<PAGE> 1
File No. 33-62243
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 2
to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Fidelity Defined Trusts, Series 1
(Exact Name of Trust)
National Financial Services Corporation
(Exact Name of Depositor)
82 Devonshire Street N7A
Boston, Massachusetts 02109-3614
(Complete address of Depositor's principal executive offices)
National Financial Services Corporation Chapman and Cutler
Attention: David J. Pearlman Attention: Mark J. Kneedy
82 Devonshire Street N7A 111 West Monroe Street
Boston, Massachusetts 02109-3614 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective on
May 1, 1998 pursuant to paragraph (b) of Rule 485.
<PAGE> 2
CONTENTS OF POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement comprises
the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
S-2
<PAGE> 3
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- --------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS SERIES 1
PROSPECTUS - PART I
MAY 1, 1998
LADDERED GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO
LADDERED GOVERNMENT SERIES 2, SHORT/INTERMEDIATE TREASURY PORTFOLIO
ROLLING GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO
This Part I of the Prospectus may not be distributed unless accompanied by Part
II of the Prospectus. Both Parts I and II of the Prospectus should be retained
for future reference.
FIDELITY
INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 4
This Prospectus does not contain all of the information set forth in
the registration statement and exhibits relating thereto, filed with the
Securities and Exchange Commission, Washington, D.C. under the Securities Act of
1933 and the Investment Company Act of 1940, and to which reference is made.
---------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are registered
as unit investment trusts under the Investment Company Act of 1940. Such
registration does not imply that the Trusts or the Units have been guaranteed,
sponsored, recommended or approved by the United States or any state or any
agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, securities in any state to any person to whom it is not
lawful to make such offer in such state.
-2-
<PAGE> 5
FIDELITY DEFINED TRUSTS, SERIES 1
PROSPECTUS
Part I
May 1, 1998
The Trusts
Fidelity Defined Trusts, Series 1 consists of three underlying unit investment
trusts: Laddered Government Series 1, Short Treasury Portfolio; Laddered
Government Series 1, Short/Intermediate Treasury Portfolio; and Rolling
Government Series 1, Short Treasury Portfolio..
LADDERED GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO
Laddered Government Series 1, Short Treasury Portfolio ("Laddered Government
Series 1") was formed for the purpose of providing safety of capital as is
consistent with current income and investment flexibility through an investment
in a portfolio of U.S. Treasury Obligations with laddered maturity levels that
are backed by the full faith and credit of the United States government.
Laddered Government Series 1 was also formed for the purpose of providing
protection against changes in interest rates and also passing through to
Unitholders in all states the exemption from state personal income taxes
afforded to direct owners of U.S. obligations. At the Initial Date of Deposit,
Laddered Government Series 1 consisted of a portfolio of U.S. Treasury
Obligations with differing maturity levels, designed to return approximately 20%
of the principal amount of the Trust semi-annually over the three year life of
the Trust. As of December 31, 1997, Laddered Government Series 1 had a dollar
weighted maturity of 0.6 years.
Tax Status - Laddered Government Series 1 may be an appropriate investment for
investors who desire to participate in a portfolio of taxable, fixed income
securities offering the safety of capital provided by a portfolio backed by the
full faith and credit of the United States government. In addition, many
investors may benefit from the exemption from state and local personal income
taxes that will pass through the Trust to Unitholders in all states. Laddered
Government Series 1 has been created as a grantor trust for federal tax reasons.
See "Tax Status" in Part II of this Prospectus.
LADDERED GOVERNMENT SERIES 2, SHORT /INTERMEDIATE TREASURY PORTFOLIO
Laddered Government Series 2, Short/Intermediate Treasury Portfolio ("Laddered
Government Series 2") was formed for the purpose of providing safety of capital
as is consistent with current income and investment flexibility through an
investment in a portfolio of U.S. Treasury Obligations with laddered maturity
levels that are backed by the full faith and credit of the United States
government. Laddered Government Series 2 was also formed for the purpose of
providing protection against changes in interest rates and also passing through
to Unitholders in all states the exemption from state personal income taxes
afforded to direct
-3-
<PAGE> 6
owners of U.S. obligations. At the Initial Date of Deposit, Laddered Government
Series 2 consisted of a portfolio of U.S. Treasury Obligations with differing
maturity levels, designed to return approximately 20% of the principal amount of
the Trust annually over the four year life of the Trust. As of December 31,
1997, Laddered Government Series 2 had a dollar weighted maturity of 2.1 years.
Tax Status - Laddered Government Series 2 may be an appropriate investment for
investors who desire to participate in a portfolio of taxable, fixed income
securities offering the safety of capital provided by a portfolio backed by the
full faith and credit of the United States government. In addition, many
investors may benefit from the exemption from state and local personal income
taxes that will pass through the Trust to Unitholders in all states. Laddered
Government Series 2 has been created as a grantor trust for federal tax reasons.
See "Tax Status" in Part II of this Prospectus.
ROLLING GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO
Rolling Government Series 1, Short Treasury Portfolio ("Rolling Government
Series 1") was formed for the purpose of providing safety of capital as is
consistent with current income and current monthly distributions of interest
through an investment in a portfolio of U.S. Treasury Obligations that are
backed by the full faith and credit of the United States government. Rolling
Government Series 1 was also formed for the purpose of passing through to
Unitholders in all states the exemption from state personal income taxes
afforded to direct owners of U.S. obligations. Rolling Government Series 1 also
seeks to provide an extendible investment by quarterly reinvesting, until
approximately January, 1998 (the "Extension Period"), the proceeds of maturing
U.S. Treasury Obligations into new U.S. Treasury securities ("Extension
Securities") with maturities of approximately one year. This reinvestment
strategy is designed to produce a higher overall yield than shorter-term
investments with less price volatility than longer-term investments. Rolling
Government Series 1 was designed to maintain a short dollar-weighted maturity,
no greater than approximately 8 months. The value of the Units, the estimated
current return and estimated long-term return to new purchasers will fluctuate
with the value of the Securities included in the portfolio which will generally
increase or decrease inversely with changes in interest rates.
Extensions - The Trust's portfolio consists of U.S. Treasury Obligations with
"laddered" maturities such that approximately 25% of the portfolio matures every
three months. The Sponsor is authorized to direct the reinvestment of the
proceeds of each maturing Security into Extension Securities (an "Extension").
Extensions of approximately 25% of the portfolio at each maturity of Securities
will continue through the Extension Period and, assuming the Trust does not
terminate prior thereto, it is anticipated that Extensions will continue until
principal distributions commence in 1998.
Extension Securities are Securities (i) issued by the U.S. Treasury; (ii) with a
fixed maturity date that is within one month of the first anniversary of the
maturity date of the Security the proceeds of which are being reinvested in the
Extension Security; (iii) purchased at par or, in
-4-
<PAGE> 7
order of preference, at a discount to, or premium over par, as close to par as
practicable; and (iv) that are not when, as and if issued obligations. The
purchase of Extension Securities shall not disqualify the Trust as a "regulated
investment company" under the Internal Revenue Code.
The guidelines under which the Trust will purchase Extension Securities takes
into account price and maturity date. Whenever a U.S. Treasury security in the
Trust's portfolio matures, the Sponsor will direct the Trustee to purchase the
most currently available 1-year U.S. Treasury security at par. If no obligations
are available at par, the Sponsor will select obligations with a price as close
as possible to par. To preserve the Trust's par values, there will be a bias
favoring discounts, when available. Therefore, discounted obligations will be
selected so long as the discount is not more than three times the smaller
premium obligation available. That is, assuming no maturity differences, if
there is an obligation available at a price of $100.125, no alternative
obligation will be selected at less than $99.625. If obligations mature at
different dates within the one month permissible, in determining which
obligation to purchase the Sponsor will increase the premium or discount of the
security by 25 cents (1/4 point) for every month away from the precise one year
maturity date of the original obligation being extended. There will be no
attempt to delay the purchase of the Extension Securities to take advantage of
market movements.
During the Extension Period, the pro rata share of cash in the Principal Account
which has not been reinvested or committed for reinvestment will be computed as
of the 10th day of the month and distributions to the Unitholders as of the
related Record Date will be made on the 20th day of such month. After the
Extension Period, the pro rata share of cash in the Principal Account will also
be computed as described above. Proceeds from the disposition of any of the
Securities or amounts representing principal on the Securities received after
such Record Date and prior to the following Distribution Date will be held in
the Principal Account and not distributed until the next Distribution Date. The
Trustee is not required to make a distribution from the Principal Account unless
the amount available for distribution shall equal at least $1.00 per 100 Units.
See "Distributions to Unitholders" in Part II of this Prospectus.
Tax Status - Rolling Government Series 1 may be an appropriate investment for
investors who desire to participate in a portfolio of taxable, fixed income
securities offering the safety of capital as is consistent with current income
and current monthly distributions of interest provided by a portfolio backed by
the full faith and credit of the United States government. In addition, many
investors may benefit from the exemption from state and local personal income
taxes that will pass through the Trust to Unitholders in all states. Rolling
Government Series 1 has been created as a regulated investment company for
federal tax reasons. See "Tax Status" in Part II of this Prospectus.
-5-
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
THE UNITHOLDERS, SPONSOR AND TRUSTEE
FIDELITY DEFINED TRUSTS SERIES 1
(LADDERED GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO
LADDERED GOVERNMENT SERIES 2, SHORT/INTERMEDIATE TREASURY PORTFOLIO
ROLLING GOVERNMENT SERIES 1, SHORT TREASURY PORTFOLIO)
We have audited the statements of financial condition and schedules of portfolio
securities of Fidelity Defined Trusts Series 1 (Laddered Government Series 1,
Short Treasury Portfolio, Laddered Government Series 2, Short/Intermediate
Treasury Portfolio and Rolling Government Series 1, Short Treasury Portfolio) as
of December 31, 1997, and the related statements of operations and changes in
net assets for the year ended December 31, 1997 and the period from January 3,
1996 (date of deposit) to December 31, 1996. These financial statements are the
responsibility of the Trustee (see Footnote (a)(1)). Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of the securities owned as of December 31, 1997 as shown in the
statements of financial condition and schedules of portfolio securities by
correspondence with The Chase Manhattan Bank, the Trustee. An audit also
includes assessing the accounting principles used and the significant estimates
made by the Trustee, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fidelity Defined Trusts Series
1 (Laddered Government Series 1, Short Treasury Portfolio, Laddered Government
Series 2, Short/Intermediate Treasury Portfolio and Rolling Government Series 1,
Short Treasury Portfolio) as of December 31, 1997, and the results of their
operations and the changes in their net assets for the year ended December 31,
1997 and the period from January 3, 1996 (date of deposit) to December 31, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
April 8, 1998
New York, New York
-6-
<PAGE> 9
SUMMARY OF ESSENTIAL INFORMATION
FIDELITY DEFINED TRUSTS SERIES 1
AS OF DECEMBER 31, 1997
SPONSOR: NATIONAL FINANCIAL SERVICES CORPORATION
TRUSTEE: THE CHASE MANHATTAN BANK
EVALUATOR: MULLER DATA CORPORATION
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 50,000 Units of a Trust. Unitholders
purchasing 50,000 Units or more of a Trust will receive a slightly higher return
because of the reduced sales charge for larger purchases.
<TABLE>
<CAPTION>
LADDERED LADDERED ROLLING
GOVERNMENT GOVERNMENT GOVERNMENT
SERIES 1 SERIES 2 SERIES 1
<S> <C> <C> <C>
Public Offering Price per Units (1).......................................... 5.346% 5.351% 5.307%
Principal Amount of Securities per Units..................................... $6.00 $8.00 $10.0139
Estimated Current Return based on Public Offering Price (2)(4)(5)............
Estimated Long-Term Return (2)(3)(4)......................................... 2.906% 4.668% 3.094%
Estimated Normal Annual Distribution per Unit................................ .3450 .4550 .5601
Principal Amount of Securities............................................... $17,271,000 $10,320,000 $6,300,000
Number of Units.............................................................. 2,878,500 1,290,000 629,125
Fractional Undivided Interest per Units...................................... 1/2,878,500 1/1,290,000 1/629,125
Calculation of Public Offering Price:
Aggregate Bid Price of Securities......................................... 17,312,163 10,310,856 6,301,418
Aggregate Bid Price of Securities per Unit................................ 6.0143 7.9929 10.0162
Plus Sales Charge per Units (2)........................................... .0761 .1012 .1268
Public Offering Price per Unit (1) ..................................... 6.0904 8.0941 10.1430
Calculation of Estimated Net Annual Interest Income per Unit:
Estimated Annual Interest................................................. .3450 .455 .5601
Less: Estimated Annual Expense........................................... .0194 .0219 .0218
Estimated Net Annual Interest............................................. .3256 .4331 .5383
Estimated Daily Rate of Net Interest......................................... .0009 .0012 .0014
Estimated Average Life of Securities......................................... .57 yrs. 2.10 yrs. .63 yrs.
Minimum Principal Value of the Trust under which Trust Agreement
may be terminated (9)..................................................... - - -
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made as of
the close of business of the Sponsor (currently 4:15 pm Eastern Time) next
following receipt of an order for a sale or purchase of Units or receipt by the
Trustee of Units tendered for redemption.
<TABLE>
<CAPTION>
LADDERED LADDERED ROLLING
GOVERNMENT GOVERNMENT GOVERNMENT
SERIES 1 SERIES 2 SERIES 1
<S> <C> <C> <C>
Trustee's Annual Fee per $1,000 principal amount of Securities(6)............ 1.84 2.09 2.08
Interest Payments (7):.......................................................
Estimated Normal Monthly Distribution per Unit............................ .0287 .0379 .0466
Estimated Normal Annual Distribution per Unit............................. .3450 .4550 .5601
Sales Charge (5):
As a percentage of Public Offering Price per Unit......................... .0125% .0125% .0125%
As a percentage of net amount invested.................................... .0127% .0127% .0127%
Date Trusts Established...................................................... 1/3/96 1/3/96 1/3/96
Mandatory Termination Date................................................... 1/31/00 5/31/02 1/31/00
Maximum Evaluator's Annual Evaluation Fee per $1,000 Principal
Amount of Securities...................................................... .10 .10 .10
Maximum Sponsor's Annual Surveillance Fee per $1,000 Principal
Amount of Securities...................................................... .10 .10 .10
Estimated Annual Organizational Expenses per Unit (8)........................ .0033 .0075 .0153
</TABLE>
-7-
<PAGE> 10
(1) Anyone ordering Units will pay accrued interest from the preceding
record date to the date of settlement (normally three business days
after order).
(2) The Estimated Current Return and Estimated Long-Term Return are
increased for transactions entitled to a reduced sales charge. See
"Public Offering of Units - Public Offering Price" in Part II of this
Properties.
