THE STRIPPED ('ZERO')
U.S. TREASURY
SECURITIES FUND
- ------------------------------------------------------------
PROVIDENT MUTUAL SERIES A
(A PROVIDENT MUTUAL VARIABLE
LIFE ACCOUNT INVESTMENT)
PROSPECTUS DATED APRIL 28, 1995
SPONSOR:
Merrill Lynch,
Pierce, Fenner & Smith Incorporated
This Fund was formed to provide safety of capital and a high yield to maturity
through investment in fixed portfolios consisting primarily of stripped debt
obligations of the United States of America ('Stripped Treasury Securities').
These objectives may not be realized if Units are sold before the underlying
Securities mature, because market prices of the Securities will vary as interest
rates change and with other factors. Stripped Treasury Securities do not make
any periodic payments of interest prior to maturity; accordingly, each Trust's
portfolio as a whole is priced at a deep discount from face amount, and Unit
prices may be subject to greater price fluctuations in response to changing
interest rates than in a fund comprised of debt obligations of comparable
maturities that pay interest currently. This risk is greater when the period to
maturity is longer. See Risk Factors. The Sponsor may deposit additional
Securities, with maturities identical to those initially deposited, in any or
all of the Trusts in connection with creation and sale of additional Units (see
Fund Structure).
The Fund consists of two separate unit investment trusts, each designated by the
year in which its Stripped Treasury Securities mature: the 1996 Trust and the
2006 Trust. Units of the Fund are currently sold only to separate investment
accounts of Provident Mutual Life Insurance Company of Philadelphia ('Provident
Mutual'), including the Variable Zero Coupon Bond Separate Account (the
'Account'), to fund the benefits under Variable Life Insurance Policies (the
'Policies') issued by Provident Mutual. The Account invests in Units of the
Trusts in accordance with allocation instructions received from Policyowners.
The rights of the Account as a Holder of Units should be distinguished from the
rights of a Policyowner as described in the accompanying Prospectus for the
Policies.
- ------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
Inquiries should be directed to the Trustee 1-800-323-1508
Read and retain this Prospectus for future reference.
- ------------------------------------------------------------------------
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1994+
This Fund consists of two separate unit investment trusts, each designated
for the maturity of its underlying Stripped Treasury Securities (see
Portfolios).
1996 2006
TRUST TRUST
------------ ------------
FACE AMOUNT OF SECURITIES......................... $ 1,851,576 $ 6,365,774
NUMBER OF UNITS................................... 1,850,550 6,303,913
FACE AMOUNT OF SECURITIES PER UNIT................ $ 1.00 $ 1.00
FRACTIONAL UNDIVIDED INTEREST IN TRUST REPRESENTED
BY EACH UNIT...................................... 1/1,850,550th 1/6,303,913th
OFFERING PRICE PER 1,000 UNITS***.................
Aggregate offering side evaluation of
Securities in Trust*............................ $ 1,677,178 $ 2,700,899
------------ ------------
Net asset value (divided by number of Units,
times 1,000).................................... $ 906.31 $ 428.45
Plus the applicable transaction charge**...... 2.27 6.52
Offering Price per 1,000 Units***++........... 908.58 434.97
------------ ------------
------------ ------------
SPONSORS' REPURCHASE PRICE PER 1,000 UNITS (based
on offering side evaluation of underlying
Securities)++................................... $ 906.31 $ 428.45
REDEMPTION PRICE PER 1,000 UNITS (based on bid
side evaluation of underlying
Securities)****++............................... $ 905.70 $ 427.83
CALCULATION OF ESTIMATED NET ANNUAL CASH INTEREST
INCOME PER $1,000 FACE AMOUNT
Gross cash annual income...................... $ .50 $ .50
Less estimated annual expenses................ .50 .50
------------ ------------
Estimated net annual cash income.............. $ 0.00 $ 0.00
------------ ------------
------------ ------------
TRUSTEE'S ANNUAL FEE AND EXPENSES
Per $1,000 face amount of underlying
Securities (see Expenses and Charges)........... $ .50 $ .50
EVALUATOR'S FEE FOR EACH EVALUATION
Minimum of $5.00 plus 25 cents for each issue
of underlying Securities in excess of 50
issues, treating separate maturities as
separate issues. (See Expenses and Charges).
MINIMUM FACE AMOUNT OF FUND
Any Trust may be terminated if the face amount
of that Trust is less than 40% of the face
amount of Securities on the Date of Deposit.
EVALUATION TIME
3:30 P.M. New York Time
- ------------------
+ The Indenture was signed and the initial deposit was made as of May 14,
1986.
++ Plus any net cash.
* Includes amortization of discount, calculated using the 'interest'
method, to expected date of settlement (normally five business days after
purchase) for Securities purchased on the Investment Summary date.
** The transaction charges applicable as of the date above to the 1996
Trust and the 2006 Trust are 0.25% and 1.50% of their respective Offering Prices
(0.251% and 1.523%, respectively, of the net amount invested in Securities).
Transaction charges will decrease as the Trusts approach maturity, as described
under Sales of Units.
*** These figures are computed by dividing the aggregate offering side
evaluation of the underlying Securities in the Trust (the price at which they
could be purchased directly by the public if they were available) by the number
of Units of the Trust outstanding, multiplying the result times 1,000 and adding
the applicable transaction charge as described in the preceding footnote. These
figures assume a purchase of 1,000 Units. The price of a single Unit, or any
multiple thereof, is calculated by dividing the Offering Price per 1,000 Units
above by 1,000, and multiplying by the number of Units. As explained under Sale
of Units--Offering Price, as it is assumed that income on the Treasury Note will
equal Trust expenses, no accrued interest is added to the Offering or Redemption
Prices.
**** Figures shown are $2.88 and $7.14 less than the Offering Price and
$0.61 and $0.62 less than the Sponsor's Repurchase Price per 1,000 units, with
respect to the 1996 Trust and the 2006 Trust, respectively.
A-2
<PAGE>
INVESTMENT SUMMARY AS OF DECEMBER 31, 1994 (CONTINUED)
TRUST PORTFOLIOS (SEE PORTFOLIOS)
OBJECTIVES OF THE FUND--To provide safety of capital and a high yield to
maturity through investment in fixed portfolios consisting primarily of stripped
debt obligations of the United States of America and receipts and certificates
for such stripped debt obligations ('Stripped Treasury Securities'). See Risk
Factors--Special Characteristics of Stripped Treasury Securities. Each Trust
also contains an interest-bearing Treasury Security (the 'Treasury Note') to
provide income to pay the expenses of the Trust. There is no assurance that
these objectives will be met if Units are sold prior to maturity of the
underlying Securities as market prices of the Securities before maturity and
therefore the value of the Units will vary with changes in interest rates and
other factors. It is intended that Securities selected for the Trusts will
comply with any investment limitations required to assure favorable income tax
treatment for the Policies.
TRUST PORTFOLIOS (See Portfolios.)
INVESTMENT QUALITY--The Securities are not rated, but in the opinion of the
Sponsor, have credit characteristics comparable to those of Securities rated
'AAA' by nationally recognized rating agencies.
ELIGIBLE PURCHASERS--Currently, Units of the Fund are sold only to
Provident Mutual's Variable Zero Coupon Bond Separate Account (the 'Account') to
fund the benefits under the Variable Life Insurance Policies (the 'Policies').
Accordingly, the interest of a Policyowner in the Units is subject to the terms
of the Policy and is described in the accompanying Prospectus for the Policies,
which should be reviewed carefully by a person considering the purchase of a
Policy. That Prospectus describes the relationship between increases or
decreases in the net asset value of, and any distributions on, Units and the
benefits provided under a Policy. The rights of the Account as a Holder of Units
should be distinguished from the rights of a Policyowner which are described in
the Policies. As long as Units of the Fund are sold only to the Account, the
term 'Holder' in this Prospectus shall refer to the Account (or the Sponsor if
it holds Units acquired in the secondary market--see Market for Units).
