutes Nonbusiness Income.
(c)--A Non-Corporate Unitholder will not be subject to Florida income
taxation with respect to gain realized when Bonds held in the Trust are sold,
redeemed, or paid at maturity. A Corporate Unitholder will be subject to Florida
income taxation with respect to gain realized on such a sale, redemption, or
payment at maturity of a Bond held by the Trust, except to the extent that the
gain realized therefrom constitutes Nonbusiness Income. Nevertheless, to the
extent that gains realized by a Corporate Unitholder arising from a sale,
redemption, or payment at maturity constitute Nonbusiness Income, such gain will
be taxable under the Florida Code if the Corporate Unitholder's commercial
domicile is in Florida.
(d)--Any gain realized by a Non-Corporate Unitholder from the redemption,
sale, or other disposition of a Unit will not be subject to Florida income tax.
Any gain realized by a Corporate Unitholder from the redemption, sale, or other
disposition of a Unit will be subject to Florida income tax except to the extent
that the gain realized therefrom constitutes Nonbusiness Income. Nevertheless,
to the extent that gain realized by a Corporate Unitholder arising from a sale,
redemption, or other disposition of a Unit consitutes Nonbusiness Income, such
gain will be taxable under the Florida Code if the Corporate Unitholder's
commercial domicile is in Florida.
(e)--A Non-Corporate Unitholder will not be subject to Florida income
taxation with respect to amounts paid under the Municipal Bond Investors
Assurance Corporation insurance policies representing interest on defaulted
obligations held by the Trustee. A Corporate Unitholder will be subject to
Florida income taxation on its share of amounts paid under the Municipal Bond
Investors Assurance Corporation insurance policies representing maturing
interest on defaulted obligations held by the Trustee except to the extent that
such payments constitute Nonbusiness Income as defined in the Florida Code.
Nevertheless, any Corporate Unitholder that has its commercial domicile in
Florida will be taxable under the Florida Code on its share of amounts paid
under the Municipal Bond Investors Assurance Corporation insurance policies
representing maturing interest on defaulted obligations held by the Trustee even
if such payments constitute Nonbusiness Income.
(f)--A Non-Corporate Unitholder will not be subject to Florida income
taxation with respect to gain realized with respect to amounts paid under the
Municipal Bond Investors Assurance Corporation insurance policies representing
principal on defaulted obligations held by the Trustee. A Corporate Unitholder
will be subject to Florida income taxation with respect to gain realized on its
share of amounts paid under the Municipal Bond Investors Assurance Corporation
insurance policies representing principal on defaulted obligations held by the
Trustee except to the extent that the gain realized constitutes
<PAGE>
Nonbusiness Income. Nevertheless, gain realized, by any Corporate Unitholder
that has its commercial domicile in Florida, on such payments representing
principal on defaulted obligations held by the Trustee, will be taxable under
the Florida Code even if such payments constitute Nonbusiness Income.
(g)--Even if interest on indebtedness incurred or continued by a Unitholder
to purchase Units in the Trust is not deductible for Federal income tax
purposes, under Code section 265(a)(2) or any other law, it will be deductible,
in effect, by Corporate Unitholders for Florida income tax purposes if interest
earned on the Units is other than Nonbusiness Income. Nevertheless, if interest
earned on the Units is Nonbusiness Income, any Corporate Unitholder that has its
commercial domicile in Florida may reduce the amount of interest included as
Nonbusiness Income by the amount of expenses directly or indirectly attributable
thereto.
(h)--Trust Units will be subject to Florida estate tax only if owned by
Florida residents and may be subjected to Florida estate tax if owned by other
decendents. However, the Florida estate tax is limited to the amount of the
credit allowable under the applicable Federal Revenue Act (currently Section
2011 (and in some cases Section 2102) of the Internal Revenue Code of 1986, as
amended) for death taxes actually paid to the several states.
(i)--Neither the Bonds nor the Units will be subject to the Florida ad
valorem tax or Florida sales or use tax.