(3) The Estimated Current Returns are calculated by dividing the estimated
net annual interest income per Unit by the Public Offering Price. The
estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trustee, the Sponsor and the Evaluator and
with the principal prepayment, redemption, maturity, exchange or sale
of Securities while the Public Offering Price will vary with changes in
the offering price of the underlying Securities and with changes in the
accrued interest; therefore, there is no assurance that the present
Estimated Current Returns indicated above will be realized in the
future. The Estimated Long-Term Returns are calculated using a formula
which: (1) takes into consideration and determines and factors in the
relative weightings of, the market values, yield (which take into
account the amortization of premiums and the accretion of discounts)
and the expected retirement dates of all of the Securities in the
applicable Trust and (2) takes into account the expenses and sales
charge associated with each Trust Unit. Since the market values and
estimated retirement dates of the Securities and expenses of each Trust
will change, there is no assurance that the present Estimated Long-Term
Returns as indicated above will be realized in the future. The
Estimated Current Returns and Estimated Long-Term Returns are expected
to differ because the calculation of the Estimated Long-Term Returns
reflects the estimated date and amount of principal returned while the
Estimated Current Return calculations include only net annual interest
income and Public Offering Price.
(4) This figure is based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows to Unitholders for the Trusts are available upon
request at no charge from the Sponsor.
(5) The sales charge as a percentage of the net amount invested in earning
assets will increase as accrued interest increases. Transactions
subject to quantity discounts (see "Public Offering of Units - Public
Offering Price in Part II of this Properties") will have reduced sales
charges, thereby reducing all percentages in the table.
(6) The Trustee's annual fee includes $.07 per Unit which is paid to the
Sponsor in return for its providing certain bookkeeping and
administrative services to its customers. See "Trust Information -
Trust Expenses".
(7) Unitholders will receive interest distributions monthly. The Record
Date is the 10th day of the month, and the distribution date is the
20th day of the month.
(8) Each Trust (and therefore the Unitholders of the respective Trust) will
bear all or a portion of its organizational costs (including costs of
preparing the registration statement, the Trust indenture and other
closing documents, registering Units with the Securities and Exchange
Commission and states, the initial audit of the Trust portfolios, legal
fees and the initial fees and expenses of the Trustee but not including
the expenses incurred in the preparation and printing of brochures and
other advertising materials and other selling expenses) as is common
for mutual funds. Total organizational expenses will be amortized over
a five-year period or over the life of a Trust if the term of such
Trust is less than five years. See "Trust Expenses" in Part II of this
Properties and "Statements of Financial Condition". Historically, the
Sponsors of Unit investment trusts have paid all of the costs of
establishing such trusts.
(9) The minimum principal value of each Trust under which the Trust
Agreement may be terminated is 20% of the total aggregate principal
amount of securities deposited in each Portfolio during the initial
offering period.
-8-
<PAGE> 11
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
TRUST PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C>
Investments in securities at market value (cost
$17,278,075 (Note (a) and Schedule of Portfolio
Securities Notes (1) and (2)) $17,312,163
Accrued interest receivable 430,096
Deferred organizational costs 28,909
------
Total 17,771,168
LESS LIABILITIES:
Advance from Trustee $ 359,233
Accrued Trustee's fees 1,731
Accrued Sponsor fees 3,889
-----
Total liabilities 364,853
-------
NET ASSETS:
Balance applicable to 2,878,500 Units of fractional undivided interest
outstanding (Note (c)):
Net amount applicable to investors 17,311,253
Undistributed net investment income
(Note (b)) 95,062
------
Net assets $17,406,315
===========
Net asset value per Unit ($17,406,315 divided
by 2,878,500 Units) $ 6.05
===========
</TABLE>
See notes to financial statements
-9-
<PAGE> 12
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Investment income - interest $1,323,091 $891,142
---------- --------
Less Expenses:
Trustee fees and expenses 41,464 30,221
Sponsor fees 2,254 1,635
Amortization of organizational costs 9,637 9,637
---------- --------
Total expenses 53,355 41,493
---------- --------
Investment income - net 1,269,736 849,649
---------- --------
Net loss on investments:
Realized loss on securities sold or redeemed (40,346) -
Change in unrealized market appreciation (depreciation) 45,701 (11,613)
---------- --------
Net gain (loss) on investments 5,355 (11,613)
---------- --------
Net increase in net assets resulting from operations $1,275,091 $838,036
========== ========
</TABLE>
See notes to financial statements
-10-
<PAGE> 13
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Operations:
Net investment income $ 1,269,736 $ 849,649
Realized loss on securities sold or redeemed (40,346) -
Net unrealized market appreciation (depreciation) 45,701 (11,613)
----------- -----------
Net increase in net assets
resulting from operations 1,275,091 838,036
----------- -----------
Less Distribution to Unit Holders:
Principal (12,672,000) -
Investment income - net (1,310,650) (783,190)
----------- -----------
Total capital share transactions (13,982,650) (783,190)
----------- -----------
Less Capital Share Transactions:
Creation on 3,240,000 Units - 32,516,262
Redemption of 411,500 Units (2,962,854) -
----------- -----------
Total capital share transactions (2,962,854) 32,516,262
----------- -----------
Net (decrease) increase in net assets (15,670,413) 32,571,108
Net assets:
Beginning of period (Note (c)) 33,076,728 505,620
----------- -----------
End of period (including undistributed net investment
income of $95,062 and $142,051, respectively) $17,406,315 $33,076,728
=========== ===========
</TABLE>
See notes to financial statements
-11-
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to,
and designed to provide reasonable assurance as to the integrity
and reliability of, financial reporting of the Trust. The Trustee
is also responsible for all estimates and accruals reflected in
the Trust's financial statements. The Evaluator determines the
price for each underlying Security included in the Trust's
Portfolio of Securities on the basis set forth in Part II of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act
with respect to financial statements of the Trust included in the
Trust's Registration Statement under the Act and amendments
thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the initial date
of deposit (January 3, 1996) represents the cost of investments
to the Trust based on the offering side evaluations as of the
opening of business on the initial date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is
required for such taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained
and under "Trust Expenses" in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
Unitholders - Distributions to Unitholders in Part II of this
Prospectus.
-12-
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (January 3, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units - Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of December 31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Original cost to investors $ 513,320
Less: Gross underwriting commissions (sales charge) 7,700
-----------
Net cost to investors 505,620
Cost of supplemental creations of Units 32,440,670
Principal redemptions (2,956,779)
Principal distribution (12,672,000)
Proceeds from securities sold/matured 15,627,862
Cost of securities sold or redeemed (15,668,208)
Net unrealized market appreciation 34,088
-----------
Net amount applicable to investors $17,311,253
===========
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Principal distributions
during period $4.0000 -
=======
Income distributions during
period $ .4148 $ .5157
======= =======
Net asset value at end of
period 6.05 10.05
==== =====
Trust Units outstanding at
end of period 2,878,500 3,290,000
========= =========
</TABLE>
-13-
<PAGE> 16
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PORT-
FOLIO FACE COUPON MATURITY MARKET
NO. TITLE OF SECURITIES AMOUNT RATE DATE VALUE(1)(2)
<S> <C> <C> <C> <C> <C>
1. US Treasury Note $ 5,757,000 6.375% 01/15/99 $ 5,803,345
2. US Treasury Note 5,757,000 5.625 01/31/98 5,758,554
3. US Treasury Note 5,757,000 5.250 07/31/98 5,750,264
----------- -----------
$17,271,000 $17,312,163
=========== ===========
</TABLE>
See notes to schedule of portfolio securities
-14-
<PAGE> 17
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(1) The market value of the Securities as of December 31, 1997 was
determined by the Evaluator on the basis of bid side evaluations for
the Securities at such date.
(2) At December 31, 1997, the net unrealized market appreciation of all
Securities was comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized market appreciation $ 56,034
Gross unrealized market depreciation (21,946)
--------
Net unrealized market appreciation $ 34,088
========
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$17,278,075 at December 31, 1997.
-15-
<PAGE> 18
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
TRUST PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C>
Investments in Securities at market value (amortized
cost $10,328,103) (Note (a) and Schedule of Portfolio
Securities Notes (1) and (2)) $10,310,856
Accrued interest receivable 63,147
Deferred organizational costs 28,909
-----------
Total 10,402,912
LESS LIABILITIES:
Advance from Trustee $ 33,395
Accrued Trustee's fees and expenses 3,959
Accrued Sponsor's fees 2,078
-----------
Total liabilities 39,432
----------
NET ASSETS:
Balance applicable to 1,290,000 Units of fractional undivided interest
outstanding (Note (c)):
Net amount applicable to investors 10,307,440
Undistributed net investment income (Note (b)) 56,040
----------
Net assets $10,363,480
===========
Net asset value per Unit ($10,363,480 divided by 1,290,000 Units) $ 8.03
===========
</TABLE>
See notes to financial statements
-16-
<PAGE> 19
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Investment income - interest $817,881 $547,947
-------- --------
Less Expenses:
Trustee fees and expenses 26,773 16,631
Sponsor fees 1,281 797
Amortization of organizational costs 9,637 9,637
-------- --------
Total expenses 37,691 27,065
-------- --------
Investment income - net 780,190 520,882
-------- --------
Net gain (loss) on investments:
Realized loss on securities sold or redeemed (37,898) -
Change in unrealized market appreciation (depreciation) 39,623 (56,870)
-------- --------
Net gain (loss) on investments 1,725 (56,870)
-------- --------
Net increase in net assets resulting from operations $781,915 $464,012
======== ========
</TABLE>
See notes to financial statements
-17-
<PAGE> 20
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Operations:
Net investment income $ 780,190 $ 520,882
Realized loss on securities sold
or redeemed (37,898) -
Change in unrealized market appreciation (depreciation) 39,623 (56,870)
----------- -----------
Net increase in net assets
resulting from operations 781,915 464,012
----------- -----------
Less Distribution to Unit Holders:
Principal (2,940,000) -
Investment income - net (733,150) (381,722)
----------- -----------
Total distributions (3,673,150) (381,722)
----------- -----------
Less Capital Share Transactions:
Creation of 1,570,000 Units - 15,577,577
Redemption of 330,000 Units (2,910,709) -
----------- ------------
Total capital share transactions (2,910,709) 15,577,577
----------- -----------
Net (decrease) increase in net assets (5,801,944) 15,659,867
Net assets:
Beginning of period (Note (c)) 16,165,424 505,557
----------- -----------
End of period (including undistributed net investment
income of $56,040 and $86,248, respectively) $10,363,480 $16,165,424
=========== ===========
</TABLE>
See notes to financial statements
-18-
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Defined Trusts Series 1. The following is a summary of the
significant accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to,
and designed to provide reasonable assurance as to the integrity
and reliability of, financial reporting of the Trust. The Trustee
is also responsible for all estimates and accruals reflected in
the Trust's financial statements. The Evaluator determines the
price for each underlying Security included in the Trust's
Portfolio of Securities on the basis set forth in Part II of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act
with respect to financial statements of the Trust included in the
Trust's Registration Statement under the Act and amendments
thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the initial date
of deposit (January 3, 1996) represents the cost of investments
to the Trust based on the offering side evaluations as of the
opening of business on the initial date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is
required for such taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained
and under Trust Expenses in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
Unitholders - Distributions to Unitholders in Part II of this
Prospectus.
-19-
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (January 3, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units - Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of December 31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Original cost to investors $ 514,562
Less: Gross underwriting commissions (sales charge) 9,005
-----------
Net cost to investors 505,557
Cost of supplemental creations of Units 15,538,318
Cost of securities sold or redeemed (5,880,603)
Net unrealized market depreciation (17,247)
Accumulated interest accretion 164,831
Principal redemption (2,906,121)
Proceeds from sales/redemptions 5,842,705
Principal distributions (2,940,000)
-----------
Net amount applicable to investors $10,307,440
===========
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Principal distributions
during period $2.0000 -
=======
Income distributions during
period $ .4957 $ .5155
======= =======
Net asset value at end of
period $8.03 $9.98
===== =====
Trust Units outstanding at
end of period 1,290,000 1,620,000
========= =========
</TABLE>
-20-
<PAGE> 23
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PORT-
FOLIO FACE COUPON MATURITY MARKET
NO. TITLE OF SECURITIES AMOUNT RATE DATE VALUE(1)(2)
<S> <C> <C> <C> <C> <C>
1. US Treasury Note $ 2,580,000 6.125% 05/15/98 $ 2,587,560
2. US Treasury Note (3) 516,000 0.000 05/15/99 478,229
3. US Treasury Note 2,064,000 6.750 05/31/99 2,095,290
4. US Treasury Note (3) 258,000 0.000 05/15/00 226,289
5. US Treasury Note 2,322,000 6.250 05/31/00 2,352,650
6. US Treasury Note (3) 774,000 0.000 05/15/01 640,531
7. US Treasury Note 1,806,000 8.000 05/15/01 1,930,307
----------- -----------
$10,320,000 $10,310,856
=========== ===========
</TABLE>
See notes to schedule of portfolio securities
-21-
<PAGE> 24
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
LADDERED GOVERNMENT SERIES 2
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(1) The market value of the Securities as of December 31, 1997 was
determined by the Evaluator on the basis of bid side evaluations for
the Securities at such date.
(2) At December 31, 1997, the net unrealized market depreciation of all
Securities was comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized market appreciation $ 23,159
Gross unrealized market depreciation (40,406)
-------
Net unrealized market depreciation $(17,247)
========
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$10,328,103 at December 31, 1997.
(3) This Security has been purchased at a deep discount from the par value
because there is little or no stated interest income thereon.
Securities which pay no interest are normally described as "zero
coupon" bonds. Over the life of securities purchased at a deep discount
the value of such securities will increase such that upon maturity the
holders of such securities will receive 100% of the principal amount
thereof.