RISK FACTORS--An investment in Units of a Trust should be made with an
understanding of the risks which are inherent in an investment in deeply
discounted debt obligations, including the risk that the value of a Trust and
hence of the Units will decline with increases in interst rates. The market
value of Stripped Treasury Securities, and therefore the value of the Units, may
be subject to greater fluctuations in response to changing interest rates than
debt obligations of comparable maturities which pay interest currently. This
risk is greater when the period to maturity is longer. (See p. 1.) The interest
payments on the Treasury Note are expected to be just sufficient to cover the
expenses of the Trust, and no distributions of income are anticipated until
maturity of the Securities. Consequently, for each 1,000 Units of a Trust
purchased, it is expected that a Holder will receive total distributions of
approximately $1,000 for Units held until maturity of the underlying Securities
of that Trust. The Offering Price will vary in accordance with fluctuations in
the values of the Securities and the distributions could change if the
Securities are paid or sold, or if the expenses of the Trust change. For a
discussion of the economic differences between the Trusts and a fund consisting
of customary securities, see Description of the Fund--Income and Yield.
MARKET FOR UNITS--The Sponsor, though not obligated to do so, intends to
maintain a market for Units based on the aggregate offering side evaluation of
the underlying Securities in each Trust. (See p. 6.) If that market is not
maintained, a Holder will be able to dispose of Units through redemption at
prices based on the lower, aggregate bid side evaluation of the underlying
Securities in the Trust. (See Redemption.) Market conditions may cause the
prices available in the market maintained by the Sponsor or upon exercise of
redemption rights to be more or less than the amount paid for Units. The market
prices of Stripped Treasury Securities, and hence of the Units, are subject to
greater fluctuations than the prices of securities making current payments of
interest.
DISTRIBUTIONS--The final distribution will be made on the first business
day following the maturity of the Stripped Treasury Securities in a Trust to
holders of record on the business day immediately preceding the date of
distribution, and may include any amount received upon the sale of Securities to
meet redemptions of Units which exceeds the amount necessary to meet those
redemptions and any accumulated net interest income. Principal from maturity of
the Treasury Note will not be distributed until disposition of the Stripped
Treasury Security in the Trust. (See Administration of the Fund--Accounts and
Distributions.) There will be no payments of interest on the Securities other
than on the Treasury Note in each Trust, which will be used to pay the expenses
of the Trust. Consequently, no distributions of interest income should be
expected. However, the Sponsor may direct the Trustee to distribute to Holders
of a Trust as of the last Business Day in any year any cash balance in the
Income and Capital Accounts not otherwise allocated. Nevertheless, the gross
interest income on all Securities in the Trust is taxable to Holders. Each
Stripped Treasury Security will be treated for Federal income tax purposes as
having 'original issue discount,' which must be amortized over the term of the
Stripped Treasury Security and must be included in a Holder's ordinary gross
income before the Holder receives the cash attributable to that income. (See
Taxes.)
A-3
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsor, Trustee and Holders
of The Stripped ("Zero")
U.S. Treasury Securities Fund,
Provident Mutual Series A
We have audited the accompanying statements of condition of the 1996 Trust and
the 2006 Trust of The Stripped ("Zero") U.S. Treasury Securities Fund, Provident
Mutual Series A, including the portfolios, as of December 31, 1994 and the
related statements of operations and of changes in net assets for the years
ended December 31, 1994, 1993 and 1992. These financial statements are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Securities owned at
December 31, 1994, as shown in such portfolios, were confirmed to us by The
Chase Manhattan Bank (National Association), the Trustee. An audit also
includes assessing the accounting principles used and significant estimates made
by the Trustee, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the above-mentioned Trusts of
The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A
at December 31, 1994 and the results of their operations and changes in their
net assets for the above-stated years in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, N.Y.
February 22, 1995
D-1
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
<TABLE><CAPTION>
STATEMENTS OF CONDITION
AS OF DECEMBER 31, 1994
1996 TRUST 2006 TRUST
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities
(see Portfolio and Note 1) $1,676,034 $2,697,031
Other 117 2,280
Total trust property 1,676,151 2,699,311
LESS LIABILITIES 3,554 430
NET ASSETS (Note 2) $1,672,597 $2,698,881
UNITS OUTSTANDING 1,850,550 6,303,913
UNIT VALUE $0.90384 $0.42813
</TABLE>
See Notes to Financial Statements.
D-2
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
<TABLE><CAPTION>
STATEMENTS OF OPERATIONS
1996 TRUST
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 929 $ 917 $ 908
Accretion of original issue discount 111,293 116,631 114,836
Trustee's fees and expenses (853) (991) (906)
Net investment income 111,369 116,557 114,838
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold or redeemed 8,004 17,779 6,748
Unrealized depreciation of investments (112,618) (13,613) (16,991)
Net realized and unrealized gain (loss) on investments (104,614) 4,166 (10,243)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,755 $120,723 $104,595
</TABLE>
See Notes to Financial Statements.
D-3
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
<TABLE><CAPTION>
STATEMENTS OF OPERATIONS
2006 TRUST
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,762 $ 2,007 $ 1,102
Accretion of original issue discount 171,846 116,713 80,245
Trustee's fees and expenses (2,677) (625) (1,341)
Net investment income 171,931 118,095 80,006
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on securities sold or redeemed (201) 53,841
Unrealized appreciation (depreciation) of investments (394,788) 199,357 (89,984)
Net realized and unrealized gain (loss) on investments (394,788) 199,156 (36,143)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(222,857) $317,251 $43,863
</TABLE>
See Notes to Financial Statements.
D-4
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
1996 TRUST
Years Ended December 31,
<S> <C> <C> <C>
1994 1993 1992
OPERATIONS:
Net investment income $ 111,369 $ 116,557 $ 114,838
Realized gain on securities sold or redeemed 8,004 17,779 6,748
Unrealized depreciation of investments (112,618) (13,613) (16,991)
Net increase in net assets resulting from
operations 6,755 120,723 104,595
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of units 563,644 190,740
Redemption of units (133,639) (266,570) (234,516)
Net capital share transactions (133,639) 297,074 (43,776)
NET INCREASE (DECREASE) IN NET ASSETS (126,884) 417,797 60,819
NET ASSETS, BEGINNING OF YEAR 1,799,481 1,381,684 1,320,865
NET ASSETS, END OF YEAR $1,672,597 $1,799,481 $1,381,684
UNIT VALUE, END OF YEAR $0.90384 $0.90030 $0.82920
UNITS OUTSTANDING, END OF YEAR 1,850,550 1,998,765 1,666,280
</TABLE>
See Notes to Financial Statements.
D-5
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
<TABLE><CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
2006 TRUST
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 171,931 $ 118,095 $ 80,006
Realized gain (loss) on securities
sold or redeemed (201) 53,841
Unrealized appreciation (depreciation)
of investments (394,788) 199,357 (89,984)
Net increase (decrease) in net assets resulting
from operations (222,857) 317,251 43,863
CAPITAL SHARE TRANSACTIONS (Note 3):
Issuance of units 553,957 745,048 689,627
Redemption of units (634,170)
Net capital share transactions 553,957 745,048 55,457
NET INCREASE IN NET ASSETS 331,100 1,062,299 99,320
NET ASSETS, BEGINNING OF YEAR 2,367,781 1,305,482 1,206,162
NET ASSETS, END OF YEAR $2,698,881 $2,367,781 $1,305,482
UNIT VALUE, END OF YEAR $0.42813 $0.47170 $0.38208
UNITS OUTSTANDING, END OF YEAR 6,303,913 5,019,641 3,416,791
</TABLE>
See Notes to Financial Statements.
D-6
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
(a) Securities are stated at value as determined by an independent
evaluator based on bid side evaluations for the securities.