(j)--Because Bonds issued by the State of Florida, its political
subdivisions or by the Commonwealth of Puerto Rico, Guam, or the Virgin Islands,
are exempt from Florida intangible personal property taxation under Chapter 199,
Florida Statutes, the Trust will not be subject to Florida intangible personal
property tax. In addition, the Unitholders will not be subject to Florida
intangible personal property tax on the Units.
(k)--The sale, redemption, or other disposition by the Trust of Bonds issued
by the State of Florida, the Commonwealth of Puerto Rico, Guam, or the Virgin
Islands, will not subject either the Trust or the Unitholders to Florida
documentary stamp tax.
(l)--The issuance and sale of the Units by the Trust will not subject either
the Trust or the Unitholders to Florida documentary stamp tax.
(m)--The transfer of Units by a Unitholder will not be subject to Florida
documentary stamp tax.
This opinion is limited to the law in effect as of the date hereof and we
assume no responsibility for changes in the law that may become effective
subsequent to the date of this opinion. Furthermore, this letter is not to be
construed as a prediction of a favorable outcome with respect to any issue for
which no favorable prediction is made herein, or as a guaranty of any tax
result, or as offering an assurance or guaranty that a Florida state or local
taxing authority might not differ with our conclusions, or raise other questions
or issues upon audit, or that such action may not be judicially sustained.
We have not examined any of the Bonds to be deposited in the Fund and held
by the Trust, and we express no opinion as to whether the interest on any such
Bonds would, in fact, be tax-exempt if directly received by a Unitholder; nor
have we made any review of the proceedings relating to the issuance of the Bonds
or the basis for the bond counsel opinions or the opinions of Messrs. Chapman
and Cutler referred to herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-79299) and to the reference to our firm in
such Registration Statement and the Prospectus included therein. In giving such
consent, we do not thereby admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
- ---------
(N.1) Section 2.01 of the Indenture provides that if the Depositor fails to
deposit Bonds, through no fault of its own, the Depositor may, as provided in
Section 3.14 of said Indenture, purchase replacement bonds (referred to as "New
Bonds") that will also be tax exempt bonds issued by the same states or their
respective political subdivisions.
Very truly yours,
CARLTON FIELDS WARD EMMANUEL SMITH & CUTLER, P.A.
By: David P. Burke
<PAGE>
EXHIBIT 3.3
(ON EDWARDS & ANGELL LETTERHEAD)
JUNE 3, 1999
Nuveen Tax-Free Unit Trust, Series 1086
In care of John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
Attention of Gifford R. Zimmerman, Esq.
Vice President, General Counsel
and Secretary
The Chase Manhattan Bank,
as Trustee of Nuveen Tax-Free Unit Trust, Series 1086
Nuveen Administration Department
4 New York Plaza-Third Floor
New York, New York 10004-2413
Re: Massachusetts Insured Trust 164
Dear Sirs:
We have acted as special counsel, with respect to Massachusetts State and
local tax matters, to the above mentioned Trust(s) ("Trust(s)") of Nuveen
Tax-Free Unit Trust, Series 1086 (the "Fund") concerning a Registration
Statement (No. 333-79299) on Form S-6 under the Securities Act of 1933, as
amended (the "Registration Statement"), covering the issuance by the Fund of
Units of fractional undivided interest in the Fund.
We have not been furnished with a copy of the Registration Statement or the
prospectus, which is a part of the Registration Statement, relating to the
issuance by the Fund of the Units. However, John Nuveen & Co. Incorporated has
authorized us to assume that the proposed offer and sale of the Units will be
carried out in that same manner and upon the same terms and conditions as that
described in the prospectus for the Nuveen Tax-Exempt Unit Trust, Series 351 --
Massachusetts Trust 182, dated November 6, 1985.
We have been furnished with a copy of the opinion of Chapman and Cutler on
the federal tax status of the Fund, its constituent Trusts and their
Unitholders.
In addition, we have also examined applicable Massachusetts law and a ruling
of the Massachusetts Department of Revenue dated February 7, 1985, relating to
Multi-State Series 162.