-22-
<PAGE> 25
STATEMENT OF FINANCIAL CONDITION
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
TRUST PROPERTY
<TABLE>
<CAPTION>
<S> <C> <C>
Investments in securities at market value (cost
$6,294,346) (Note (a) and Schedule of Portfolio
Securities Notes (1) and (2)) $6,301,418
Accrued interest receivable 42,000
Deferred organizational costs 28,910
------
Total 6,372,328
LESS LIABILITIES:
Due to Trustee $ 36,457
Accrued Sponsor fees 720
Accrued Trustee fees and expenses 4,307
-----
Total liabilities 41,484
------
NET ASSETS:
Balance applicable to 629,125 Units of fractional undivided interest
outstanding (Note (c)):
Net amount applicable to investors 6,306,248
Undistributed principal and net investment
income (Note (b)) 24,580
------
Net assets $6,330,844
==========
Net asset value per Unit ($6,379,921 divided by 629,125 Units) $ 10.06
==========
</TABLE>
See notes to financial statements
-23-
<PAGE> 26
STATEMENTS OF OPERATIONS
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Investment income - interest $402,188 $324,273
-------- --------
Less Expenses:
Trustee fees and expenses 23,941 20,623
Sponsor fees 720 510
Amortization of organizational costs 9,637 9,637
-------- --------
Total expenses 34,298 30,770
-------- --------
Investment income - net 367,890 293,503
-------- --------
Net loss on investments:
Realized gain (loss) on securities sold or redeemed 7,104 (27,271)
Change in unrealized market (depreciation) appreciation (7,187) 14,259
-------- --------
Net loss on investments (83) (13,012)
-------- --------
Net increase in net assets resulting from operations $367,807 $280,491
======== ========
</TABLE>
See notes to financial statements
-24-
<PAGE> 27
STATEMENTS OF CHANGES IN NET ASSETS
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Operations:
Net investment income $ 367,890 $ 293,503
Realized gain (loss) on securities sold or redeemed 7,104 (27,271)
Change in unrealized market (depreciation) appreciation (7,187) 14,259
----------- ----------
Net increase in net assets resulting from operations 367,807 280,491
----------- ----------
Net Investment Income Distributions (392,759) (262,471)
----------- ----------
Capital Share Transactions:
Creation of 751,410 Units - 7,562,458
Redemption of 161,885 Units and 400 Units, respectively (1,622,974) (4,023)
Total capital share transactions (1,622,974) 7,558,435
----------- ----------
Net (decrease) increase in net assets (1,647,926) 7,576,455
Net assets:
Beginning of period (Note (c)) 7,978,770 402,315
----------- ----------
End of period (including undistributed
principal and net investment income of
$24,580 and undistributed net investment
income of $51,852, respectively) $ 6,330,844 $7,978,770
=========== ==========
</TABLE>
See notes to financial statements
-25-
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to,
and designed to provide reasonable assurance as to the integrity
and reliability of, financial reporting of the Trust. The Trustee
is also responsible for all estimates and accruals reflected in
the Trust's financial statements. The Evaluator determines the
price for each underlying Security included in the Trust's
Portfolio of Securities on the basis set forth in Part II of this
Prospectus, "Public Offering of Units - Public Offering Price".
Under the Securities Act of 1933 ("the Act"), as amended, the
Sponsor is deemed to be an issuer of the Trust Units. As such,
the Sponsor has the responsibility of an issuer under the Act
with respect to financial statements of the Trust included in the
Trust's Registration Statement under the Act and amendments
thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the initial date
of deposit (January 3, 1996) represents the cost of investments
to the Trust based on the offering side evaluations as of the
opening of business on the initial date of deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is
required for such taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses and
Evaluator's fees, and may incur additional charges as explained
and under "Trust Expenses" in Part II of this Prospectus.
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twentieth day of each month after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Unitholders - Distributions to Unitholders" in Part II of this
Prospectus.
-26-
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (January 3, 1996) exclusive of
accrued interest, computed on the basis set forth under "Public Offering
of Units - Public Offering Price" in Part II of this Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of December 31, 1997 follows:
<TABLE>
<CAPTION>
<S> <C>
Original cost to investors $ 408,440
Less: Gross underwriting commissions (sales charge) 6,125
-----------
Net cost to investors 402,315
Cost of supplemental creations of Units 7,537,615
Principal redemption (1,620,587)
Cost of securities sold/matured (14,429,884)
Proceeds from securities sold/matured 14,409,717
Net unrealized market appreciation 7,072
------------
Net amount applicable to investors $ 6,306,248
============
</TABLE>
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each period:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 3, 1996
FOR THE YEAR ENDED (DATE OF DEPOSIT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C>
Income distributions during period $.5428 $ .5199
====== ========
Net asset value at end of period $10.06 $10.0900
====== ========
Trust Units outstanding at end of period 629,125 791,010
======= =======
</TABLE>
-27-
<PAGE> 30
SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PORT-
FOLIO FACE COUPON MATURITY MARKET
NO. TITLE OF SECURITIES AMOUNT RATE DATE VALUE(1)(2)
<S> <C> <C> <C> <C> <C>
1. US Treasury Note $1,575,000 5.875% 04/30/98 $1,578,134
2. US Treasury Note 1,575,000 6.000 05/31/98 1,578,686
3. US Treasury Note 1,575,000 4.750 09/30/98 1,566,149
4. US Treasury Note 1,575,000 5.750 12/31/98 1,578,449
---------- ----------
$6,300,000 $6,301,418
========== ==========
</TABLE>
See notes to schedule of portfolio securities
-28-
<PAGE> 31
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
FIDELITY DEFINED TRUSTS SERIES 1
ROLLING GOVERNMENT SERIES 1
SHORT TREASURY PORTFOLIO
DECEMBER 31, 1997
(1) The market value of the Securities as of December 31, 1997 was
determined by the Evaluator on the basis of bid side evaluations for
the Securities at such date.
(2) At December 31, 1997, the net unrealized market appreciation of all
Securities was comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized market appreciation $8,364
Gross unrealized market depreciation (1,292)
------
Net unrealized market appreciation $7,072
======
</TABLE>
The aggregate cost of the Securities for Federal income tax purposes was
$6,294,346 at December 31, 1997.
-29-
<PAGE> 32
The investor is advised to read and retain this Prospectus for future reference.
Units of the Trusts are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation and involve investment risk including loss of
principal.
- --------------------------------------------------------------------------------
SPONSOR: NATIONAL FINANCIAL
SERVICES CORPORATION
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FIDELITY
DEFINED TRUSTS
PROSPECTUS - PART II
APRIL 1, 1998
This Part II of the Prospectus may not be distributed unless accompanied by Part
I of the Prospectus. Both Parts I and II of the Prospectus should be retained
for future reference.
FIDELITY
INVESTMENTS(R)
82 Devonshire Street, Boston, MA 02109
<PAGE> 33
TABLE OF CONTENTS
THE TRUSTS............................................................. 4
GENERAL INFORMATION.................................................... 4
RISK FACTORS........................................................... 5
RATING OF UNITS........................................................ 12
INSURANCE ON THE CORPORATE BONDS....................................... 12
RETIREMENT PLANS....................................................... 14
TAX STATUS............................................................. 14
DISTRIBUTION REINVESTMENT.............................................. 23
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT
RETURN ............................................................. 24
PUBLIC OFFERING OF UNITS............................................... 24
MARKET FOR UNITS....................................................... 29
REDEMPTION............................................................. 29
UNITHOLDERS............................................................ 31
INVESTMENT SUPERVISION................................................. 35
TRUST ADMINISTRATION................................................... 36
TRUST EXPENSES......................................................... 38
THE SPONSOR............................................................ 40
LEGAL OPINIONS......................................................... 41
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................... 41
-2-
<PAGE> 34
This Prospectus does not contain all of the information set forth in
the registration statement and exhibits relating thereto, filed with the
Securities and Exchange Commission, Washington, D.C. under the Securities Act of
1933 and the Investment Company Act of 1940, and to which reference is made.
---------------
No person is authorized to give any information or to make any
representations not contained in this Prospectus and any information or
representation not contained herein must not be relied upon as having been
authorized by the Trusts, the Trustee, or the Sponsor. The Trusts are registered
as unit investment trusts under the Investment Company Act of 1940. Such
registration does not imply that the Trusts or the Units have been guaranteed,
sponsored, recommended or approved by the United States or any state or any
agency or officer thereof.
---------------
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, securities in any state to any person to whom it is not
lawful to make such offer in such state.
-3-
<PAGE> 35
THE TRUSTS
Fidelity Defined Trusts are unit investments trusts consisting of
portfolios containing U.S. Treasury obligations, mortgage-backed securities of
the fully modified pass-through type, the payments of principal and interest on
which are fully guaranteed by the Government National Mortgage Association
("GNMA Securities") and/or corporate debt obligations ("Corporate Bonds"). See
Part I of the Prospectus for a description of the portfolio for each trust. The
various trusts are collectively referred to herein as the "Fidelity Defined
Trusts," the "Fidelity Advisor Defined Trusts" or the "Trusts." Each Trust is
divided into "Units" representing equal shares of the underlying assets of such
Trust. Trusts which contain a laddered portfolio of U.S. Treasury Obligations
are sometimes referred to herein as "Laddered Trusts." Trusts which contain a
portfolio of U.S. Treasury Obligations or GNMA Securities which provide for the
reinvestment of principal distributions into additional U.S. Treasury
Obligations or GNMA Securities, respectively, over a specific period (as set
forth in Part I) are sometimes referred to herein as "Rolling Trusts." Trusts
which contain a portfolio of corporate debt obligations and, in certain Trusts,
U.S. Treasury Obligations are sometimes referred to herein as "Corporate
Trusts." Certain Corporate Trusts may contain a portfolio of insured corporate
debt obligations, in which case they shall sometimes be referred to herein as
"Insured Corporate Trusts." As used herein, "Securities" shall collectively
refer to the U.S. Treasury Obligations, GNMA Securities or Corporate Bonds
deposited in the Trusts. Each of the Trusts is separate and is designated by a
different series number. Each of the Trusts was created under the laws of the
State of New York pursuant to a trust indenture dated the Initial Date of
Deposit (the "Trust Agreement") between National Financial Services Corporation
(the "Sponsor"), The Chase Manhattan Bank (the "Trustee") and for Trusts in
which Muller Data corporation acts as Evaluator (as set forth in Part I), Muller
Data Corporation (the "Evaluator").1
GENERAL INFORMATION
Because certain of the Securities in certain of the Trusts may from
time to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be given
that a Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the Trustee shall be liable in anyway for
any default, failure or defect in any Security.
Subsequent to the date of Part I of this Prospectus, a Security may
cease to be rated or its rating may be reduced below any minimum required as of
a Trust's Initial Date of Deposit. Neither event requires the elimination of
such investment from a Trust, but may be considered in the Sponsor's
determination to direct the Trustee to dispose of such Security. See "Investment
Supervision."
- --------
1 Reference is made to the Trustee Agreement, and any statements
contained herein are qualified in their entirety by the provisions of
the Trust Agreement.
-4-
<PAGE> 36
The Sponsor may not alter the portfolio of a Trust except upon the
occurrence of certain extraordinary circumstances or, in the case of a Rolling
Trust, in connection with a reinvestment of principal. See "Investment
Supervision." Certain of the Securities may be subject to optional call or
mandatory redemption pursuant to sinking fund provisions, in each case prior to
their stated maturity. A bond subject to optional call is one which is subject
to redemption or refunding prior to maturity at the option of the issuer, often
at a premium over par. A refunding is a method by which a bond issue is
redeemed, at or before maturity, by the proceeds of a new bond issue. A bond
subject to sinking fund redemption is one which is subject to partial call from
time to time at par with proceeds from a fund accumulated for the scheduled
retirement of a portion of an issue prior to maturity. Special or extraordinary
redemption provisions may provide for redemption at par of all or a portion of
an issue upon the occurrence of certain circumstances, which may be prior to the
optional call dates shown under "Portfolio" in Part I of this Prospectus for
each Trust. Redemption pursuant to optional call provisions is more likely to
occur, and redemption pursuant to special or extraordinary redemption provisions
may occur, when the Securities have an offering side evaluation which represents
a premium over par, that is, when they are able to be refinanced at a lower
cost. The proceeds from any such call or redemption pursuant to sinking fund
provisions, as well as proceeds from the sale of Securities and from Securities
which mature in accordance with their terms from a Trust, unless utilized to pay
for Units tendered for redemption, or reinvested in the case of the Rolling
Trust, will be distributed to Unitholders of such Trust and will not be used to
purchase additional Securities for such Trust. Accordingly, any such call,
redemption, sale or maturity will reduce the size and diversity of a Trust and
the net annual interest income of such Trust and may reduce the Estimated
Current Return and the Estimated Long-Term Return. See "Interest, Estimated
Long-Term Return and Estimated Current Return." The call, redemption, sale or
maturity of Securities also may have tax consequences to a Unitholder. See "Tax
Status." Information with respect to the call provisions and maturity dates of
the Securities is contained under "Portfolio" in Part I of this Prospectus for
each Trust.
Each Unit of a Trust represents an undivided fractional interest in the
Securities deposited therein, in the ratio shown under "Essential Information"
in Part I of this Prospectus. Units may be purchased and certificates, if
requested, will be issued in denominations of one Unit or any multiple or
fraction thereof, subject to each Trust's minimum investment requirement of one
Unit. Fractions of Units will be computed to three decimal points. To the extent
that Units of a Trust are redeemed, the principal amount of Securities in such
Trust will be reduced and the undivided fractional interest represented by each
outstanding Unit of such Trust will increase. See "Redemption."
RISK FACTORS
U.S. Treasury Obligations. U.S. Treasury Obligations are direct
obligations of the United States and are backed by its full faith and credit
although the Units are not so backed. The U.S. Treasury Obligations are not
rated but in the opinion of the Sponsor have credit characteristics comparable
to those of securities rated "AAA" by nationally recognized rating agencies.
-5-
<PAGE> 37
An investment in Units of a Trust which contains U.S. Treasury
Obligations should be made with an understanding of the risks which an
investment in fixed rate debt obligations may entail, including the risk that
the value of the Securities and hence the Units will decline with increases in
interest rates. The high inflation of prior years, together with the fiscal
measures adopted to attempt to deal with it, have resulted in wide fluctuations
in interest rates and, thus, in the value of fixed rate debt obligations
generally. The Sponsor cannot predict whether such fluctuations will continue in
the future.
During the Reinvestment Period for a Rolling Trust which contains U.S.
Treasury Obligations, the Sponsor will direct the Trustee to reinvest principal
payments on the U.S. Treasury Obligations into additional U.S. Treasury
Obligations as described in Part I of this Prospectus. Principal amounts which
cannot be reinvested will be distributed to Unitholders of such a Trust
semiannually unless the amount available for distribution is less than $0.01 per
Unit. After the Reinvestment Period, principal will not be reinvested and will
be distributed monthly (subject to amount limitations) to Unitholders.
GNMA Securities. An investment in Units of a Rolling Trust which
contains GNMA Securities should be made with an understanding of the risks
inherent therein, including the risk that the value of the portfolio and hence
of the Units will decline with increases in interest rates. The value of the
underlying GNMA Securities will fluctuate inversely with changes in interest
rates. In addition, the potential for appreciation of the underlying GNMA
Securities, which might otherwise be expected to occur as a result of a decline
in interest rates, may be limited or negated by increased principal prepayments
in respect of the underlying mortgages. The high inflation of prior years,
together with the fiscal measures adopted to attempt to deal with it, have
resulted in wide fluctuations in interest rates and, thus, in the value of fixed
rate long term obligations generally. The Sponsor cannot predict whether such
fluctuations will continue in the future.