(b) Cost of securities is based on offering side evaluations for the
securities at Dates of Deposit. Cost of securities subsequent to
dates of purchase has been adjusted to include the accretion of
original issue discount on the Stripped Treasury Securities. Realized
gain and loss on sales of securities are determined using the first-
in, first-out cost basis.
(c) The Fund is not subject to income taxes. Accordingly, no provision
for such taxes is required.
2. NET ASSETS, DECEMBER 31, 1994
1996 Trust
Cost of 1,850,550 units at Dates of Deposit $1,198,184
Less sales charge 8,990
Net amount applicable to Holders 1,189,194
Redemptions of units - net cost of 740,967 units less
redemption amounts 103,034
Realized gain on securities sold or redeemed 32,531
Unrealized depreciation of investments (14,726)
Undistributed net investment income - accretion of original
issue discount ($366,004) less excess ($3,440) of Trustee's
fees and expenses over interest income 362,564
Net assets $1,672,597
2006 Trust
Cost of 6,303,913 units at Dates of Deposit $2,243,090
Less sales charge 39,250
Net amount applicable to Holders 2,203,840
Redemptions of units - net cost of 1,910,512 units less
redemption amounts 204,564
Realized gain on securities sold or redeemed 53,640
Unrealized depreciation of investments (135,365)
Undistributed net investment income - accretion of original
issue discount ($370,356) plus excess ($1,846) of interest
income over Trustee's fees and expenses 372,202
Net assets $2,698,881
D-7
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
NOTES TO FINANCIAL STATEMENTS
3. CAPITAL SHARE TRANSACTIONS
Additional units were issued by the Trusts during the years ended
December 31, 1994, 1993 and 1992 as follows:
Trust 1994 1993 1992
1996 - 629,217 246,681
2006 1,284,272 1,602,850 1,836,778
Units were redeemed by the Trusts during the years ended December 1994,
1993 and 1992 as follows:
Trust 1994 1993 1992
1996 148,215 296,732 296,020
2006 - - 1,910,512
Units may be redeemed at the office of the Trustee upon tender thereof
generally on any business day or, in the case of uncertificated units, upon
delivery of a request for redemption and payment of any relevant tax. The
Trustee will redeem units either in cash or in kind at the option of the
Holder as specified in writing to the Trustee.
4. INCOME TAXES
All Fund items of income received, accretion of original issue discount,
expenses paid, and realized gains and losses on securities sold are
attributable to the Holders, on a pro rata basis, for Federal income tax
purposes in accordance with the grantor trust rules of the United States
Internal Revenue Code.
At December 31, 1994, the cost of investment securities for Federal income
tax purposes was approximately equivalent to the adjusted cost as shown in
each Trust's portfolio.
5. DISTRIBUTIONS
It is anticipated that each Trust will not make any distributions until the
first business day following the maturity of its holdings in the Stripped
Treasury Securities which are noninterest-bearing.
D-8
<PAGE>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND,
PROVIDENT MUTUAL SERIES A
PORTFOLIOS
AS OF DECEMBER 31, 1994
<TABLE><CAPTION>
Portfolio No. Adjusted
and Title of Interest Face Cost Value
Securities Rate Maturities Amount (Note A) (Note A)
1996 TRUST
<S> <C> <C> <C> <C> <C>
1 Stripped Treasury 0% 5/15/96 $1,839,000 $1,678,155 $1,663,482
Securities
(Note B)
2 U.S. Treasury
Notes 7.375 5/15/96 12,576 12,605 12,552
Total $1,851,576 $1,690,760 $1,676,034
2006 TRUST
1 Stripped Treasury 0% 2/15/06 $6,332,000 $2,792,120 $2,659,553
Securities
(Note B)
2 U.S. Treasury
Bonds 9.375 2/15/06 33,774 40,276 37,478
Total $6,365,774 $2,832,396 $2,697,031
Note A - See Note 1 to Financial Statements.
Note B - See "Description of the Fund - Special Characteristics of
Stripped Treasury Securities" in this Prospectus, Part B.
</TABLE>
D-9
<PAGE>
THE STRIPPED ('ZERO')
U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES
FUND STRUCTURE
STRUCTURE
This Series (the 'Fund') consists of two separate unit investment trusts
(each a 'Trust') created under New York law by one Trust Indenture (the
'Indenture') among the Sponsor, the Trustee and the Evaluator. To the extent
that references in the Prospectus are to articles and sections of the Indenture,
which are hereby incorporated by reference, the statements made herein are
qualified in their entirety by this reference. On the initial date of deposit
for each Trust (the 'Initial Date of Deposit') the Sponsor deposited the
underlying Securities with the Trustee at prices equal to the valuation of those
Securities on the offer side of the market as determined by the Evaluator, and
the Trustee delivered to the Sponsor units of interest ('Units') representing
the entire ownership of that Trust in the Fund. Most if not all of the
Securities so deposited were represented by purchase contracts assigned to the
Trustee together with an irrevocable letter or letters of credit issued by a
commercial bank or banks in the amount necessary to complete their purchase. The
record holders ('Holders') of Units will have the right to have their Units
redeemed (see Redemption) at a price based on the aggregate bid side evaluation
of the Securities ('Redemption Price per Unit') if the Units cannot be sold in
the market that the Sponsor proposes to maintain (see Market for Units).
Redemptions will be made in securities ('in kind') or in cash at the option of
the Holder.
The Sponsor may deposit additional Securities, with an identical maturity
to that of the Securities initially deposited, in any of the Trusts, and Units
in the Trusts may be continuously offered for sale by means of this Prospectus
(see Sale of Units--Distribution), resulting in a potential increase in the
number of outstanding Units of each Trust (see Selection and Acquisition of
Securities). Each Unit, however, will continue to represent the identical face
amount of Securities with identical maturity dates.
As used herein, 'Securities' includes the Stripped Treasury Securities and
interest-bearing Treasury Note deposited in the Trusts and described under
Portfolios and any additional Treasury Securities deposited thereafter or
contracts for the purchase thereof together with an irrevocable letter or
letters of credit sufficient to perform such contracts. As used herein, the term
'Units', unless the context otherwise indicates, means the units of interest in
all Trusts.
RISK FACTORS
An investment in Units of any Trust should be made with an understanding of
the risks which an investment in deep discount debt obligations may entail,
including the risk that the value of the Trust's portfolio (the 'Portfolio') and
hence of the Units will decline with increases in interest rates. High inflation
and recession, together with the fiscal and monetary measures adopted to attempt
to deal with those and other economic problems, have contributed to recent wide
fluctuations in interest rates and thus in the value of fixed-rate debt
obligations generally. The Sponsor cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future. A direct Holder (but not necessarily a Policyowner--
see Taxes) will have significant amounts of taxable income attributable to it
before receipt of the cash attributable to that income.
Because interest on 'zero coupon' debt obligations is not distributed on a
current basis but in effect compounded, the value of securities of this type,
including the value of accrued and reinvested interest (and of a fund comprised
of these obligations), is subject to greater fluctuations than on obligations
that distribute income regularly. Accordingly, while the full faith and credit
of the U.S. government provides a high level of protection against credit risks
on the Securities, sale of Units before maturity of the Securities at a time
when interest rates have increased would involve greater market risk than in a
fund invested in debt obligations of comparable maturity that pay interest
currently. This risk is greater when the period to maturity is longer.
SPECIAL CHARACTERISTICS OF STRIPPED TREASURY SECURITIES
Bearer bonds are transferable by delivery; payments are made to the holder
of the bonds. Stripped bonds have been stripped of their unmatured interest
coupons; stripped coupons are coupons that have been stripped from an issuer's
bonds. Stripped Treasury Securities are sold at a deep discount because the
buyer of those securities receives only the right to receive a future fixed
payment on the security and not any rights to periodic interest payment thereon.