Based on the foregoing it is our opinion that under existing law and
administration of the affairs of the Trust(s):
A.--For Massachusetts income tax purposes, each Trust will be treated as a
corporate trust under Section 8 of Chapter 62 of the Massachusetts General Laws
("M.G.L.") and not as a grantor trust under Section 10(e) of M.G.L. Chapter 62.
B.--The Trust(s) will not be held to be engaging in business in
Massachusetts within the meaning of said Section 8 and will, therefore, not be
subject to Massachusetts income tax.
C.--Unitholders who are subject to Massachusetts income taxation under
M.G.L. Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust(s) in their Massachusetts gross
income to the extent that such earnings or distributions represent tax-exempt
interest excludable from gross income for federal income tax purposes received
by the Trust(s) on obligations issued by Massachusetts, its counties,
municipalities, authorities, political subdivisions or instrumentalities or by
Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands or other
possessions of the United States within the meaning of Section 103(c) of the
Internal Revenue Code of 1986, as amended ("Obligations").
D.--In the case of a Massachusetts Insured Trust, Unitholders who are
subject to Massachusetts income taxation under M.G.L. Chapter 62 will not be
required to include their respective shares of the
<PAGE>
earnings of or distributions from such Trust in their Massachsetts gross income
to the extent that such earnings or distributions are derived from the proceeds
of insurance obtained by the Sponsor of such Trust or by the issuer or
underwriter of an obligation held by such Trust that represent maturing interest
on defaulted obligations held by the Trustee, if and to the same extent that
such earnings or distributions would have been excludable from the gross income
of such Unitholders if derived from interest paid by the issuer of the defaulted
obligation.
E.--Unitholders which are corporations subject to taxation under M.G.L.
Chapter 63 will be required to include their respective shares of the earnings
of or distributions from the Trust(s) in their Massachusetts gross income to the
extent that such earnings or distributions represent interest from bonds, notes
or indebtedness of any state, including Massachusetts, except for interest which
is specifically exempted from such tax by the acts authorizing issuance of said
Obligations.
F.--Each Trust's capital gains and/or capital losses which are includable in
the federal gross income of Unitholders who are subject to Massachusetts income
taxation under M.G.L. Chapter 62, or Unitholders which are corporations subject
to Massachusetts taxation under M.G.L. Chapter 63 will be included as capital
gains and/or losses in the Unitholders' Massachusetts gross income, except for
capital gain which is specifically exempted from taxation under such Chapters by
the acts authorizing issuance of said Obligations.
G.--Unitholders which are corporations subject to tax under M.G.L. Chapter
63 and which are tangible property corporations will not be required to include
the Units when determining the value of their tangible property; such
Unitholders which are intangible property corporations will be required to
include the Units when determining their net worth.
H.--Gains or losses realized on sales or redemptions of Units by Unitholders
who are subject to Massachusetts income taxation under M.G.L. Chapter 62 or
Unitholders which are corporations subject to Massachusetts taxation under
M.G.L. Chapter 63 will be includable in their Massachusetts gross income. In
determining such gain or loss Unitholders will, to the same extent required for
Federal tax purposes, have to adjust their tax bases for their Units for accrued
interest received, if any, on Obligations delivered to the Trustee after the
Unitholders pay for their Units, for amortization of premiums, if any, on
Obligations held by the Trust(s), and for accrued original issue discount with
respect to each Obligation which, at the time the Obligation was issued, had
original issue discount.
I.--The Units of the Trust(s) are not subject to any property tax levied by
Massachusetts or any political subdivision thereof, nor to any income tax levied
by any such political subdivision. They are includable in the gross estate of a
deceased Unitholder who is a resident of Massachusetts for purposes of the
Massachusetts Estate Tax.
The foregoing opinions are based upon present provisions of federal and
Massachusetts law, administrative interpretations thereof and court decisions.
With respect to Unitholders which are corporations subject to Massachusetts
taxation under M.G.L. Chapter 63, no opinion is rendered on the includability of
their respective shares of the earnings of or distributions from the Trust(s) in
their Massachusetts gross income to the extent that such earnings or
distributions represent interest from bonds, notes, or indebtedness of Puerto
Rico, the Virgin Islands, Guam, the Northern Mariana Islands or other
possessions of the United States within the meaning of Section 103(c) of the
Internal Revenue Code of 1986, as amended.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in such Registration
Statement and the Prospectus included therein.