GNMA Securities included in a Rolling Trust are backed by the
indebtedness secured by underlying mortgage pools of long-term mortgages on 1-
to 4-family dwellings. The pool of mortgages which is to underlie a particular
new issue of Ginnie Maes is assembled by the proposed issuer of such Ginnie
Maes. The issuer is typically a mortgage banking firm, and in every instance
must be a mortgagee approved by and in good standing with the Federal Housing
Administration ("FHA"). In addition, GNMA imposes its own criteria on the
eligibility of issuers, including a net worth requirement.
During the Reinvestment Period for a Rolling Trust which contains GNMA
Securities, the Sponsor will direct the Trustee to reinvest principal payments
and prepayments on the Ginnie Maes into additional Ginnie Mae securities. While
precise duplication of the Ginnie Maes to be purchased with reinvested principal
is the goal of the Sponsor, this may not be possible because fractions of Ginnie
Maes may not be purchased and substantially similar securities may not be
available. Principal amounts which cannot be reinvested will be distributed to
Unitholders of such Trust semiannually unless the amount available for
distribution is less than $0.01 per Unit. After the Reinvestment Period,
principal will not be reinvested and will be distributed monthly (subject to
amount limitations) to Unitholders.
-6-
<PAGE> 38
The mortgages underlying a Ginnie Mae may be prepaid at any time
without any significant premium or penalty at the option of the mortgagors. It
has been the experience of the mortgage industry that the average life of
mortgages comparable to those contained in a Rolling Trust, owing to
prepayments, refinancings and payments from foreclosures is considerably less
than the stated maturity set forth in "Essential Information" in Part I of this
Prospectus. A lower or higher return on Units may occur depending on (i) whether
the price at which the respective Ginnie Maes were acquired by a Trust is lower
or higher than par (which represents the price at which such Ginnie Maes will be
redeemed upon prepayment), (ii) whether principal is reinvested or distributed
to Unitholders and (iii) if reinvestment occurs, whether the Ginnie Maes
purchased by the Trustee with reinvested principal are purchased at a premium or
discount from par. During periods of declining interest rates, prepayments of
Ginnie Maes may occur with increasing frequency because, among other reasons,
mortgagors may be able to refinance their outstanding mortgages at lower
interest rates. In such a case, (i) the reinvestment of principal may be at
prices which result in a lower return on Units or (ii) principal will be
distributed to Unitholders who cannot reinvest such principal distributions in
other securities at an attractive yield.
The Ginnie Maes in a Rolling Trust are guaranteed as to timely payment
of principal and interest by GNMA. Funds received by the issuers on account of
the mortgages backing the Ginnie Maes in the Rolling Trust are intended to be
sufficient to make the required payments of principal of and interest on such
Ginnie Maes but, if such funds are insufficient for that purpose, the guaranty
agreements between the issuers and GNMA require the issuers to make advances
sufficient for such payments. If the issuers fail to make such payments, GNMA
will do so. Any statement in this Prospectus that a particular Security is
backed by the full faith and credit of the United States is based upon the
opinion of an Assistant Attorney General of the United States and should be so
construed.
The GNMA guaranties referred to herein relate only to payment of
principal of and interest on the Ginnie Maes in the portfolio and not the Units
offered hereby.
A number of factors, including homeowners' mobility, change in family
size and mortgage market interest rates will affect the average life of the
Ginnie Maes in a Rolling Trust. For example, Ginnie Maes issued during a period
of high interest rates will be backed by a pool of mortgage loans bearing
similarly high rates. In general, during a period of declining interest rates,
new mortgage loans with interest rates lower than those charged during periods
of high rates will become available. To the extent a homeowner has an
outstanding mortgage with a high rate, he may refinance his mortgage at a lower
interest rate or he may rapidly repay his old mortgage. Should this happen, a
Ginnie Mae issued with a high interest rate may experience a rapid prepayment of
principal as the underlying mortgage loans prepay in whole or in part.
Accordingly, there can be no assurance that the prepayment levels which will be
actually realized will conform to the experience of the FHA, other mortgage
lenders or other Ginnie Mae investors. It is not possible to meaningfully
predict prepayment levels regarding the Ginnie Maes in a Rolling Trust.
Therefore, the termination of a Rolling Trust which contains GNMA Securities
might be accelerated as a result of prepayments made as described herein.
-7-
<PAGE> 39
Public Utility Issues. Certain of the Corporate Bonds in a Corporate
Trust may be obligations of public utility issuers. In general, public utilities
are regulated monopolies engaged in the business of supplying light, water,
power, heat, transportation or means of communication. Historically, the
utilities industry has provided investors with high levels of reliability,
stability and relative total return on their investments. However, an investment
in a Corporate Trust containing obligations of public utility issuers should be
made with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. General problems of such issuers include
the difficulty in financing large construction programs in an inflationary
period, the limitations on operations and increased costs and delays
attributable to environmental considerations, the difficulty of the capital
markets in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of such issuers
have been experiencing certain of these problems in varying degrees. In
addition, federal, state and municipal governmental authorities may from time to
time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of certain of the Corporate Bonds in
a Corporate Trust to make payments of principal and/or interest on such
Corporate Bonds.
Utilities are generally subject to extensive regulation by state
utility commissions which, for example, establish the rates which may be charged
and the appropriate rate of return on an approved asset base, which must be
approved by the state commissions. Certain utilities have had difficulty from
time to time in persuading regulators, who are subject to political pressures,
to grant rate increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on rate adjustments
(for example, by initiative or referendum). Any unexpected limitations could
negatively affect the profitability of utilities whose budgets are planned far
in advance. Also, changes in certain accounting standards currently under
consideration by the Federal Accounting Standards Board could cause significant
write-downs of assets and reductions in earnings for many investor-owned
utilities. In addition, gas pipeline and distribution companies have had
difficulties in adjusting to short and surplus energy supplies, enforcing or
being required to comply with long-term contracts and avoiding litigation from
their customers, on the one hand, or suppliers, on the other hand.
Certain of the issuers of the Bonds in a Corporate Trust may own or
operate nuclear generating facilities. Governmental authorities may from time to
time review existing, and impose additional, requirements governing the
licensing, construction and operation of nuclear power plants. Nuclear
generating projects in the electric utility industry have experienced
substantial cost increases, construction delays and licensing difficulties.
These have been caused by various factors, including inflation, high financing
costs, required design changes and rework, allegedly faulty construction,
objections by groups and governmental officials, limits on the ability to
finance, reduced forecasts of energy requirements and economic conditions. This
experience indicates that the risk of significant cost increases, delays and
licensing difficulties remains present through completion and achievement of
commercial operation of any nuclear project. Also, nuclear generating units in
service have experienced unplanned outages or extensions of scheduled outages
due to equipment problems or new regulatory requirements sometimes followed by a
significant delay in
-8-
<PAGE> 40
obtaining regulatory approval to return to service. A major accident at a
nuclear plant anywhere could cause the imposition of limits or prohibitions on
the operation, construction or licensing of nuclear units in the United States.
In view of the uncertainties discussed above, there can be no assurance
that any bond issuer's share of the full cost of nuclear units under
construction ultimately will be recovered in rates or of the extent to which a
bond issuer could earn an adequate return on its investment in such units. The
likelihood of a significantly adverse event occurring in any of the areas of
concern described above varies, as does the potential severity of any adverse
impact. It should be recognized, however, that one or more of such adverse
events could occur and individually or collectively could have a material
adverse impact on the financial condition or the results of operations or on a
bond issuer's ability to make interest and principal payments on its outstanding
debt.
Other general problems of the gas, water, telephone and electric
utility industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to transport
fossil fuels, the uncertainty of transmission service costs for both interstate
and intrastate transactions, changes in tax laws which adversely affect a
utility's ability to operate profitably, increased competition in service costs,
reductions in estimates of future demand for electricity and gas in certain
areas of the country, restrictions on operations and increased cost and delays
attributable to environmental considerations, uncertain availability and
increased cost of capital, unavailability of fuel for electric generation at
reasonable prices, including the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal, availability
and cost of natural gas for resale, technical and cost factors and other
problems associated with construction, licensing, regulation and operation of
nuclear facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials and the disposal
of radioactive wastes, the effects of energy conservation and the effects of
deregulation. Each of the problems referred to could adversely affect the
ability of the issuers of any utility bonds in a Corporate Trust to make
payments due on these bonds.
In addition, the ability of state and local joint action power agencies
to make payments on bonds they have issued is dependent in large part on
payments made to them pursuant to power supply or similar agreements. Courts in
Washington and Idaho have held that certain agreements between Washington Public
Power Supply System ("WPPSS") and the WPPSS participants are unenforceable
because the participants did not have the authority to enter into the
agreements. While these decisions are not specifically applicable to agreements
entered into by public entities in other states, they may cause a reexamination
of the legal structure and economic viability of certain projects financed by
joint action power agencies, which might exacerbate some of the problems
referred to above and possibly lead to legal proceedings questioning the
enforceability of agreements upon which payment of these bonds may depend.
-9-
<PAGE> 41
Corporate Bonds. An investment in Units of a Corporate Trust should be
made with an understanding of the risks that an investment in fixed rate,
investment grade corporate debt obligations may entail, including the risk that
the value of the Units will decline with increases in interest rates. In recent
years, there have been wide fluctuations in interest rates and thus in the value
of fixed-rate debt obligations generally. Generally bonds with longer maturities
will fluctuate in value more than bonds with shorter maturities. A slowdown in
the economy, or a development adversely affecting an issuer's creditworthiness,
may result in the issuer being unable to maintain earnings or sell assets at the
rate and at the prices, respectively, that are required to produce sufficient
cash flow to meet its interest and principal requirements. The Sponsor cannot
predict future economic policies or their consequences or, therefore, the course
or extent of any similar market fluctuations in the future.
Should the issuer of any Corporate Bond default in the payment of
principal or interest, a Corporate Trust may incur additional expenses seeking
payment on the defaulted Corporate Bond. Because amounts (if any) recovered by a
Trust in payment under the defaulted Corporate Bond may not be reflected in the
value of the Units until actually received by a Corporate Trust, and depending
upon when a Unitholder purchases or sells his Units, it is possible that a
Unitholder would bear a portion of the cost of recovery without receiving any
portion of the payment recovered.
General. Certain of the Securities in certain of the Trusts may have
been acquired at a market discount from par value at maturity. The coupon
interest rates on discount securities at the time they were purchased and
deposited in the Trusts were lower than the current market interest rates for
newly issued bonds of comparable rating and type. If such interest rates for
newly issued comparable securities increase, the market discount of previously
issued securities will become greater, and if such interest rates for newly
issued comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Investors should also note
that the value of securities purchased at a market discount will increase in
value faster than securities purchased at a market premium if interest rates
decrease. Conversely, if interest rates increase, the value of securities
purchased at a market discount will decrease faster than securities purchased at
a market premium. In addition, if interest rates rise, the prepayment risk of
higher yielding, premium securities and the prepayment benefit for lower
yielding, discount securities will be reduced. See "Tax Status." Market discount
attributable to interest changes does not indicate a lack of market confidence
in the issue. Neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any of the Securities.
Certain of the Securities in the Trusts may have been acquired at a
market premium from par value at maturity. The coupon interest rates on premium
securities at the time they were purchased and deposited in the Trusts were
higher than the current market interest rates for newly issued securities of
comparable rating and type. If such interest rates for newly issued and
otherwise comparable securities decrease, the market premium of previously
issued securities will be increased, and if such interest rates for newly issued
comparable securities increase, the market premium of previously issued
securities will be reduced, other things being equal. The current returns of
securities trading at a market premium are initially higher than the current
returns of comparable securities of a similar type
-10-
<PAGE> 42
issued at currently prevailing interest rates because premium securities tend to
decrease in market value as they approach maturity. Because part of the purchase
price is thus returned not at maturity but through current income payments,
early redemption of a premium bond at par or early prepayments of principal will
result in a reduction in yield. Redemption pursuant to call provisions generally
will, and redemption pursuant to sinking fund provisions may, occur at times
when the redeemed Securities have an offering side valuation which represents a
premium over par or, for original issue discount Securities, a premium over the
accreted value. To the extent that the Securities were deposited in the Trusts
at a price higher than the price at which they are redeemed, this will represent
a loss of capital when compared to the original Public Offering Price of the
Units. Because premium securities generally pay a higher rate of interest than
securities priced at or below par, the effect of the redemption of premium
securities would be to reduce Estimated Net Annual Unit Income by a greater
percentage than the par amount of such securities bears to the total par amount
of Securities in a Trust. Although the actual impact of any such redemptions
that may occur will depend upon the specific Securities that are redeemed, it
can be anticipated that the Estimated Net Annual Interest Income will be
significantly reduced after the dates on which such Securities are eligible for
redemption. See "Portfolio" in Part I of this Prospectus for each Trust for the
earliest scheduled call date and the initial redemption price for each Security.
Certain of the Securities in certain of the Trusts may be "zero coupon"
bonds, i.e., an original issue discount bond that does not provide for the
payment of current interest. Zero coupon bonds are purchased at a deep discount
because the buyer receives only the right to receive a final payment at the
maturity of the bond and does not receive any periodic interest payments. The
effect of owning deep discount bonds which do not make current interest payments
(such as the zero coupon bonds) is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount earned during the life
of such obligation. This implicit reinvestment of earnings at the same rate
eliminates the risk of being unable to reinvest the income on such obligation at
a rate as high as the implicit yield on the discount obligation, but at the same
time eliminates the holder's ability to reinvest at higher rates in the future.
For this reason, zero coupon bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest currently. A Trust may be
required to sell zero coupon bonds prior to maturity (at their current market
price which is likely to be less than their par value) in the event that all the
Securities in the portfolio other than the zero coupon bonds are called or
redeemed in order to pay expenses of a Trust or in case a Trust is terminated.
For the Federal tax consequences of original issue discount securities such as
the zero coupon bonds, see "Tax Status."
Litigation. To the best of the Sponsor's knowledge, there is no
litigation pending as of the date of Part I of this Prospectus in respect of any
Security which might reasonably be expected to have a material adverse effect on
the Trusts. At any time after the date of Part I of this Prospectus, litigation
may be instituted on a variety of grounds with respect to the Securities. The
Sponsor is unable to predict whether any such litigation may be instituted, or
if instituted, whether such litigation might have a material adverse effect on
the Trusts.
-11-
<PAGE> 43
RATING OF UNITS
At the Initial Date of Deposit for each Laddered Trust, Rolling Trust
and Insured Corporate Trust, Standard & Poor's rated the Units of such Trusts
"AAA." Although each of these Trusts have elected not to renew this rating, in
the opinion of the Sponsor there has been no significant structural change to
any of these Trusts which would warrant a different rating than was originally
obtained. This is the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is very strong.