Purchasers of these securities acquire, in effect, discount obligations that are
economically identical to the 'zero-coupon bonds' that have been issued by
corporations. Zero Coupon bonds are debt obligations that do not make any
periodic payments of interest prior to maturity and accordingly are issued at a
deep discount.
1
<PAGE>
Stripped Treasury Securities held by any Trust shall consist solely of one
or more of the following types of securities: (a) U.S. Treasury debt obligations
which have been stripped of their unmatured interest coupons, (b) coupons which
have been stripped from U.S. Treasury bearer bonds, either of which may be held
through the Federal Reserve Bank's book entry system called 'Separate Trading of
Registered Interest and Principal of Securities ('STRIPS'), or 'Coupon Under
Book-Entry Safekeeping' ('CUBES') and (c) receipts or certificates for stripped
U.S. Treasury debt obligations. STRIPS and CUBES, while direct obligations of
the United States and issued under programs introduced by the U.S. Treasury, are
not issued directly by the U.S. government. The STRIPS program facilitates
secondary market stripping of selected Treasury notes and bonds into individual
principal and interest components by purchasers with access to a book-entry
account at a Federal Reserve bank. Those obligations may be maintained in the
book-entry system operated by the Federal Reserve in a manner that permits
separate trading and ownership of interest and principal payments. The Federal
Reserve does not charge a fee for this service, but book-entry transfers of
interest and principal components are subject to the same fee schecule generally
applicable to transfers of Treasury securities. Receipts or certificates
evidence ownership of future interest or principle payments on U.S. Treasury
notes or bonds, which are direct obligations of the United States of America.
The receipts or certificates are issued in registered form by a major bank which
acts as custodian and nominal holder of the underlying stripped U.S. Treasury
debt obligation (which may be held by it either in physical or in book entry
form). The terms of custody provide that the underlying debt obligations will be
held separately from the general assets of the custodian and will not be subject
to any right, charge, security interest, lien or claim of any kind in favor of
the custodian or any person claiming through the custodian, and the custodian
will be responsible for applying all payments received on those underlying debt
obligations to the related receipts or certificates without making any
deductions other than applicable tax withholding. The custodian is required to
maintain insurance for the protection of holders of receipts or certificates in
customary amounts against losses resulting from the custody arrangement due to
dishonest or fraudulent action by the custodian's employees. The holders of
receipts or certificates, as the real parties in interest, are entitled to the
rights and privileges of the underlying debt obligations including the right in
the event of default in payment of principal or interest thereon to proceed
individually against the United States without acting on concert with other
holders of those receipts or certificates or the custodian. Receipts and
certificates may not be as liquid as STRIPS or CUBES.
The Stripped Treasury Securities are payable in full at maturity at their
stated maturity amount and are not subject to redemption prior to maturity. The
Stripped Treasury Securities do not make any periodic payments of interest. The
Securities are sold at a substantial discount from their face amounts payable at
maturity. A holder of Stripped Treasury Securities will be required to include
annually in gross income an allocable portion of the deemed original issue
discount, prior to receipt of the cash attributable to that income. However, an
insurance company separate account such as the Account can avoid being taxed on
such income by deducting an equal amount for an increase in reserves. Stripped
Treasury Securities are marketable in substantially the same manner as other
discount Treasury securities.
Under generally accepted accounting principles, a holder of a security
purchased at a discount normally must report as an item of income for financial
accounting purposes the portion of the discount attributable to the applicable
reporting period. The calculation of this attributable income would be made on
the 'interest' method which generally will result in a lesser amount of
includible income in earlier periods and a correspondingly larger amount in
later periods. For Federal income tax purposes, the inclusion will be on a basis
that reflects the effective semi-annual compounding of accrued but unpaid
interest effectively represented by the discount.
2
<PAGE>
Although this treatment is similar to the 'interest' method described above, the
'interest' method may differ to the extent that generally accepted accounting
principles permit or require the inclusion of interest on the basis of a
compounding period other than the semi-annual period (see Taxes below).
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio of each Trust consists of different issues of Stripped
Treasury Securities, with fixed maturity dates and not having any equity or
conversion features, that do not pay interest before maturity and as such were
purchased at a deep discount (see above) and of the Treasury Note deposited in
order to provide cash income with which to pay the expenses of the Trust. It is
intended that the Portfolio for each Trust will comply with any investment
limitations required to assure favorable Federal income tax treatment for the
Policies issued by Provident Mutual.
SELECTION AND ACQUISITION OF SECURITIES
In selecting Securities for deposit in a Trust, the following factors,
among others, were considered by the Unit Investment Trusts division of Merrill
Lynch, Pierce, Fenner & Smith Incorporated: (i) the types of securities
available; (ii) the prices of those securities relative to other comparable
securities; (iii) the extent to which those securities trade at a discount from
par once the interest coupons are stripped; (iv) the yield to maturity of those
securities; and (v) the maturities of those securities.
The yield to maturity and discount from par on securities of the type
deposited in the Trusts depend on a variety of factors, including general money
market conditions, general conditions of the bond market, prevailing interest
rates and the maturities of the securities.
Each Trust consists of the Securities (or contracts to purchase these
Securities) listed under Portfolios and any additional Securities deposited in
the Trust pursuant to the terms of the Indenture (including provisions with
respect to deposit of Securities in connection with the sale of additional
Units) as long as they may continue to be held from time to time in the Trust,
together with accrued and undistributed interest on any interest bearing
securities deposited in order to pay the expenses of the Trust, undistributed
cash representing payments of principal and cash realized from the disposition
of Securities.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event of a failure to deliver
any Security that has been purchased for a Trust under a contract ('Failed
Security'), the Sponsor is authorized under the Indenture to direct the Trustee
to acquire substitute securities ('Replacement Securities') to make up the
portfolio of the Trust. Replacement Securities for Securities initially
deposited must be deposited into the Trust within 110 days after the Initial
Date of Deposit; Replacement Securities for Securities deposited thereafter must
be deposited into the Trust within 20 days after delivery of notice of the
failed contract; the purchase price may not exceed the amount of funds reserved
for the purchase of the Failed Security. The Replacement Securities must be
Securities issued by the U.S. Treasury (i) that, if stripped, make no periodic
payments of interest or, if interest-bearing, are of the same issue, (ii) that
have a fixed maturity identical to that of the Failed Security, (iii) that are
purchased at a price that results in a yield to maturity as of the date of
deposit of the Failed Security which is equivalent (taking into consideration
then-current market conditions) to the yield to maturity of the Failed Security
and (iv) that are not when, as and if issued obligations. If this right of
substitution is not utilized to acquire Replacement Securities in the event of a
3
<PAGE>
failed contract, the Sponsor will cause to be refunded the attributable
transaction charge plus the attributable Cost of Securities to Trust, plus
accrued interest and amortization attributable to the relevant Security to the
date the Sponsor is notified of the failure.
Because certain of the Securities from time to time may be sold under
certain circumstances described herein, each Trust is not expected to retain its
present size and composition (see Redemption). The Indenture also authorizes the
Sponsor to increase the size and number of Units of any Trust by the deposit of
additional Securities and the issue of a corresponding number of additional
Units, provided that the maturity of any additional Securities deposited in the
Trust is identical to the maturity of the Securities initially deposited in the
Trust.
THE UNITS
On the date of the Investment Summary of each Trust, each Unit represented
the fractional undivided interest in the Securities held in the Trust and net
income of the Trust set forth under Investment Summary. Thereafter, if Units of
any Trust are redeemed the face amount of Securities in that Trust will be
reduced by amounts allocable to redeemed Units, and the fractional undivided
interest represented by each remaining Unit in the balance will be increased.