Very truly yours,
EDWARDS & ANGELL
<PAGE>
EXHIBIT 3.4
(ON CARTER, LEDYARD & MILBURN LETTERHEAD)
JUNE 3, 1999
The Chase Manhattan Bank,
as Trustee of
Nuveen Tax-Free Unit Trust,
Series 1086
4 New York Plaza, 3rd Floor
New York, New York 10004
Attention: Mr. John W. Sweeney
Vice President
Re: Nuveen Tax-Free Unit Trust, Series 1086
Dear Sirs:
We are acting as counsel for The Chase Manhattan Bank ("Chase") in
connection with the execution and delivery of a Standard Terms and Conditions of
Trust for Nuveen Tax-Free Unit Trusts Series 823 and subsequent Series (the
"Standard Terms and Conditions of Trust") dated September 7, 1995, and a related
Trust Indenture and Agreement (the "Trust Indenture and Agreement") dated
today's date (such Standard Terms and Conditions of Trust and related Trust
Indenture and Agreement are collectively referred to as the "Indenture"), each
between John Nuveen & Co. Incorporated, as Depositor (the "Depositor"), and
Chase, as Trustee (the "Trustee"), establishing the Nuveen Tax-Free Unit Trust,
Series 1086 (the "Trust Fund"), and the confirmation by Chase, as Trustee under
the Indenture, that it has caused to be credited to the Depositor's account at
The Depository Trust Company a number of units constituting the entire interest
in the Trust Fund (such aggregate units being herein called "Units") each of
which represents an undivided interest in the Trust Fund, which consists of
tax-exempt bonds (including confirmations of contracts for the purchase of
certain bonds not yet delivered and cash, cash equivalents or an irrevocable
letter of credit in the amount required for such purchase upon the receipt of
such bonds) in the aggregate principal amount set forth in the Closing
Memorandum executed and delivered today by the Depositor and the Trustee (the
"Closing Memorandum"), such bonds being defined in the Indenture as Bonds and
listed in the Schedules to the Indenture.
We have examined the Indenture, the Closing Memorandum, the form of
certificate for the Units included in the Indenture and a specimen of the
certificates to be issued thereunder (the "Certificates") and such other
documents as we have deemed necessary in order to render this opinion. Based on
the foregoing, we are of the opinion that:
1. Chase is a duly organized and existing corporation having the powers of a
trust company under the laws of the State of New York.
2. The Indenture has been duly executed and delivered by Chase and, assuming
due execution and delivery by the Depositor, constitutes the valid and legally
binding obligation of Chase.
3. The Certificates are in proper form for execution and delivery by Chase,
as Trustee.
4. Chase, as Trustee, has registered on the registration books of the Trust
Fund the ownership of the Units by The Depository Trust Company, where it has
caused the Units to be credited to the account of the Depositor. Upon receipt of
confirmation of the effectiveness of the registration statement for the sale of
the Units filed with the Securities and Exchange Commission under the Securities
Act of 1933, the Trustee may cause the Units to be transferred on the
registration books of the Trust Fund to such other names, and in such
denominations, as the Depositor may order, and may deliver Certificates
evidencing such ownership.
<PAGE>
5. Chase, as Trustee, may lawfully advance to the Trust Fund amounts as may
be necessary to provide periodic interest distributions of approximately equal
amounts, and may be reimbursed, without interest, for any such advances from
funds in the interest account, as provided in the Indenture.
In rendering the foregoing opinion, we have not considered, among other
things, whether the Bonds have been duly authorized and delivered or the federal
tax status of the Bonds.