A Standard & Poor's rating (as described by Standard & Poor's) on the
units of an investment trust (hereinafter referred to collectively as "units" or
"trust") was, at the time it was given, a current assessment of creditworthiness
with respect to the investments held by such trust. This assessment takes into
consideration the financial capacity of the issuers and of any guarantors,
insurers, lessees, or mortgagors with respect to such investments. The
assessment, however, does not take into account the extent to which trust
expenses or portfolio asset sales for less than the trust's purchase price will
reduce payment to the Unitholder of the interest and principal required to be
paid on the portfolio assets. In addition, the rating is not a recommendation to
purchase, sell, or hold units, inasmuch as the rating does not comment as to
market price of the units or suitability for a particular investor. Trusts rated
"AAA" are composed exclusively of assets that are rated "AAA" by Standard &
Poor's or have, in the opinion of Standard & Poor's, credit characteristics
comparable to assets rated "AAA," or certain short-term investments. Standard &
Poor's defines its "AAA" rating for such assets as the highest rating assigned
by Standard & Poor's to a debt obligation. Capacity to pay interest and repay
principal is very strong.
Securities in an Insured Corporate Trust for which insurance has been
obtained by the issuer or the Sponsor (all of which were rated "AAA" by Standard
& Poor's and/or "Aaa" by Moody's Investors Service, Inc. ("Moody's")) may or may
not have a higher yield than uninsured Securities rated "AAA" by Standard &
Poor's or "Aaa" by Moody's. In selecting Securities for an Insured Corporate
Trust, the Sponsor has applied the criteria hereinbefore described.
INSURANCE ON THE CORPORATE BONDS
All Corporate Bonds in an insured Corporate Trust ("Insured Corporate
Trust") (as set forth in Part I of this Prospectus) except for any U.S. Treasury
obligations are insured as to the scheduled payment of interest and principal
either by the issuer of the Corporate Bonds or by the Sponsor under a financial
guaranty insurance policy obtained from MBIA Insurance Corporation ("MBIA"). The
premium for each such insurance policy has been paid in advance by such issuer
or the Sponsor and each such policy is non-cancellable and will remain in force
so long as such Corporate Bonds are outstanding and MBIA remains in business. No
premiums for such insurance are paid by an Insured Corporate Trust. If MBIA is
unable to meet its obligations under its policy or if the rating assigned to the
claims-paying ability of MBIA deteriorates, no other insurer has any obligation
to insure any issue adversely affected by either of these events.
-12-
<PAGE> 44
The aforementioned insurance guarantees the scheduled payment of
principal and interest on all of such Corporate Bonds in an Insured Corporate
Trust except for any U.S. Treasury obligations. It does not guarantee the market
value of the Bonds or the value of the Units of such Corporate Trust. This
insurance is effective so long as the Corporate Bond is outstanding, whether or
not held by an Insured Corporate Trust. Therefore, any such insurance may be
considered to represent an element of market value in regard to the Corporate
Bonds, but the exact effect, if any, of this insurance on such market value
cannot be predicted.
MBIA is the principal operating subsidiary of MBIA, Inc., a New York
Stock Exchange listed company. MBIA, Inc. is not obligated to pay the debts of
or claims against MBIA. MBIA is domiciled in the State of New York and licensed
to do business in 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. MBIA 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, MBIA is required to maintain contingency reserves on
its liabilities in certain amounts and for certain periods of time.
As of December 31, 1996, MBIA had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1997, MBIA had admitted assets of $4.5 billion
(unaudited), total liabilities of $3.0 billion (unaudited), and total capital
and surplus of $1.5 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA Corporation's financial statements prepared in
accordance with statutory accounting practices are available from MBIA
Corporation. The address of MBIA Corporation is 113 King Street, Armonk, New
York 10504.
Moody's rates all bond issues insured by MBIA "Aaa" and short-term
loans "MIG-1," both designated to be of the highest quality. Standard & Poor's
rates all new issues by MBIA "AAA."
Because the Corporate Bonds in an Insured Corporate Trust (other than
U.S. Treasury Obligations) are insured as to the scheduled payment of principal
and interest and on the basis of the financial condition and the method of
operation of MBIA, at the Initial Date of Deposit for each Insured Corporate
Trust, Standard & Poor's assigned to Units in an Insured Corporate Trust its
"AAA" investment rating. While the sponsor has elected not to renew this "AAA"
rating on Insured Corporate Trust Units, in the opinion of the Sponsor there has
been no significant structural change to any of these Trusts which would warrant
a different rating than that originally obtained. This is the highest rating
assigned to securities by such
-13-
<PAGE> 45
rating agency. These ratings should not be construed as an approval of the
offering of the Units by Standard & Poor's or as a guarantee of the market value
of an Insured Corporate Trust or the Units thereof.
Bonds in an Insured Corporate Trust for which insurance has been
obtained by the issuer thereof or by the Sponsor from MBIA (all of which were
rated "Aaa" by Moody's) may or may not have a higher yield than uninsured bonds
rated "Aaa" by Moody's. In selecting Corporate Bonds for the portfolio of an
Insured Corporate Trust, the Sponsor has applied the criteria hereinbefore
described.
RETIREMENT PLANS
Units of the Trusts may be suitable for purchase by Individual
Retirement Accounts, Keogh Plans, pension funds and other qualified retirement
plans. Generally, capital gains and income received under each of the foregoing
plans are deferred from federal taxation. All distributions from such plans are
generally treated as ordinary income but may, in some cases, be eligible for
special income averaging or tax-deferred rollover treatment. Investors
considering placing an investment in a Trust on account of any such plan should
review specific tax laws related thereto and should consult their attorneys or
tax advisor. The Trusts will waive the $5,000 minimum investment requirement for
qualified retirement plans. The minimum investment is $250 for tax-deferred
plans such as IRA accounts. Fees and charges with respect to such plans may
vary. Consult your financial adviser regarding eligibility requirements.
TAX STATUS
Grantor Trust
The following discussion applies only to those Trusts classified as
Grantor Trusts under "TAX STATUS" in Part I of this Prospectus, which are
organized as grantor trusts for federal tax purposes. For purposes of the
following discussion and opinion, it is assumed that the Securities are debt for
federal income tax purposes. In the opinion of Chapman and Cutler, special
counsel for the Sponsor, under existing law:
1. The Trusts are not associations taxable as corporations
for federal income tax purposes.
2. Each Unitholder will be considered the owner of a pro
rata portion of each of a Trust's assets for federal income tax
purposes under Subpart E, Subchapter J of Chapter 1 of the Internal
Revenue Code of 1986 (the "Code"). Each Unitholder will be considered
to have received his pro rata share of income derived from each Trust
asset when such income is considered to be received by a Trust.
3. Each Unitholder will have a taxable event when a Security
is disposed of (whether by sale, exchange, liquidation, redemption, or
payment at maturity) or when
-14-
<PAGE> 46
the Unitholder redeems or sells his Units. A Unitholder's tax basis in
his Units will equal his tax basis in his pro rata portion of all the
assets of the Trust. Such basis is determined (before adjustments
described below) by apportioning the tax basis for the Units among each
of the Trusts' assets, according to value as of the valuation date
nearest the date of acquisition of the Units. Unitholders must reduce
the tax basis of their Units for their share of accrued interest
received, if any, on Securities delivered after the date on which the
Unitholders pay for their Units to the extent that such interest
accrued on such Securities before the date the Trust acquired ownership
of the Securities (and the amount of this reduction may exceed the
amount of accrued interest paid to the sellers) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in
capital loss upon the disposition of such Units. It should be noted
that certain legislative proposals have been made which could effect
the calculation of basis for Unitholders holding Securities that are
substantially identical to the Securities. Unitholders should consult
their own tax advisors with regard to calculation of basis. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Securities (whether by sale,
exchange, payment on maturity, redemption or otherwise), gain or loss
is recognized to the Unitholder (subject to various non-recognition
provisions of the Code). The amount of any such gain or loss is
measured by comparing the Unitholders pro rata share of the total
proceeds from such disposition with his basis for his fractional
interest in the asset disposed of. The basis of each Unit and of each
Security which was issued with original issue discount (including the
U.S. Treasury obligations) (or which has market discount) must be
increased by the amount of accrued original issue discount (and market
discount if the Unitholder elects to include market discount in income
as it accrues) and the basis of each Unit and of each Security which
was purchased by a Trust at a premium must be reduced by the annual
amortization of bond premium which the Unitholder has properly elected
to amortize under Section 171 of the Code. The tax basis reduction
requirements of the Code relating to amortization of bond premium may,
under some circumstances, result in the Unitholder realizing a taxable
gain when his Units are sold or redeemed for an amount equal to or less
than his original cost. A Trust may contain certain "zero coupon"
Securities (the "Stripped Treasury Securities") that are treated as
bonds that were originally issued at an original issue discount
provided, pursuant to a Treasury Regulation (the "Regulation") issued
on December 28, 1992, that the amount of original issue discount
determined under Section 1286 of the Code is not less than a de minimis
amount as determined thereunder. Because the Stripped Treasury
Securities represent interests in "stripped" U.S. Treasury bonds, a
Unitholder's initial cost for his pro rata portion of each Stripped
Treasury Security held by a Trust (determined at the time he acquires
his Units, in the manner described above) shall be treated as its
"purchase price" by the Unitholder. Original issue discount is
effectively treated as interest for federal income tax purposes, and
the amount of original issue discount in this case is generally the
difference between the bond's purchase price and its stated redemption
price at maturity. A Unitholder will be required to include in gross
income for each taxable year the sum of his daily portions of original
issue discount attributable to the Stripped Treasury Securities held by
a Trust as such original issue discount accrues and will, in general,
be subject to federal income tax with respect to the total
-15-
<PAGE> 47
amount of such original issue discount that accrues for such year even
though the income is not distributed to the Unitholders during such
year to the extent it is not less than a de minimis amount as
determined under the Regulation. To the extent that the amount of such
discount is less than the respective de minimis amount, such discount
shall be treated as zero. In general, original issue discount accrues
daily under a constant interest rate method which takes into account
the semi-annual compounding of accrued interest. In the case of the
Stripped Treasury Securities, this method will generally result in an
increasing amount of income to the Unitholders each year. Unitholders
should consult their tax advisors regarding the Federal income tax
consequences and accretion of original issue discounts.
Limitations on Deductibility of Trust Expenses by Unitholders - Each
Unitholders pro rata share of each expense paid by a Trust is deductible by the
Unitholder to the same extent as though the expense had been paid directly by
him. It should be noted that as a result of the Tax Reform Act of 1986, certain
miscellaneous itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses, may be deductible by an
individual only to the extent they exceed 2% of such individual's adjusted gross
income (similar limitations also apply to estates and trusts). Unitholders may
be required to treat some or all of the expenses paid by each Trust as
miscellaneous itemized deductions subject to this limitation.
Premium - If a Unitholder's tax basis of his pro rata portion in any
Securities held by a Trust exceeds the amount payable by the issuer of the
Security with respect to such pro rata interest upon the maturity of the
Security, such excess would be considered "premium" which may be amortized by
the Unitholder at the Unitholder's election as provided in Section 171 of the
Code. Unitholders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
Original Issue Discount - Certain of the Securities in a Trust may have
been acquired with "original issue discount." In the case of any Securities in a
Trust acquired with "original issue discount" that exceeds a "de minimis" amount
as specified in the Code or in the case of the Stripped Treasury Securities as
specified in the Regulation, such discount is includable in taxable income of
the Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Securities are received. The Code provides a
complex set of rules regarding the accrual of original issue discount. These
rules provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Securities. Unitholders
should consult their tax advisers as to the amount of original issue discount as
it accrues.
Special original issue discount rules apply if the purchase price of the
Security by a Trust exceeds its original issue price plus the amount of original
issue discount which would have previously accrued based upon its issue price
(its "adjusted issue price"). Similarly, these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of a Security issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
-16-
<PAGE> 48
It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield discount
obligation" within the meaning of Section 163(e)(5) of the Code. To the extent
that such an obligation is issued at a yield in excess of six percentage points
over the applicable Federal rate, a portion of the original issue discount on
such obligation will be characterized as a distribution of stock (e.g.,
dividends) for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received by such
corporation.
Market Discount - If a Unitholder's tax basis in his pro rata portion
of Securities is less than the allocable portion of such Security's stated
redemption price at maturity (or, if issued with original issue discount, the
allocable portion of its "revised issue price"), such difference will constitute
market discount unless the amount of market discount is "de minimis" as
specified in the Code. Market discount accrues daily computed on a straight-line
basis, unless the Unitholder elects to calculate accrued market discount under a
constant-yield method. The market discount rules do not apply to Stripped
Treasury Securities because they are stripped debt instruments subject to
special original issue discount rules discussed above. Unitholders should
consult their own tax advisers regarding whether an election should be made and
as to the amount of market discount which accrues.
Accrued market discount is generally includible in taxable income to
the Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Securities, on the sale, maturity or
disposition of such Securities by a Trust, and on the sale by a Unitholder of
Units, unless a Unitholder elects to include the accrued market discount in
taxable income as such discount accrues. If a Unitholder does not elect to
annually include accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unitholder which is incurred
to purchase or carry his Units will be reduced by such accrued market discount.
In general, the portion of any interest expense which was not currently
deductible would ultimately be deductible when the accrued market discount is
included in income. Unitholders should consult their tax advisors regarding
whether an election should be made to include market discount in income as it
accrues and as to the amount of interest expense which may not be currently
deductible.
Computation of the Unitholder's Tax Basis - The tax basis of a
Unitholder with respect to his interest in a Security is increased by the amount
of original issue discount (and market discount, if the Unitholder elects to
include market discount, if any, on the Securities held by a Trust in income as
it accrues) thereon properly included in the Unitholder's gross income as
determined for Federal income tax purposes and reduced by the amount of any
amortized premium which the Unitholder has properly elected to amortize under
Section 171 of the Code. A Unitholder's tax basis in his Units will equal his
tax basis in his pro rata portion of all of the assets of a Trust.
Recognition of Taxable Gain or Loss upon Disposition of Obligations by
a Trust or Disposition of Unit - A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in a Security is
disposed of in a taxable transaction for an amount greater (or less) than his
tax basis therefor (subject to various non-recognition provisions of the Code).