However, if additional Units are issued by any Trust (through deposit of
Securities by the Sponsor in connection with the sale of additional Units), the
aggregate face amount of Securities in the Trust will be increased by amounts
allocable to additional Units, and the fractional undivided interest represented
by each Unit in the balance of the Trust will be decreased. Units will remain
outstanding until redeemed upon tender to the Trustee by a Holder (which may
include the Sponsor) or until the termination of the Indenture (see Redemption
and Administration of the Fund--Amendment and Termination).
INCOME AND YIELD
The economic effect of purchasing Units of a Trust is that the investor who
holds his Units until maturity of the underlying Securities should receive
approximately a fixed yield, not only on his original investment but on all
earned discount during the life of the Securities. The assumed or implicit
automatic reinvestment at market rates at the time of purchase of the portion of
the yield represented by earned discount differentiates the Trust from funds
comprising customary securities on which current periodic interest is paid at
market rates at the time of issue. Accordingly, an investor in the Units, unlike
an investor in a fund comprised of customary securities, virtually eliminates
his risk of being unable to invest distributions at a rate as high as the yield
on his Trust, but will forego the ability to reinvest at higher rates in the
future.
The Treasury Note deposited in each Trust in order to pay the expenses of
the Trust includes an item of accrued but unpaid interest up to its date of
deposit. To avoid having Holders pay this accrued interest (which earns no
return) when Units are purchased, the Trustee pays this amount of accrued
interest to the Sponsor as a special distribution. The Trustee will recover the
amount of this distribution from interest received on the Treasury Note
deposited in the Trust. Although the Treasury Note will also accrue interest
during the period between the date of deposit and the date of settlement for
Units, the Sponsor anticipates that any such amount of accrued interest will be
minimal and, therefore, will not be added to the Offering Price of the Units.
The price per Unit will vary in accordance with fluctuations in the prices
of the Securities held by the Trust. Changes in the Offering Prices or in a
Trust's expenses will result in changes in the yields to maturity.
4
<PAGE>
TAXES
The following discussion relates only to direct holders of Units of the
Fund, and not to Policyowners. If the Account is the Holder, any taxable income
will in effect be offset by a deduction for an increase in reserves. For
information on tax consequences to Policyowners, see the attached Prospectus for
the Policies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
Each Trust is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Trust will be treated as
the income of the Holders of the Trust in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Security in his Trust under the grantor trust rules of Sections 671-679 of
the Internal Revenue Code of 1986, as amended (the 'Code'). The total cost
to a Holder for his Units, including the transactions charge, is allocated
among his pro rata portion of each Security in his Trust (in proportion to
the fair market values thereof on the date the Holder purchases his Units)
in order to determine his tax cost for his pro rata portion of each
Security.
Each Trust consists primarily of Stripped Treasury Securities. A Holder
is required to treat his pro rata portion of each Stripped Treasury
Security in his Trust as a bond that was originally issued on the date the
Holder purchased his Units at an original issue discount equal to the
excess of the stated redemption price at maturity over the Holder's tax
cost therefor, and to include annually in income a portion of such original
issue discount determined under a formula based on the compounding of
interest.
Each Holder will be considered to have received the income on his pro
rata portion of the Treasury Note in his Trust when interest on the Note is
received by his Trust.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Security is disposed of by the Fund for an amount greater
or less than his adjusted tax basis. Any such taxable gain or loss will be
capital gain or loss except that any gain from the disposition of a
Holder's pro rata portion of a Security acquired by the Holder at a 'market
discount' (i.e., if the Holder's original cost for his pro rata portion of
the Security (plus any original issue discount which will accrue thereon)
is less than its stated redemption price at maturity) will be treated as
ordinary income to the extent the gain does not exceed the accrued market
discount. Capital gains are generally taxed at the same rate as ordinary
income. However, the excess of net long-term capital gains over net
short-term capital losses may be taxed at a lower rate than ordinary income
for certain noncorporate taxpayers. A capital gain or loss is long-term if
the asset is held for more than one year and short-term if held for one
year or less. The deduction of capital losses is subject to limitations. A
Holder will also be considered to have disposed of all or part of his pro
rata portion of each Security when he sells or redeems all or some of his
Units.
A distribution to a Holder of Securities upon redemption of Units will
not be a taxable event to the Holder or to nonredeeming Holders. The
redeeming Holder's basis for such Securities will be equal to his basis for
the Securities (previously represented by his Units) prior to such
redemption, and his holding period for such Securities will include the
period during which he held his Units. However, a Holder may recognize
taxable gain or loss when the Holder sells the Securities so distributed
for cash.
Under the income tax laws of the State and City of New York, each Trust
is not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders of the Trust.
5
<PAGE>
Holders will be required for Federal income tax purposes to include
amounts in ordinary gross income in advance of the receipt of the cash
attributable to such income. Therefore, the direct holding of Units may be
appropriate only for a tax-deferred account which can have taxable income
attributed in advance of the receipt of the cash attributable to such
income.
The foregoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. Depending on their state of
residence, Holders may be subject to state and location taxation and should
consult their own tax advisors in this regard.
* * *
After the end of each calendar year, the Trustee will furnish to each
Holder a report from which the Holder may determine the income received by his
pro rata portion of the Treasury Note, the gross proceeds received by the Fund
from the disposition of any Security and the Holder's pro rata portion of the
fees and expenses paid by his Trust. In order to enable them to comply with
Federal and state tax reporting requirements, upon request to the Trustee,
Holders will be furnished with evaluations of Securities furnished to it by the
Evaluator (Section 4.02).
SALE OF UNITS
OFFERING PRICE
The Offering Price of the Units of a Trust is computed by adding (a) the
aggregate offer side evaluation of the Securities in that Trust (as determined
by the Evaluator), (b) cash on hand in the Trust (other than cash covering
contracts to purchase Securities), (c) accrued and unpaid interest as of the
date of computation and (d) all other assets of the Trust; deducting therefrom
the sum of (x) taxes or other government charges against the Trust not
previously deducted, (y) accrued fees and expenses of the Trustee (including
legal and auditing expenses), the Evaluator and counsel, and certain other
expenses and (z) any cash held for distribution to Holders of record as of a
date prior to the evaluation; dividing the result by the number of Units of that
Trust outstanding and adding the applicable transaction charge depending on the
remaining years to maturity of the Stripped Treasury Security in the Trust:
PERCENT OF PERCENT OF
OFFERING NET AMOUNT
REMAINING YEAR TO MATURITY PRICE INVESTED
- --------------------------------------------- ---------- ----------
Less than 2 years............................ 0.25% 0.251%
At least 2 years but less than 3 years....... 0.50 0.503
At least 3 years but less than 5 years....... 0.75 0.756
At least 5 years but less than 8 years....... 1.00 1.010
At least 8 years but less than 13 years...... 1.50 1.523
At least 13 years but less than 18 years..... 1.75 1.781
18 year or more.............................. 2.00 2.041
On Units sold to the Account, Provident Mutual initially pays the
transaction charge, which it intends to recover through an asset charge. See
accompanying Prospectus for the Policies for further information. These
6
<PAGE>
transaction charges are less than sales charges on comparable funds offered by
the Sponsor reflecting elimination of distribution expenses because all sales
are made to the Account. Because the income on the Treasury note is designed to
equal the Fund expenses, accrued interest on the Note is not reflected in the
offering, repurchase or redemption prices of Units. In practice, as determined
on an accrual basis by the auditors, accumulated expenses have been slightly
higher or lower than the interest on the Treasury Notes. These differences are
immaterial and may change over time. If there is an expense deficit at
termination of a Trust, either the Trustee will waive a part of its fees or the
Sponsor will bear sufficient expenses to eliminate the deficit. If a surplus
remains at termination, the amount will be distributed to Holders;
alternatively, the Sponsor from time to time may direct the Trustee to
distribute part or all of any accumulated surplus. The Offering Price on the
date of this Prospectus or on any subsequent date will vary from the Offering
Price on the date of the Investment Summary in accordance with fluctuations in
the aggregate offering side evaluation of the underlying Securities in the
Trust. Amortization of discount will have the effect of increasing at any
particular time the offering side evaluation of the underlying Securities.