Very truly yours,
CARTER, LEDYARD & MILBURN
<PAGE>
EXHIBIT 3.5
(ON CARTER, LEDYARD & MILBURN LETTERHEAD)
JUNE 3, 1999
Nuveen Tax-Free Unit Trust,
Series 1086
c/o The Chase Manhattan Bank,
as Trustee
4 New York Plaza, 3rd Floor
New York, New York 10004
Re: Nuveen Tax-Free Unit Trust, Series 1086
Dear Sirs:
We are acting as special counsel with respect to New York tax matters for
the Nuveen Tax-Free Unit Trust, Series 1086 (the "Trust Fund"), which will be
established under a Standard Terms and Conditions of Trust for Nuveen Tax-Free
Unit Trust Series 823 and subsequent Series dated September 7, 1995, and a
related Trust Indenture and Agreement dated as of today (such Standard Terms and
Conditions of Trust and related Trust Indenture and Agreement are referred to
collectively as the "Indenture"), between John Nuveen & Co. Incorporated, as
Depositor (the "Depositor"), and The Chase Manhattan Bank, as Trustee (the
"Trustee"). Pursuant to the terms of the Indenture, units of fractional
undivided interest in the Trust Fund will be issued in the aggregate amount set
forth in the Closing Memorandum dated today's date (the "Units"), which Units
may, in accordance with the Indenture, be represented by a certificate or
certificates (the "Certificates").
We have examined and are familiar with originals or certified copies, or
copies otherwise identified to our satisfaction, of such documents as we have
deemed necessary or appropriate for the purpose of this opinion. In giving this
opinion, we have relied upon the two opinions, each dated today and addressed to
the Trustee, of Chapman and Cutler, counsel for the Depositor, with respect to
the matters of law set forth therein.
Based upon the foregoing, we are of the opinion that:
1. The Trust Fund will not constitute an association taxable as a
corporation under New York law, and accordingly will not be subject to the New
York State franchise tax or the New York City general corporation tax.
2. Under the income tax laws of the State and City of New York, the income
of the Trust Fund will be considered the income of the holders of the Units.
Individual holders of Units who are residents of New York State or New York City
should compute their New York adjusted gross income in respect of the Trust Fund
in the same manner as Federal adjusted gross income, increased by interest on
obligations of states and political subdivisions thereof other than New York,
which is exempt for Federal income tax purposes, and reduced by amortization of
premium on such obligations. A New York State or City resident should determine
the basis and holding period of his Units in the same manner for New York
purposes as for Federal purposes for the purpose of computing gain or loss on
the sale or other disposition of his Units. Non-resident holders of Units will
not be taxable by New York State or City on any interest or gain derived from
the Trust Fund or upon any gain from the sale or other disposition of their
Units, since such income or gain will not be considered as derived from New York
State or City sources.
3. By reason of the exemption contained in paragraph (a) of Subdivision 8 of
Section 270 of the New York Tax Law, no New York State stock transfer tax will
be payable in respect of any transfer of the Certificates.
Very truly yours,
CARTER, LEDYARD & MILBURN
<PAGE>
EXHIBIT 4.1
(On J. J. Kenny Co., Inc. Letterhead)
June 3, 1999
John Nuveen & Company
333 West Wacker Drive
Chicago, IL 60606
Re: Nuveen Tax-Free Unit Trust, Series 1086
Gentlemen:
We have examined the registration statement File No. 333-79299 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 4.2
(ON CARTER LEDYARD & MILBURN LETTERHEAD)
June 3, 1999
Nuveen Tax-Free Unit Trust, Series 1086
c/o John Nuveen & Co. Incorporated,
as Depositor of
Nuveen Tax-Free Unit Trust, Series 1086
333 W. Wacker Drive
Chicago, Illinois 60606
RE: Nuveen Tax-Free Unit Trust, Series 1086
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 1086 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 4.3
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
June 3, 1999
<PAGE>
MEMORANDUM
NUVEEN TAX-FREE UNIT TRUST, SERIES 1086
FILE NO. 333-79299
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 June 3,
1999, 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
The "Estimated Long-Term Return" and "Estimated Current Return" to
Unitholders under each Trust under each of the distribution plans
Essential information for each of the Trusts, including applicable footnotes
The Date of the Deposit
The size and number of Units of each of the Trusts
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
June 3, 1999