(Any gain recognized on a sale or exchange and not constituting a realization of
-17-
<PAGE> 49
accrued "market discount," and any loss, will generally be capital gain or loss
except in the case of a dealer or financial institution.) As previously
discussed, gain realized on the disposition of the interest of a Unitholder in
any Security deemed to have been acquired with market discount will be treated
as ordinary income to the extent the gain does not exceed the amount of accrued
market discount not previously taken into income. Any capital gain or loss
arising from the disposition of a Security by a Trust or the disposition of
Units by a Unitholder will be determined by the period of time the Unitholder
held his Unit and the period of time the Trust held the Security. For taxpayers
other than corporations, net capital gains (which is defined as net long-term
capital gain over net short-term capital loss for the taxable year) are subject
to a maximum marginal stated tax rate of either 28% or 20%, depending upon the
holding period of the capital assets. In particular, net capital gain, excluding
net gain from property held more than one year but not more than 18 months and
gain on certain other assets, is subject to a maximum marginal stated tax rate
of 20% (10% in the case of certain taxpayers in the lowest tax bracket). Net
capital gain that is not taxed at the maximum marginal stated tax rate of 20%
(or 10%) as described in the preceding sentence, is generally subject to a
maximum marginal stated tax rate of 28%. The date on which a Unit is acquired
(i.e., the "trade date") is excluded for purposes of determining the holding
period of the Unit. It should be noted that legislative proposals are introduced
from time to time that affect tax rates and could affect relative differences at
which ordinary income and capital gains are taxed.
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. The tax basis reduction requirements of the Code relating
to amortization of bond premium may, under some circumstances, result in the
Unitholder's realizing taxable gain when his Units are sold or redeemed for an
amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all Trust assets, including his pro
rata portion of all of the Securities represented by the Unit. This may result
in a portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the Unitholder
to include market discount in income as it accrues) as previously discussed.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident of a U.S. corporation,
partnership, estate or trust) will not be subject to United States federal
income taxes, including withholding taxes, on interest income (including any
original issue discount) on, or any gain from the sale or other disposition of,
his pro rata interest in any Security or the sale of his Units provided that (i)
the interest income or gain is not effectively connected to the conduct by the
foreign investor of a trade or business within the United States, (ii) with
respect to any gain, the foreign investor (if an individual) is not present in
the United States for 183 days or more during his taxable year, (iii) the
foreign investor provides all certification which may be required of his or her
status (foreign investors may contact the Sponsor to obtain a Form W-8 which
must be filed with the Trustee and
-18-
<PAGE> 50
refiled every three calendar years thereafter) and (iv) if the income is United
States source income (which is the case for most securities issued by United
States issuers) and the Security is issued after July 18, 1984, then the foreign
investor does not own, directly or indirectly, 10% or more of the total combined
voting power of all classes of voting stock of the issuer of the Security and
the foreign investor is not a controlled foreign corporation related (within the
meaning of Section 864(d)(4) of the Code) to the issuer of the Security. Foreign
investors should consult their tax advisers with respect to United States tax
consequences of ownership of Units.
It should be noted that the Tax Act included a provision which
eliminates the exemption from United States taxation, including withholding
taxes, for certain "contingent interest." The provision applies to interest
received after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the Units
as a result thereof. Unitholders and prospective investors should consult with
their tax advisors regarding the potential effect of this provision on their
investment in Units.
In the opinion of Carter, Ledyard & Milburn, special counsel to the
Trusts for New York tax matters the Trusts are not associations taxable as
corporations and the income of a Trust will be treated as the income of the
Unitholders under the existing income tax laws of the State and City of New
York.
General - Each Unitholder (other than a foreign investor who has
properly provided the certifications described above) will be requested to
provide the Unitholder's taxpayer identification number to the Trustee and to
certify that the Unitholder has not been notified that payments to the
Unitholder are subject to back-up withholding. If the proper taxpayer
identification number and appropriate certification are not provided when
requested, distributions by a Trust to such Unitholder, including amounts
received upon redemption of the Units, will be subject to back-up withholding.
The foregoing discussion relates only to United States federal income
taxes. Unitholders may be subject to state and local taxation in other
jurisdictions (including a foreign investor's country of residence). Unitholders
should consult their tax advisers regarding potential state, local, or foreign
taxation with respect to the Units.
Regulated Investment Company
The following discussion applies only to those Trusts classified as
regulated investment companies under "TAX STATUS" in Part I of this Prospectus,
which are structured to qualify as a regulated investment company for federal
tax purposes. In the opinion of Chapman and Cutler, counsel or the Sponsor,
under existing law:
Each Trust is an association taxable as a corporation under the Code
and intends to qualify on a continuing basis for and elect tax treatment as a
"regulated investment company" under the Code. If a Trust so qualifies and
timely distributes to Unitholders 90% or more of its taxable income (without
regard to its net capital gain, i.e., the excess of its net
-19-
<PAGE> 51
long-term capital gain over its net short-term capital loss), it will not be
subject to federal income tax on the portion of its taxable income (including
any net capital gain) that it distributes to Unitholders. In addition, to the
extent a Trust timely distributes to Unitholders at least 98% of its taxable
income (including any net capital gain), it will not be subject to the 4% excise
tax on certain undistributed income of "regulated investment companies." Each
Trust intends to timely distribute its taxable income (including any net capital
gain) to avoid the imposition of federal income tax or the excise tax.
Distributions of the entire net investment income of a Trust is required by the
Indenture.
Each Trust intends to file its federal income tax return on a calendar
year basis. In any taxable year of a Trust, distributions of its income, other
than distributions which are designated as capital gains dividends, will, to the
extent of the earnings and profits of such Trust, constitute dividends for
federal income tax purposes which are taxable as ordinary income to Unitholders.
To the extent that distributions to a Unitholder in any year exceed a Trust's
current and accumulated earnings and profits, they will be treated as a return
of capital and will reduce the Unitholder's basis in his or her Units and, to
the extent that they exceed his or her basis, will be treated as a gain from the
sale of his or her Units as discussed below. Distributions from a Trust will not
be eligible for the 70% dividends-received deduction for corporations. It should
be noted that legislative proposals have been made which could affect the
calculation of basis for Unitholders holding securities that are substantially
identical to the Securities. Unitholders should consult their own tax advisors
with regard to the calculation of basis.
Although distributions generally will be treated as distributed when
paid, distributions declared in October, November or December, payable to
Unitholders of record on a specified date in one of those months and paid during
January of the following year will be treated as having been distributed by a
Trust (and received by the Unitholders) on December 31 of the year such
distributions are declared.
Distributions of a Trust's net capital gain which a Trust properly
designates as capital gain dividends will be taxable to Unitholders thereof as
long-term capital gains, regardless of the length of time the Units have been
held by a Unitholder. However, if a Unitholder receives a long-term capital gain
dividend (or is allocated to a portion of a Trust's undistributed long-term
capital gain) and sells his Units at a loss prior to holding them for 6 months,
such loss will be characterized as long-term capital loss to the extent of such
long-term capital gain received as a dividend or allocated to a Unitholder.
Distributions in partial liquidation, reflecting the proceeds of prepayments,
redemptions, maturities (including monthly mortgage payments of principal) or
sales of Securities from a Trust (exclusive of net capital gain) will not be
taxable to Unitholders of such Trust to the extent that they represent a return
of capital for tax purposes. The portion of distributions which represents a
return of capital will, however, reduce a Unitholder's basis in his Units, and
to the extent they exceed the basis of his Units will be taxable as a capital
gain. A Unitholder may recognize a taxable gain (or loss) when his or her Units
are sold or redeemed. Such gain or loss generally will constitute either a
long-term or short-term capital gain or loss depending upon the length of time
the Unitholder has held his Units. Any loss of Units held six months or less
will be treated as long-term capital loss to the extent of any long-term capital
gains dividends
-20-
<PAGE> 52
received (or deemed to have been received) by the Unitholder with respect to
such Units during the six-month period or less that the Unitholder owns the
Units. For taxpayers other than corporations, net capital gains (which is
defined as net long-term capital gain over net short-term capital loss for the
taxable year) are subject to a maximum marginal stated tax rate of either 28% or
20%, depending upon the holding period of the capital assets. In particular, net
capital gain, excluding net gain from property held more than one year but not
more than 18 months and gain on certain other assets, is subject to a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Net capital gain that is not taxed at the maximum marginal
stated tax rate of 20% (or 10%) as described in the preceding sentence, is
generally subject to a maximum marginal stated tax rate of 28%. The date on
which a share is acquired (i.e., the "trade date") is excluded for purposes of
determining the holding period of the Unit. It should be noted that legislative
proposals are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital gains are
taxed.
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.
The Taxpayer Relief Act of 1997 (the "1997 Act") 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.
Under the Code, certain miscellaneous itemized deductions, such as
investment expenses, tax return preparation fees and employee business expenses,
will be deductible by individuals only to the extent they exceed 2% of adjusted
gross income. Miscellaneous itemized deductions subject to this limitation under
present law do not include expenses incurred by a Trust as long as the Units of
such Trust are held by or for 500 or more persons at all times during the
taxable year or another exception is met. In the event the Units of a Trust are
held by fewer than 500 persons, additional taxable income may be realized by the
individual Unitholders in excess of the distributions received from a Trust.
If a Ginnie Mae has been purchased by a Trust at a market discount
(i.e., for a purchase price less than its stated redemption price at maturity
(or if issued with original issue discount, its "revised issue price")) unless
the amount of market discount is "de minimis" as specified in the Code, each
payment of principal on the Ginnie Mae will generally constitute ordinary income
to a Trust to the extent of any accrued market discount unless a Trust elects to
include the accrued market discount in taxable income as it accrues. The amount
of market discount that is deemed to accrue each month shall generally be the
amount of discount that bears the same ratio to the total amount of remaining
market discount that the amount of interest paid during the accrual period bears
to the total amount of interest remaining to be paid on the Ginnie Mae as of the
beginning of the accrual period.
-21-
<PAGE> 53
The market discount rules do not apply to Stripped U.S. Treasury
Obligations because they are stripped debt instruments subject to special
original issue discount rules.
Additional Units of a Trust may be issued after the Initial Date of
Deposit in respect of additional Securities deposited in a Trust by the Sponsor.
Because of possible market interest rate fluctuations, the purchase price to a
Trust of the additional Securities may differ from the purchase price of the
Securities in a Trust on the Initial Date of Deposit. If interest rates decline
and such additional Securities are purchased at a higher price than the
Securities originally deposited, then the amounts includible in the taxable
income of a Trust in proportion to the asset value of a Trust will be reduced
for all Unitholders thereof, not just the Unitholders of such additional Units.
Conversely, if interest rates rise and such additional Securities are purchased
at a lower price than the Securities originally deposited, then the amounts
includible in the taxable income of the Trust in proportion to the asset value
of a Trust will be increased for all Unitholders thereof, not just the
Unitholders of such additional Units.
Each Unitholder will be requested to provide the Unitholder's taxpayer
identification number to the Trustee and to certify that the Unitholder has not
been notified that payments to the Unitholder are subject to back-up
withholding. If the proper taxpayer identification number and appropriate
certification are not provided when requested, distributions by a Trust to such
Unitholder (including amounts received upon the redemption of Units) will be
subject to back-up withholding.
Each Unitholder of a Trust shall receive an annual statement describing
the tax status of the distributions paid by such Trust. The foregoing discussion
relates only to the federal income tax status of a Trust and to the tax
treatment of distributions by such Trust to United States Unitholders.
Foreign Investors - A Unitholder who is a foreign investor (i.e., an
investor other than a United States citizen or resident or a United States
corporation, partnership, estate or trust) should be aware that, generally,
subject to applicable tax treaties, distributions from a Trust, which constitute
dividends for Federal income tax purposes (other than dividends which a Trust
designates as capital gain dividends) will be subject to United States income
taxes, including withholding taxes. However, distributions received by a foreign
investor from a Trust that are designated by such Trust as capital gain
dividends should not be subject to United States Federal income taxes, including
withholding taxes, if all of the following conditions are met (i) the capital
gain dividend is not effectively connected with the conduct by the foreign
investor in a trade or business within the United States, (ii) the foreign
investor (if an individual) is not present in the United States for 183 days or
more during his or her taxable year, and (iii) the foreign investor provides all
certification which may be required of his status (foreign investors may contact
the Sponsor to obtain a Form W-8 which must be filed with the Trustee and
refiled every three calendar years thereafter). Foreign investors should consult
their tax advisors with respect to United States tax consequences of ownership
of Units. Units in a Trust and Trust distributions may also be subject to state
and local taxation and Unitholders should consult their tax advisors in this
regard.
-22-
<PAGE> 54
Distributions reinvested into additional Units of a Trust will be taxed
to a Unitholder in the manner described above (i.e., as ordinary income,
long-term capital gain or as a return of capital).
DISTRIBUTION REINVESTMENT
Certain Unitholders of the Trusts may elect to have distributions of
principal (including capital gains, if any) or interest or both automatically
invested without charge in shares of certain mutual funds which are registered
in such Unitholder's state of residence and are advised by Fidelity Management &
Research Company, an affiliate of the Sponsor (the "Fidelity Funds"). Ask your
financial consultant regarding the availability of distribution reinvestment.
If individuals indicate they wish to participate in the Reinvestment
Program but do not designate a reinvestment fund, the Trustee will contact such
individuals to determine which reinvestment fund they wish to elect. Since the
portfolio securities and investment objectives of the Fidelity Funds generally
will differ significantly from that of the Trusts, Unitholders should carefully
consider the consequences before selecting such Fidelity Funds for reinvestment.
Detailed information with respect to the investment objectives and the
management of the Fidelity Funds is contained in their respective prospectuses,
which can be obtained from the Sponsor upon request. An investor should read the
prospectus of the reinvestment fund selected prior to making the election to
reinvest. Unitholders who desire to have such distributions automatically
reinvested should inform their investment professional at the time of purchase
or should file with the Trustee a written notice of election.
Unitholders who are receiving distributions in cash may elect to
participate in distribution reinvestment by filing with the Trustee an election
to have such distributions reinvested without charge. Such election, and any
changes thereof, must be received by the Trustee at least ten days prior to the
Record Date applicable to any distribution in order to be in effect for such
Record Date. Any such election shall remain in effect until a subsequent notice
is received by the Trustee. See "Unitholders -- Distributions to Unitholders."
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the date of Part I of this Prospectus, the Estimated Long-Term
Return and the Estimated Current Return, if applicable, for each Trust were as
set forth in "Essential Information" in Part I of this Prospectus. Estimated
Current Return is calculated by dividing the estimated net annual interest
income per Unit by the Public Offering Price. The estimated net annual interest
income per Unit will vary with changes in fees and expenses of the Trustee, the
Sponsor and the Evaluator and with principal payments and prepayments and with
reinvestment (in the case of a Rolling Trust), principal prepayment, redemption,
maturity, exchange or sale of the Securities while the Public Offering Price
will vary with changes in the offering price of the underlying Securities and
accrued interest; therefore, there is no assurance that the present Estimated
Current Return will be realized in the future. Estimated Long-Term Return is
calculated using a formula which (i) takes into consideration,
-23-
<PAGE> 55
and determines and factors in the relative weightings of, the market values,
yields (which takes into account the amortization of premiums and the accretion
of discounts) and estimated retirements or average lives of all of the
Securities in a Trust, which includes the reinvestment of Securities in a
Rolling Trust, and (ii) takes into account a compounding factor and the expenses
and sales charge associated with each Trust Unit. Since the market values and
estimated retirements of the Securities and the expenses of a Trust will change,
there is no assurance that the present Estimated Long-Term Return will be
realized in the future. Estimated Current Return and Estimated Long-Term Return
are expected to differ because the calculation of Estimated Long-Term Return
reflects the estimated date and amount of principal returned while Estimated
Current Return calculations include only net annual interest income and Public
Offering Price.