The aggregate bid or offer side evaluation of the Securities is determined
by the Evaluator in the following manner: (a) on the basis of current bid or
offer prices for the Securities, (b) if bid or offer prices are not available
for any Securities, on the basis of current bid or offer prices for comparable
securities, (c) by appraising the value of the Securities on the bid or offer
side of the market, or (d) by any combination of the above. The Evaluator may
obtain current price information as to the Securities from investment dealers or
brokers (including the Sponsor) which customarily deal in that type of
securities.
The Offering Price is determined on each business day during any initial
offering as of the Evaluation Time, effective for all sales made since the last
of these evaluations and as of the Evaluation Time on the last business day of
each week during any period when there is no initial offering (i.e., when no
additional Units are being created), effective for all sales made during the
following week (Section 4.01). The term 'business day', as used herein and under
'Redemption', shall exclude Saturdays, Sundays; the following holidays as
observed by the New York Stock Exchange: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas; and the following Federal holidays: Martin Luther King's birthday,
Columbus Day and Veterans' Day.
COMPARISON OF OFFERING PRICE, SPONSOR'S REPURCHASE PRICE AND REDEMPTION PRICE
On the date of the Investment Summary, the Offering Price per Unit of each
Trust (which includes the transaction charge) and the Sponsor's Repurchase Price
per Unit (each based on the offer side evaluation of Securities in the
Trust--see above) exceeded the Redemption Price per Unit (based on the bid side
evaluation thereof--see Redemption) by the amounts set forth under Investment
Summary.
Because the bid side evaluations of the Units are lower than the offer side
evaluations thereof by the amounts set forth under Investment Summary and other
reasons (including fluctuations in the market prices of these Securities and the
fact that the Offering Price includes a transaction charge), the amount realized
by a Holder upon any sale or redemption of Units may be less than the price paid
for these Units.
DISTRIBUTION
During the initial offering period (i) for Units issued on the Initial Date
of Deposit and (ii) for additional Units issued after that date in respect of
additional Securities deposited by the Sponsor, Units may be purchased
7
<PAGE>
by the Account at the Offering Price by means of this Prospectus (except that,
as explained above, the transaction charge is initially paid by Provident
Mutual). The initial offering period in each case will terminate on the date all
newly issued Units are sold. Upon the completion of any initial offering, Units
acquired in the secondary market may be offered by this Prospectus at the
secondary market Offering Price determined in the manner provided above as of
the close of business on the last business day of each week (see Market for
Units), also less the transaction charge paid by Provident Mutual.
SPONSOR'S PROFITS
Upon the sale of Units, the Sponsor will receive the transaction charge at
the rates set forth above. The Sponsor may also realize a profit or loss on each
deposit of Securities in a Trust. This is the difference between the cost of the
Securities to the Trust (which is based on the offer side evaluation of the
Securities on the date of deposit) and the purchase price of those Securities to
the Sponsor. During the initial offering period, and thereafter to the extent
additional Units continue to be offered for sale, the Sponsor also may realize
profits or sustain losses as a result of fluctuations after the date of deposit
in the Offering Price of the Units. Cash, if any, made available by buyers of
Units to the Sponsor prior to the settlement dates for purchase of Units may be
used in the Sponsor's business, subject to the limitations of Rule 15c3-3 under
the Securities Exchange Act of 1934, and may be of benefit to the Sponsor.
In maintaining a market for the Units the Sponsor will also realize profits
or sustain losses in the amount of any difference between the prices at which it
buys Units (based on the offer side evaluation of the Securities) and the prices
at which it resells those Units (which include the relevant transaction charge)
or the prices at which it may redeem those Units (based on the bid side
evaluation of the Securities), as the case may be.
MARKET FOR UNITS
The Sponsor, though not obligated to do so, 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, that will
be computed on the basis of the offer side evaluation of the Securities, taking
into account the same factors referred to in determining the offer side
evaluation of the Securities for purposes of sale of Units (see Sale of
Units--Offering Price). During the initial offering period or thereafter, on a
given day, the price offered by the Sponsor for the purchase of Units shall be
an amount not less than Redemption Price per Unit, based on the aggregate bid
side evaluation of Securities in the relevant Trust on the date on which the
Units are tendered for redemption.
The Sponsor may redeem any Units it has purchased in the secondary market
if it determines it is undesirable to continue to hold those Units in its
inventory, provided that it intends to redeem Units only in an amount to
substantially equal the value of one or more Securities, so that uninvested cash
generated by a redemption is de minimis. Factors which the Sponsor will consider
in making this determination will include the number of units of all series of
all funds which it has in its inventory, the saleability of the units and its
estimate of the time required to sell the units and general market conditions.
REDEMPTION
While it is anticipated that Units in most cases can be sold for amounts
exceeding the Redemption Price per Unit (see Market for Units), Units may be
redeemed at the office of the Trustee upon tender on any business day, as
defined under Sale of Units--Offering Price, of Certificates or, in the case of
uncertificated Units, delivery of a
8
<PAGE>
request for redemption, and payment of any relevant tax without any other fee
(Section 5.02). Certificates to be redeemed must be properly endorsed or
accompanied by a written instrument or instruments of transfer.
The Trustee will redeem Units either in cash or in kind at the option of
the Holder as specified in writing to the Trustee. (Unless otherwise specified,
redemptions will be made in cash.) Not later than the seventh calendar day
following the tender (or if the seventh calendar day is not a business day on
the first business day prior thereto), the Holder will be entitled to receive
the proceeds of the redemption in an amount and value of Securities per Unit
equal to the Redemption Price per Unit (see below) as determined as of the
Evaluation Time next following the tender. The Redemption Price per Unit for in
kind distributions (the 'In Kind Distribution') will take the form of the
distribution of whole Securities represented by the fractional undivided
interest in the applicable Trust of the Units tendered for redemption (based
upon the Redemption Price per Unit) (Section 5.02). So long as the Sponsor is
maintaining a market at prices in excess of the Redemption Price per Unit, the
Sponsor will repurchase any Units tendered for redemption in cash no later than
the close of business on the business day following the tender. The Trustee is
authorized in its discretion, if the Sponsor does not repurchase any Units
tendered for redemption or if the Sponsor tenders its Units for redemption, to
sell the Units in the over-the-counter market at prices which will return to the
Holder a net amount in cash equal to or in excess of the Redemption Price per
Unit for the Units (Section 5.02).
If the tendering Holder requests distribution in kind, the Trustee as
Distribution Agent for the account of the tendering Holder shall sell any
portion of the In Kind Distribution represented by fractional interests in
accordance with the instructions of the tendering Holder and distribute net cash
proceeds to the tendering Holder together with certificates representing whole
Securities received as the In Kind Distribution. In implementing these
redemption procedures, the Trustee shall make any adjustments necessary to
reflect differences between the Redemption Price of the Units and the value of
the In Kind Distribution as of the date of tender.
The Trustee is empowered to sell Securities in order to make funds
available for cash redemptions (Section 5.02). The Securities will be sold so as
to maintain, as closely as practicable, the percentage relationship between the
face amount of Stripped Treasury Securities and the Treasury Note in the Trust
at the time of sale. Provision is made under the Indenture for the Sponsor to
specify minimum face amounts in which blocks of Securities are to be sold in
order to obtain the best price for the Trust. While these minimum amounts may
vary from time to time in accordance with market conditions, the Sponsor
believes that the minimum face amounts which would be specified would range from
$25,000 to $100,000.