Payments received in respect of mortgages underlying Ginnie Mae, if
any, in a Rolling Trust will consist of a portion representing interest and a
portion representing principal. Although the aggregate monthly payment made by
the obligor on each mortgage remains constant (aside from optional prepayments
of principal), in the early years most of each such payment will represent
interest, while in later years, the proportion representing interest will
decline and the proportion representing principal will increase. However, by
reason of optional prepayments, principal payments in the earlier years on
mortgages underling Ginnie Maes may be substantially in excess of those required
by the amortization schedules of such mortgages. Therefore, principal payments
in later years may be substantially less since the aggregate unpaid principal
balances of such underlying mortgages may have been greatly reduced. To the
extent that the underling mortgages bearing higher interest rates in a Rolling
Trust are prepaid faster than the other underlying mortgages, the net annual
interest rate per Unit and the Estimated Current Return of the Units of a
Rolling Trust can be expected to decline. Monthly payments to the Unitholders of
a Rolling Trust will reflect all of these factors.
PUBLIC OFFERING OF UNITS
Public Offering Price. Units of a Trust are offered at the Public
Offering Price thereof. The Public Offering Price for secondary market
transactions is based on the aggregate bid side evaluations of the Securities in
a Trust, plus or minus cash, if any, in the Principal Account held or owned by
such Trust, plus accrued interest plus a sales charge based upon the dollar
weighted average maturity of such Trust determined in accordance with the tables
set forth below (which includes a deferred sales charge for each Corporate
Trust, Insured Corporate Trust and Rolling Trust which contains GNMA
securities). For purposes of this computation, Securities will be deemed to
mature on their expressed maturity dates unless: (a) the Securities have been
called for redemption or funds or securities have been placed in escrow to
redeem them on an earlier call date, in which case such call date will be deemed
to be the date upon which they mature; or (b) such Securities are subject to a
"mandatory tender," in which case such mandatory tender will be deemed to be the
date upon which they mature. The effect of this method of sales charge
computation will be that different sales charge rates will be applied to a Trust
based upon the dollar weighted average maturity of such Trust's portfolio, in
accordance with the following schedules.
-24-
<PAGE> 56
The sales charge per Unit for each Laddered Trust and each Rolling
Trust which contains U.S. Treasury Obligations will be set forth in the
following table:
AMOUNT INVESTED
<TABLE>
<CAPTION>
LESS THAN $500,000 $500,000 TO $999,999 $1,000,000 AND UP
------------------------ ------------------------- ------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
WEIGHTED OF OF NET OF OF NET OF OF NET
AVERAGE OFFERING AMOUNT OFFERING AMOUNT OFFERING AMOUNT
MATURITY PRICE INVESTED PRICE INVESTED PRICE INVESTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Less than 2 years......... 1.250% 1.266% 1.000% 1.010% 0.750% 0.756%
2 to 3 years.............. 1.500% 1.523% 1.250% 1.266% 1.000% 1.010%
3 to 5 years.............. 1.750% 1.781% 1.500% 1.523% 1.250% 1.266%
</TABLE>
The sales charge per Unit for each Corporate Trust, Insured Corporate
Trust and Rolling Trust which contains GNMA Securities will be set forth in the
following table:
<TABLE>
<CAPTION>
DOLLAR WEIGHTED AVERAGE MATURITY LESS DOLLAR WEIGHTED AVERAGE MATURITY GREATER
THAN 5 YEARS THAN 5 YEARS
------------------------------------- ----------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT
AMOUNT INVESTED PRICE* INVESTED* PRICE* INVESTED*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000..................... 2.500% 2.564% 3.500% 3.627%
$100,000 to $249,999................... 2.250% 2.302% 3.250% 3.359%
$250,000 to $499,999................... 2.000% 2.041% 3.000% 3.093%
$500,000 to $999,999................... 1.750% 1.781% 2.750% 2.828%
$1,000,000 and up...................... 1.500% 1.523% 2.500% 2.564%
</TABLE>
- --------------------
* In addition, a deferred sales charge of $.167 will be assessed per 100
Units per month on a Trust's respective Record Date, through December
of 1999.
The reduced sales charges resulting from quantity discounts as shown on
the tables above will apply to all purchases of Units on any one day by the same
purchaser from the same broker or dealer and for this purpose purchases of Units
of a Trust will be aggregated with concurrent purchases of Units of any other
unit investment trust that may be offered by the Sponsor. Additionally, Units
purchased in the name of a spouse or child (under 21) of such purchaser will be
deemed to be additional purchases by such purchaser. The reduced sales charges
will also be applicable to a trust or other fiduciary purchasing for a single
trust estate or single fiduciary account. The Sponsor intends to permit
officers, directors and employees of the Sponsor and at the discretion of the
Sponsor registered representatives of selling firms to purchase Units of a Trust
without a sales charge, although a transaction processing fee may be imposed on
such trades. In addition, investors who purchase Units through registered
brokers or dealers who charge periodic fees for financial planning, investment
advisory or asset management services, or provide such services in connection
with the establishment of an investment account for which a comprehensive "wrap
fee"
-25-
<PAGE> 57
charge is imposed may purchase Units in the secondary market at the Public
Offering Price less the concession the Sponsor typically would allow such
broker-dealer. See "Public Offering of Units -- Public Distribution of Units"
below. In addition, investors who purchase Units of a Trust for deposit in a
Fidelity-sponsored 401k or other retirement plan may purchase such Units at the
Public Offering Price less the concession the sponsor allows dealers and other
selling agents.
Had Units of a Trust been available for sale at the opening of business
on the date set forth in Part I of this Prospectus, the Public Offering Price
would have been as shown under "Essential Information" in Part I of this
Prospectus. The Public Offering Price per Unit of a Trust on the date of Part I
of this Prospectus or on any subsequent date will vary from the amount stated
under "Essential Information" in Part I of this Prospectus in accordance with
fluctuations in the prices of the underlying Securities and the amount of
accrued interest on the Units. The aggregate bid side evaluations of the
Securities shall be determined (i) on the basis of current bid prices of the
Securities, (ii) if bid prices are not available for any particular Security, on
the basis of current bid prices for comparable securities, (iii) by determining
the value of Securities on the bid side of the market by appraisal, or (iv) by
any combination of the above.
The foregoing evaluations and computations shall be made as of the
evaluation time stated under "Essential Information" in Part I of this
Prospectus on each business day commencing with the date of Part I of this
Prospectus, effective for all sales made during the preceding 24-hour period.
The interest on the Securities deposited in a Trust, less the related
estimated fees and expenses, is estimated to accrue in the annual amounts per
Unit set forth under "Essential Information" in Part I of this Prospectus. The
amount of net interest income which accrues per Unit may change as Securities
mature or are redeemed, exchanged or sold, or as the expenses of a Trust change
or the number of outstanding Units of a Trust changes.
Although payment is normally made three business days following the
order for purchase, payments may be made prior thereto. A person will become the
owner of Units on the date of settlement provided payment has been received.
Cash, if any, made available to the Sponsor prior to the date of settlement for
the purchase of Units may be used in the Sponsor's business and maybe deemed to
be a benefit to the Sponsor, subject to the limitations of the Securities
Exchange Act of 1934. If a Unitholder desires to have certificates representing
Units purchased, such certificates (if available) will be delivered as soon as
possible following his written request therefor. For information with respect to
redemption of Units purchased, but as to which certificates requested have not
been received, see "Redemption" below.
Accrued Interest. Accrued interest is the accumulation of unpaid
interest on a security from the last day on which interest thereon was paid.
Interest on Securities generally is paid semi-annually (monthly in the case of
Ginnie Maes), although a Trust accrues such interest daily. Because of this, a
Trust always has an amount of interest earned but not yet collected by the
Trustee. For this reason, the Public Offering Price of Units will have added to
it the
-26-
<PAGE> 58
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of a Trust the amount, if any, of
accrued interest paid on their Units.
Because of the varying interest payment dates of the Securities,
accrued interest at any point in time will be greater than the amount of
interest actually received by the Trusts and distributed to Unitholders.
Therefore, there will always remain an item of accrued interest that is added to
the value of the Units. If a Unitholder sells or redeems all or a portion of his
or her Units, he or she will be entitled to receive his proportionate share of
the accrued interest from the purchaser of his Units. Since the Trustee has the
use of the funds held in the Interest Account for distributions to Unitholders
and since such Account is non-interest-bearing to Unitholders, the Trustee
benefits thereby.
Public Distribution of Units. Units repurchased in the secondary market
may be offered by this Prospectus at the secondary market public offering price
determined in the manner described above. Units will be sold through dealers who
are members of the National Association of Securities Dealers, Inc. and through
others. Sales may be made to or through dealers and others at prices which
represent discounts or agency commissions from the Public Offering Price as set
forth below. Certain commercial banks are making Units of the Trusts available
to their customers on an agency basis. A portion of the sales charge paid by
their customers is retained by or remitted to the banks in the amount shown in
the tables below. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust Units; however, the Glass-Steagall Act does permit certain
agency transactions and the banking regulators have indicated that these
particular agency transactions are permitted under such Act. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law. The Sponsor reserves the right to
change the discounts and agency commissions set forth below from time to time.
In addition to such discounts and agency commissions, the Sponsor may, from time
to time, pay or allow an additional discount or agency commission, in the form
of cash or other compensation, to dealers and others employing registered
representatives who sell, during a specified time period, a minimum dollar
amount of Units of a Trust and other unit investment trusts created by the
Sponsor. The difference between the discount or agency commission and the sales
charge will be retained by the Sponsor.
The secondary market concessions and agency commissions for each
Laddered Trust and each Rolling Trust which contains U.S. Treasury Obligations
as a percentage of the Public Offering Price are as follows:
<TABLE>
<CAPTION>
LESS THAN $500,000 TO $999,999 $1,000,000
AVERAGE MATURITY $500,000 AND UP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 2 years.................................. .750% .500% .400%
2 to 3 years....................................... 1.00% .750% .600%
3 to 5 years....................................... 1.10% 1.00% .750%
</TABLE>
-27-
<PAGE> 59
The secondary market concessions and agency commissions for each
Corporate Trust, Insured Corporate Trust and Rolling Trust which contains GNMA
Securities as a percentage of the Public Offering Price are as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT DOLLAR WEIGHTED AVERAGE MATURITY LESS DOLLAR WEIGHTED AVERAGE MATURITY GREATER
OF TRANSACTION THAN 5 YEARS THAN 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $100,000..................... 1.750% 3.000%
$100,000 to $249,999................... 1.500% 2.750%
$250,000 to $499,999................... 1.350% 2.600%
$500,000 to $999,999................... 1.150% 2.400%
$1,000,000 and up...................... 0.950% 2.200%
</TABLE>
The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units.
From time to time, the Sponsor may implement programs under which
dealers of a Trust may receive nominal awards from the Sponsor for each of their
registered representatives who have sold a minimum number of Fidelity-sponsored
unit investment trust units during a specified time period. In addition, at
various times the Sponsor may implement other programs under which the sales
force of a dealer may be eligible to win other nominal awards for certain sales
efforts, or under which the Sponsor will reallow to any such dealer that
sponsors sales contest or recognition programs conforming to the criteria
established by the Sponsor, or participates in sales programs sponsored by the
Sponsor, an amount not exceeding the total applicable sales charges on the sales
generated by such person at the public offering price during such programs.
Also, the Sponsor in its discretion may from time to time pursuant to objective
criteria established by the Sponsor pay fees to qualifying dealers or others for
certain services or activities which are primarily intended to result in sales
of Units of the Trusts. Such payments are made by the Sponsor out of its own
assets, and not out of the assets of a Trust. These programs will not change the
price Unitholders pay for their Unit or the amount that a Trust will receive
from the Units sold.
Profits of Sponsor. In maintaining a market for the Units, the Sponsor
will realize profits or sustain losses in the amount of any difference between
the price at which Units are purchased and the price at which Units are resold
(which price included a sales charge as indicated in Part I for each Trust) or
redeemed. The secondary market public offering price of Units may be greater or
less than the cost of such Units to the Sponsor.
MARKET FOR UNITS
The Sponsor intends to, and certain of the dealers may, maintain a
market for Units of the Trusts offered hereby and to continuously offer to
purchase said Units at prices, determined by the Evaluator, based on the
aggregate bid prices of the underlying Securities in such Trusts, together with
accrued interest to the expected dates of settlement. Unitholders who wish to
dispose of their Units should inquire of their bank or broker as to current
market prices in order to determine whether there is in existence any price in
excess of the
-28-
<PAGE> 60
Redemption Price and, if so, the amount thereof. Any profit or loss resulting
from the resale of such Units will belong to the Sponsor. The Sponsor may
suspend or discontinue purchases of Units of any Trust if the supply of Units
exceeds demand, or for other business reasons.
REDEMPTION
A Unitholder who does not dispose of Units in the secondary market
described above may cause Units to be redeemed by the Trustee by making a
written request to the Trustee, and, in the case of Units evidenced by a
certificate, by tendering such certificate to the Trustee, properly endorsed or
accompanied by a written instrument or instruments of transfer in a form
satisfactory to the Trustee. Unitholders must sign the request, and such
certificate or transfer instrument, exactly as their names appear on the records
of the Trustee and on any certificate representing the Units to be redeemed. If
the amount of the redemption is $25,000 or less and the proceeds are payable to
the Unitholder(s) of record at the address of record, no signature guarantee is
necessary for redemptions by individual account owners (including joint owners).
Additional documentation may be requested, and a signature guarantee is always
required, from corporations, executors, administrators, trustees, guardians or
associations. The signatures must be guaranteed by a participant in the
Securities Transfer Agents Medallion Program ("STAMP") or such other guarantee
program in addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. A certificate should only be sent by registered or certified mail for
the protection of the Unitholder. Since tender of the certificate is required
for redemption when one has been issued, Units represented by a certificate
cannot be redeemed until the certificate representing such Units has been
received by the purchasers.
Redemption shall be made by the Trustee on the third business day
following the day on which a tender for redemption is received (the "Redemption
Date") by payment of cash equivalent to the Redemption Price for such Trust,
determined as set forth below under "Computation of Redemption Price," as of the
evaluation time stated under "Essential Information" in Part I of this
Prospectus, next following such tender, multiplied by the number of Units being
redeemed. Any Units redeemed shall be cancelled and any undivided fractional
interest in the Trust extinguished. The price received upon redemption might be
more or less than the amount paid by the Unitholder depending on the value of
the Securities in the Trust at the time of redemption.