To the extent that Securities are redeemed in kind or sold, the size of the
relevant Trust will be reduced. Sales will usually be required at a time when
Securities would not otherwise be sold and may result in lower prices than might
otherwise be realized. In addition, because of the minimum face amounts in which
Securities are required to be sold, the proceeds of sale may, if the Sponsor
fails to maintain a secondary market as described above, exceed the amount
required at the time to redeem Units; any excess proceeds will be deposited in
the Capital Account. The price received upon redemption may be more than or less
than the amount paid by the Holder depending on the value of the Securities in
the Trust at the time of redemption.
The right of redemption may be suspended and payment postponed for any
period (1) during which the New York Stock Exchange, Inc. is closed other than
for customary weekend and holiday closings or (2) during which, as determined by
the Securities and Exchange Commission, (i) trading on that Exchange is
restricted or (ii) an emergency exists as a result of which disposal or
evaluation of the Securities is not reasonably practicable, or (3) which the
Commission may by order permit (Section 5.02).
9
<PAGE>
Redemption Price per Unit is computed by the Trustee as of the Evaluation
Time on each June 30 and December 31 (or the last business day prior thereto),
on any business day, as of the Evaluation Time next following the tender of any
Unit for redemption, and on any other business day desired by the Trustee or the
Sponsor, on the bid side of the market, taking into account the same factors
referred to in determining the offer side evaluation for purposes of sale of
Units (see Sale of Units--Offering Price).
While Securities of the type included in the Trusts' Portfolios involve
minimal risk of loss of principal when held to maturity, due to variations in
interest rates the market value of the Securities and Redemption Price per Unit
can be expected to fluctuate during the period of an investment in a Trust.
EXPENSES AND CHARGES
INITIAL EXPENSES
All expenses incurred in establishing the Fund and the initial offering of
Units and any additional Units, including the cost of the initial preparation
and printing of documents related to the Fund, cost of the initial evaluation,
the initial fees and expenses of the Trustee, legal expenses, advertising and
selling expenses and any other out-of-pocket expenses, will be paid by the
Sponsor at no charge to the Trusts.
FEES
The Sponsor receives no fee from the Trusts for its services as such.
However, while the transaction charge paid by Provident Mutual to the Sponsor is
not directly charged to the Account, because of the asset charge by Provident
Mutual, Policyowners will indirectly bear these charges (see the information
regarding fees and expenses in the accompanying Prospectus). The Trustee's and
Evaluator's fees are set forth under Investment Summary. The Trustee's fees,
payable in semi-annual installments, are based on the largest face amount of
Securities in a Trust during the preceding semi-annual period. For its services
as Trustee, the Trustee receives annually $0.18 per $1,000 face amount of
Treasury Securities. Certain regular and recurring expenses of each Trust,
including the Evaluator's fee and certain mailing and printing expenses, are
borne by the Trustee. Expenses in excess of the amount included for those
expenses in the Trustee's Annual Fee and Expenses under Investment Summary are
borne by the Trusts (Section 3.14). The Trustee also receives benefits to the
extent that it holds funds on deposit in the various non-interest bearing
accounts created under the Indenture.
OTHER CHARGES
These include: (a) fees of the Trustee for extraordinary services (Section
8.05), (b) certain expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsor (Sections 3.04, 3.09, 8.01[e]
and 8.05), (c) various governmental charges (Sections 3.03 and 8.01[h]), (d)
expenses and costs of any action taken to protect any Trust (Section 8.01[d]),
(e) indemnification of the Trustee for any loss, liabilities and expenses
incurred without gross negligence, bad faith or willful misconduct on its part
(Section 8.05) and (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred without gross negligence, bad faith, willful
misconduct or reckless disregard of its duties (Section 7.02[b]). The amounts of
these charges and fees are secured by a lien on the relevant Trust (Section
8.05). If the balances in the Income and Capital Accounts (see below) are
insufficient, the Trustee has the power to sell Securities to pay these amounts
(Section 8.05).
10
<PAGE>
ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps records of transactions of each Trust, including a
current list of the Securities and a copy of the Indenture, which are available
to record Holders for inspection at the office of the Trustee at reasonable
times during business hours (Sections 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
The terms of the Securities provide for payment to the Holders thereof
(including the Trusts) upon their maturities. Interest received on any
Securities in a Trust which bear current interest, including that part of the
proceeds of any disposition of any such Security which represents accrued
interest and any late payment penalties, is credited to an Income Account and
all other receipts are credited to a Capital Account (Sections 3.01 and 3.02).
Distributions for Holders as of the Record Day normally will be made by mail on
the following Distribution Day and shall consist of an amount substantially
equal to each Holder's pro rata share of the distributable cash balance in the
Income and Capital Accounts of the Trust computed as of the close of business on
the Record Day. The Distribution Day normally shall be the next business day
following the maturity of the Securities in the Trust Portfolio; the Record Day
shall be the business day immediately preceding the Distribution Day. However,
the Sponsor may direct distribution of any cash balance in the Income and
Capital Accounts not otherwise allocated on the last Business Day of any year.
The amount to be distributed may change as Securities are exchanged, paid
or sold. Proceeds received from the disposition or payment of any of the
Securities which are not used for redemption will be held in the Capital Account
(Section 3.04). The Sponsor, however, intends to maintain a secondary market and
to redeem Units only when the value of Units redeemed substantially equals the
value of one or more portfolio Securities. Amounts, if any, in the Income
Account will be distributed to Holders pro rata upon termination of the Trust. A
Reserve Account may be created by the Trustee by withdrawing from the Income or
Capital Accounts, from time to time, amounts which it deems requisite to
establish a reserve for any taxes or other governmental charges that may be
payable out of the Trust (Section 3.03). Funds held by the Trustee in the
various accounts created under the Indenture do not bear interest (Section
8.01).
PORTFOLIO SUPERVISION
Each Trust is part of a unit investment trust and is not an actively
managed fund. Traditional methods of investment management for a managed fund
typically involve frequent changes in portfolio of securities on the basis of
economic, financial and market analyses. The Portfolios of the Trusts, however,
will not be actively managed and adverse conditions will not necessarily require
the sale of securities from a Trust. The Sponsor, however, may direct the
disposition of Securities upon default in payment of amounts due on any of the
Securities which is not promptly cured, institution of certain legal
proceedings, default in payment of amounts due on other Treasury Securities, or
decline in price or the occurrence of other market or credit factors that in the
opinion of the Sponsor would make the retention of these Securities in any Trust
detrimental to the interest of the Holders of that Trust. If a default in the
payment of amounts due on any Security occurs and if the Sponsor fails to give
instructions to sell or hold the Security, the Indenture provides that the
Trustee, within 30 days of that failure by the Sponsor, may sell the Security
(Sections 3.07 and 3.10).
11
<PAGE>
REPORTS TO HOLDERS
The Trustee will furnish Holders of record with each distribution a
statement of the amounts of interest and of other receipts which are being
distributed, expressed in each case as a dollar amount per Unit. After the end
of each calendar year, the Trustee will furnish to Holders of record a statement
(i) summarizing transactions for that year in the Income, Capital and Reserve
Accounts of each Trust, (ii) identifying Securities sold and purchased during
the year, and listing Securities held and the number of Units outstanding at the
end of the year by each Trust, (iii) stating the Trust's Redemption Price per
Unit based upon the computation thereof made at the end of the year and (iv)
specifying any amounts distributed during the year from each Trust's Income and
Capital Accounts. The accounts of each Trust shall be audited at least annually
by independent certified public accounts designated by the Sponsor, and the
report of the accountants shall be furnished by the Trustee to Holders upon
request (Section 8.01[e]).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Section 4.02).
CERTIFICATES
The Sponsor may collect additional charges for registering and shipping
certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee, with a payment
of $2.00 if required by the Trustee (or other amounts specified by the Trustee
and approved by the Sponsor) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon this transaction (Section 6.01)
and compliance with the formalities necessary to redeem Certificates (see
Redemption). Mutilated, destroyed, stolen or lost Certificates will be replaced
upon delivery of satisfactory indemnity and payment of expenses incurred
(Section 6.02).
Alternatively, Holders may elect to hold their Units in uncertificated
form. The Trustee will credit each such Holder's account with the number of
Units purchased by that Holder. This procedure relieves the Holder of the
responsibility for safekeeping of Certificates and of the need to deliver
Certificates upon sale of Units. Uncertificated Units are transferable through
the same procedures applicable to Units evidenced by Certificates (see above),
except that no Certificate need be presented to the Trustee and none will be
issued upon transfer unless requested by the Holder. A Holder may at any time
request the Trustee (at the Trust's cost) to issue Certificates for Units.
AMENDMENT AND TERMINATION
The Sponsor and Trustee may amend the Indenture without the consent of
Holders (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the Securities and Exchange Commission or any
successor governmental agency, or (c) to make any other provisions which do not
materially adversely affect the interest of the Holders (as determined in good
faith by the Sponsor). The Indenture as to any Trust may also be amended in any
respect by the Sponsor and Trustee, or any of the provisions thereof may be
waived, with the consent of the Holders of 51% of the Units of the Trust,
provided that none of these amendments or waivers will reduce the interest in
any Trust of any Holder without the consent of the Holder or reduce the
percentage of Units required to consent to any of these amendments or waivers
without the consent of all Holders. (Section 10.01).
12
<PAGE>
The Indenture will terminate upon the earlier of the disposition of the
last Security held thereunder or the mandatory termination date. The Indenture
as to any Trust may be terminated by the Sponsor if the face amount of the Trust
is less than the minimum set forth under Investment Summary and may be
terminated at any time by written instrument executed by the Sponsor and
consented to by Holders of 51% of the Units (Section 8.01[g] and 9.01). The
Trustee will deliver written notice of any termination to each Holder within a
reasonable period of time prior to the termination, specifying the times at
which the Holders may surrender their Certificates for cancellation. Within a
reasonable period of time after the termination, the Trustee must sell all of
the Securities then held and distribute to each Holder, upon surrender for
cancellation of his Certificates, and after deductions for accrued but unpaid
fees, taxes and governmental and other charges, the Holder's interest in the
Income and Capital Accounts (Section 9.01). This distribution will normally be
made by mailing a check in the amount of each Holder's interest in these
accounts to the address of the Holder appearing on the record books of the
Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
THE TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsor. The
Trustee may be removed upon the direction of the Holders of 51% of the Units at
any time or by the Sponsor without the consent of any of the Holders if the
Trustee becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities. The resignation or removal shall become effective
upon the acceptance of appointment by the successor. In case of such resignation
or removal the Sponsor is to use its best efforts to appoint a successor
promptly and if upon resignation of the Trustee no successor has accepted
appointment within thirty days after notification, the Trustee may apply to a
court of competent jurisdiction for the appointment of a successor (Section
8.06). The Trustee shall be under no liability for any action taken in good
faith in reliance on prima facie properly executed documents or for the
disposition of monies or Securities, nor shall it be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any Security.
This provision, however, shall not protect the Trustee in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In the event of the failure of the Sponsor to act, the
Trustee may act under the Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the Indenture contains other
customary provisions limiting the liability of the Trustee (Sections 3.07, 3.10,
8.01 and 8.05).
THE EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsor, who is to use its best efforts
to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.05). Determinations by the Evaluator under the Indenture
shall be made in good faith upon the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsor or the Holders for errors in judgment. This provision, however, shall
not protect the Evaluator in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties (Section 4.04).
The Trustee, the Sponsor and the Holders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
13
<PAGE>
THE SPONSOR
If the Sponsor fails to perform its duties or becomes incapable of acting
or becomes bankrupt or its affairs are taken over by public authorities, then
the Trustee may (a) appoint a successor Sponsor at rates of compensation deemed
by the Trustee to be reasonable and as may not exceed amounts prescribed by the
Securities and Exchange Commission, or (b) terminate the Indenture and liquidate
the Fund or (c) continue to act as Trustee without terminating the Indenture
(Section 8.01[f]). The Sponsor shall be under no liability to the Fund or to the
Holders for taking any action or for refraining from taking any action in good
faith or for errors in judgment and shall not be liable or responsible in any
way for depreciation or loss incurred by reason of the sale of any Security.
This provision, however, shall not protect the Sponsor in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties (Section 7.02). The Sponsor may transfer all or
substantially all of its assets to a corporation or partnership which carries on
its business and duly assumes all of its obligations under the Indenture and in
such event shall be relieved of all further liability under the Indenture
(Section 7.01).
MISCELLANEOUS
TRUSTEE
The Trustee is The Chase Manhattan Bank, N.A., a national banking
association with its Unit Trust Department at 1 Chase Manhattan Plaza--3B, New
York, New York 10081, (which is subject to supervision by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System).
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, as special counsel for the
Sponsor.
AUDITORS
The financial statements of the Trusts included herein, have been examined
by Deloitte & Touche LLP, independent accountants, as stated in their opinion
and have been included in reliance upon that opinion given on the authority of
that firm as experts in accounting and auditing.
SPONSOR
The Sponsor is a Delaware corporation and is engaged in the underwriting,
securities and commodities brokerage business, and is a member of the New York
Stock Exchange, Inc., other major securities exchanges and commodity exchanges,
and the National Association of Securities Dealers, Inc. Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch Asset Management, a Delaware
corporation, each of which is a subsidiary of Merrill Lynch & Co., Inc., are
engaged in the investment advisory business. The Sponsor has acted as principal
underwriter and managing underwriter of other unit investment trusts. The
Sponsor, in addition to participating as a member of various selling groups or
as an agent of other investment companies, executes orders on behalf of
investment companies for the purchase and sale of securities of these companies
and sells securities to these companies in its capacity as a broker or dealer in
securities.
14
<PAGE>
THE STRIPPED
('ZERO') U.S.
TREASURY SECURITIES
FUND,
PROVIDENT MUTUAL
SERIES A
This Prospectus does
not contain all of
the information with
respect to the
investment company
set forth in its
registration
statement and
exhibits relating
thereto which have
been filed with the
Securities and
Exchange Commission,
Washington, D.C.
under the Securities
Act of 1933 and the
Investment Company
Act of 1940, and to
which reference is
hereby made.
No person is
authorized to give
any information or
SPONSOR: to make any
Merrill Lynch, representations with
Pierce, Fenner & Smith Incorporated respect to this
Defined Asset Funds investment company
P.O. Box 9051 not contained in
Princeton, N.J. 08543-9051 this Prospectus; and
(609) 282-8500 any information or
EVALUATOR: representation not
Kenny S&P Evaluation Services, contained herein
a division of J. J. Kenny Co., Inc. must not be relied
65 Broadway upon as having been
New York, N.Y. 10006 authorized. This
INDEPENDENT ACCOUNTANTS: Prospectus does not
Deloitte & Touche LLP constitute an offer
2 World Financial Center to sell, or a
9th Floor solicitation of an
New York, N.Y. 10281-1414 offer to buy,
TRUSTEE: securities in any
The Chase Manhattan Bank, N.A. state to any person
(Unit Trust Department) to whom it is not
Box 2051 lawful to make such
New York, N.Y. 10081 offer in such state.
1-800-323-1508 CONTENTS
Investment Summary...................... A-2
Fund Structure.............................................. 1
Risk Factors................................................ 1
Description of the Fund..................................... 2
Taxes....................................................... 4
Sale of Units............................................... 5
Market for Units............................................ 6
Redemption.................................................. 6
Expenses and Charges........................................ 7
Administration of the Fund.................................. 8
Resignation, Removal and Limitations on Liability........... 9
Miscellaneous............................................... 10
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition of the Fund.......................... D-2
Portfolio................................................... D-9
14205--4/95