Under regulations issued by the Internal Revenue Service, the Trustee
is required to withhold a certain percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the Unitholder only when filing a tax return. Under normal circumstances, the
Trustee obtains the Unitholder's tax identification number from the selling
broker. However, any time a Unitholder elects to tender Units for redemption,
such Unitholder should make sure that the Trustee has been provided a certified
tax identification number in order to avoid this possible "back-up withholding."
In the event the Trustee has not been previously provided such number, one must
be provided at the time redemption is requested.
-29-
<PAGE> 61
Any amounts paid on redemption representing interest shall be withdrawn
from the Interest Account for such Trust, to the extent that funds are available
for such purpose, then from the Principal Account. All other amounts paid on
redemption shall be withdrawn from the Principal Account for such Trust. The
Trustee is empowered to sell Securities for a Trust in order to make funds
available for the redemption of Units of such trust.
Securities will be sold by the Trustee so as to maintain, as closely as
practicable, the original percentage relationship between the principal amounts
of the Securities in such Trusts. The Securities to be sold for purposes of
redeeming Units will be selected from a list supplied by the Sponsor. The
Securities will be chosen for this list by the Sponsor on the basis of such
market and credit factors as it may determine are in the best interests of such
Trusts. Provision is made under the related Trust Agreement for the Sponsor to
specify minimum face amounts in which blocks of Securities are to be sold in
order to obtain the best price available. Sales may be required at a time when
the Securities would not otherwise be sold and might result in lower prices than
might otherwise be realized. Moreover, due to the minimum principal amount in
which certain Securities may be required to be sold, the proceeds of such sales
may exceed the amount necessary for payment of Units redeemed. To the extent not
used to meet other redemption requests in such Trusts, such excess proceeds will
be distributed pro rata to all remaining Unitholders of record of such Trusts,
unless reinvested in substitute Securities. To the extent Securities are sold,
the size and diversity of a Trust will be reduced. See "Investment Supervision."
If the Sponsor elects not to purchase Units tendered for redemption,
the Trustee is irrevocably authorized in its discretion, in lieu of redeeming
such Units, to sell such Units in the over-the-counter market for the account of
tendering Unitholders at prices which will return to the Unitholders amounts in
cash, net after brokerage commissions, transfer taxes and other charges, equal
to or in excess of the Redemption Price for such Units. In the event of any such
sale, the Trustee shall pay the net proceeds thereof to the Unitholders on the
day they would otherwise be entitled to receive payment of the Redemption Price.
The right of redemption may be suspended and payment postponed (1) for
any period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or during which (as determined by the
Securities and Exchange Commission) trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which disposal by the Trustee of Securities is not reasonably practicable or it
is not reasonably practicable to fairly determine the value of the underlying
Securities in accordance with the Trust Agreements; or (3) for such other period
as the Securities and Exchange Commission may by order permit. The Trustee is
not liable to any person in any way for any loss or damage which may result from
any such suspension or postponement.
Computation of Redemption Price. The Redemption Price for Units of each
Trust is computed by the Evaluator as of the evaluation time stated under
"Essential Information" in Part I of this Prospectus next occurring after the
tendering of a Unit for redemption and on any other business day desired by it,
by:
-30-
<PAGE> 62
A. adding: (1) the cash on hand in the Trust other than cash
deposited in the Trust to purchase Securities not applied to the
purchase of such Securities; (2) the aggregate value of each issue of
the Securities held in the Trust as determined by the Evaluator on the
basis of bid prices therefor; (3) interest accrued and unpaid on the
Securities in the Trust as of the date of computation; and (4)
unamortized organization expenses;
B. deducting therefrom (1) amounts representing any
applicable taxes or governmental charges payable out of the Trust and
for which no deductions have been previously made for the purpose of
additions to the Reserve Account described under "Trust Expenses"; (2)
an amount representing estimated accrued expenses of the Trust,
including but not limited to fees and expenses of the Trustee
(including legal and auditing fees and any insurance costs), the
Evaluator, the Sponsor and bond counsel, if any; (3) cash held for
distribution to Unitholders of record, or required for redemption of
Units tendered, as of the business day prior to the evaluation being
made; and (4) other liabilities incurred by the Trust; and
C. finally dividing the results of such computation by the
number of Units of the Trust outstanding as of the date thereof.
UNITHOLDERS
Ownership of Units. Ownership of Units of a Trust will not be evidenced
by certificates unless a Unitholder, the Unitholder's registered broker/dealer
or the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation statement
sent to the broker.
Units are transferable by making a written request to the Trustee and,
in the case of Units evidenced by a certificate, by presenting and surrendering
such certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. Such requests should be sent by
registered or certified mail for the protection of the Unitholder. Unitholders
must sign such written request, and such certificate or transfer instrument,
exactly as their names appear on the records of the Trustee and on any
certificate representing the Units to be transferred. Such signatures must be
guaranteed as provided in "Redemption."
Units may be purchased and certificates, if requested, will be issued
in denominations of one Unit subject to each Trust's minimum investment
requirement and any minimum requirement established by the Sponsor from time to
time. Any certificate issued will be numbered serially for identification,
issued in fully registered form and will be transferable only on the books of
the Trustee. The Trustee may require a Unitholder to pay a reasonable fee, to be
determined in the sole discretion of the Trustee, for each certificate reissued
or transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. The Trustee at the present
time does not intend to charge for the normal transfer or interchange of
certificates. Destroyed, stolen, mutilated or lost certificates will be replaced
upon delivery to the Trustee of satisfactory indemnity (generally
-31-
<PAGE> 63
amounting to 3% of the market value of the Units), affidavit of loss, evidence
of ownership and payment of expenses incurred.
Distributions to Unitholders. Interest received by each Trust,
including any portion of the proceeds from a disposition of Securities which
represents accrued interest, is credited by the Trustee to the Interest Account
for such Trust. All other receipts are credited by the Trustee to a separate
Principal Account for the Trust. On the dates set forth under "Essential
Information" in Part I of this Prospectus for each Trust, after deduction of the
fees and expenses of the Trustee, the Sponsor and Evaluator and reimbursements
(without interest) to the Trustee for any amounts advanced to a Trust, the
Trustee will normally distribute on each Interest Distribution Date (the
twentieth of the month) or shortly thereafter to Unitholders of record of such
Trust on the preceding Record Date (which is the tenth day of each month).
Unitholders of the Trusts will receive an amount substantially equal to
one-twelfth of such holders' pro rata share of the estimated net annual interest
income to the Interest Account of such Trust. Since interest on Securities in
the Trusts is payable at varying intervals, usually in semi-annual installments
(monthly in the case of GNMA Securities) and distributions of income are made to
Unitholders at different intervals from receipt of interest, the interest
accruing to a Trust may not be equal to the amount of money received and
available for distribution from the Interest Account. Therefore, on each
Distribution Date the amount of interest actually deposited in the Interest
Account of a Trust and available for distribution maybe more or less than the
interest distribution made. In order to eliminate fluctuations in interest
distributions resulting from such variances, the Trustee is authorized by the
Trust Agreements to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee will be reimbursed,
without interest, for any such advances from funds available in the Interest
Account for such Trust. However, interest earned at any point in time will be
greater than the amount actually received by the Trustee and distributed to the
Unitholders. Therefore, there will always remain an item of accrued interest
that is added to the daily value of the Units. If Unitholders of a Trust sell or
redeem all or a portion of their Units, they will be paid their proportionate
share of the accrued interest of such Trust to, but not including, the third
business day after the date of a sale or to the date of tender in the case of a
redemption.
Unitholders of a Trust which contains Stripped Treasury Securities
should note that Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities obtains only the right to receive a future
fixed payment on the security and not any rights to periodic interest payments
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 which do not make any
periodic payments of interest prior to maturity and accordingly are issued at a
deep discount. 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 corresponding larger amount in
later periods. For federal income tax purposes, the inclusion will be on a basis
that reflects
-32-
<PAGE> 64
the effective compounding of accrued but unpaid interest effectively represented
by the discount. 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 "Tax
Status."
Persons who purchase Units between a Record Date and a Distribution
Date will receive their first distribution on the second Distribution Date
following their purchase of Units.
With the exception of principal amounts to be reinvested in the Rolling
Trust during the Reinvestment Period, the Trustee will distribute on each
Distribution Date or shortly thereafter, to each Unitholder of record of a Trust
on the preceding Record Date, an amount substantially equal to such Unitholder's
pro rata share of the cash balance, if any, in the Principal Account of such
Trust computed as of the close of business on the preceding Record Date.
However, no distribution will be required if the balance in the Principal
Account is less than $1.00 per 100 Units. The Trustee will make a distribution
to Unitholders of all principal relating to maturing Securities in a Trust, as
set forth above, unless such principal is to be reinvested in connection with a
Rolling Trust.
Statements to Unitholders. With each distribution, the Trustee will
furnish or cause to be furnished to each Unitholder a statement of the amount of
interest and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit.
The accounts of each Trust are required to be audited annually, at the
Trust's expense, by independent auditors designated by the Sponsor, unless the
Sponsor determines that such an audit would not be in the best interest of the
Unitholders of such Trust. The accountants' report will be furnished by the
Trustee to any Unitholder of such Trust upon written request. Within a
reasonable period of time after the end of each calendar year, the Trustee shall
furnish to each person who at any time during the calendar year was a Unitholder
of a Trust a statement, covering the calendar year, setting forth for the
applicable Trust:
A. As to the Interest Account:
1. The amount of interest received on the
Securities;
2. The amount paid for purchases of New
Securities;
3. The amount paid from the Interest Account
representing accrued interest of any Units redeemed;
4. The deductions from the Interest Account for
applicable taxes, if any, fees and expenses (including
auditing fees) of the Trustee, the Sponsor, the Evaluator,
and, if any, of bond counsel;
-33-
<PAGE> 65
5. Any amounts credited by the Trustee to the
Reserve Account; and
6. The net amount remaining after such payments
and deductions, expressed both as a total dollar amount and
a dollar amount per Unit outstanding on the last business
day of such calendar year; and
B. As to the Principal Account:
1. The dates of the sale, maturity, liquidation or
redemption of any of the Securities and the net proceeds
received therefrom excluding any portion credited to the
Interest Account;
2. The amount paid from the Principal Account
representing the principal of any Units redeemed;
3. The amount paid for purchases of New
Securities, Replacement Securities or Reinvestment
Securities;
4. The deductions from the Principal Account for
payment of applicable taxes, if any, fees and expenses
(including auditing fees) of the Trustee, the Sponsor, the
Evaluator, and, if any, of bond counsel;
5. Any amounts credited by the Trustee to the
Reserve Account; and
6. The net amount remaining after distributions of
principal and deductions, expressed both as a dollar amount
and as a dollar amount per Unit outstanding on the last
business day of the calendar year; and
C. The following information:
1. A list of the Securities as of the last
business day of such calendar year;
2. The number of Units outstanding on the last
business day of such calendar year;
3. The Redemption Price based on the last
evaluation made during such calendar year; and
4. The amount actually distributed during such
calendar year from the Interest and Principal Accounts
separately stated, expressed both as total dollar amounts
and as dollar amounts per Unit outstanding on the Record
Dates for each such distribution.
Rights of Unitholders. A Unitholder may at any time prior to the
termination of a Trust tender Units to the Trustee for redemption. The death or
incapacity of any Unitholder will not
-34-
<PAGE> 66
operate to terminate a Trust or entitle legal representatives or heirs to claim
an accounting or to bring any action or proceeding in any court for partition or
winding up of a Trust. No Unitholder shall have the right to control the
operation and management of any Trust in any manner, except to vote with respect
to the amendment of the Trust Agreement or termination of any Trust.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trusts by the purchase,
sale or substitution of Securities, except in the circumstances noted herein.
Thus, with the exception of the redemption or maturity of Securities in
accordance with their terms (and reinvestments made in connection with a Rolling
Trust), the assets of the Trusts will remain unchanged under normal
circumstances.
The Sponsor may direct the Trustee to dispose of Securities the value
of which has been affected by certain adverse events, including institution of
certain legal proceedings or the occurrence of other market factors, including
advance refunding, so that in the opinion of the Sponsor, the retention of such
Securities in a Trust would be detrimental to the interest of the Unitholders.
In addition, the Sponsor will instruct the Trustee to dispose of certain
Securities and to take such further action as maybe needed from time to time to
ensure that a Rolling Trust continues to satisfy the qualifications of a
regulated investment company, including the requirements with respect to
diversification under Section 851 of the Internal Revenue Code. The proceeds
from any such sales, exclusive of any portion which represents accrued interest,
will be credited to the Principal Account of such Trust for distribution to the
Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer
made by an issuer of Securities to issue new obligations in exchange or
substitution for any of such Securities pursuant to a refunding financing plan,
except that the Sponsor may instruct the Trustee to accept or reject such an
offer or to take any other action with respect thereto as the Sponsor may deem
proper if (i) the issuer is in default with respect to such Securities or (ii)
in the written opinion of the Sponsor, the issuer will probably default with
respect to such Securities in the reasonably foreseeable future. Any obligation
so received in exchange or substitution will be held by the Trustee subject to
the terms and conditions of the Trust Agreement to the same extent as Securities
originally deposited thereunder. Within five days after deposit of obligations
in exchange or substitution for underlying Securities, the Trustee is required
to give notice thereof to each Unitholder, identifying the Securities eliminated
and the Securities substituted therefor. The Trustee may sell Securities,
designated by the Sponsor, from a Trust for the purpose of redeeming Units of
such Trust tendered for redemption and the payment of expenses.
TRUST ADMINISTRATION
The Trustee. The Trustee is The Chase Manhattan Bank whose principal
executive office is located at 270 Park Avenue, New York, New York 10017, and
its unit investment
-35-
<PAGE> 67
trust office is located at 4 New York Plaza, New York, New York 10004-2413.
Unitholders who have questions regarding the Trusts may call the Customer
Service Help Line at 1-800-887-6926. The Trustee is subject to supervision by
the Superintendent of Banks of the State of New York, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve System.
The Trustee, whose duties are ministerial in nature, has not
participated in selecting the portfolio of any Trust. For information relating
to the responsibilities of the Trust under the Trust Agreement, reference is
made to the material set forth under "Unitholders."
In accordance with the Trust Agreement, the Trustee shall keep records
of all transactions at its office. Such records shall include the name and
address of, and the number of Units held by, every Unitholder of each Trust.
Such books and records shall be open to inspection by any Unitholder of such
Trust at all reasonable times during usual business hours. The Trustee shall
make such annual or other reports as may from time to time be required under any
applicable state or federal statute, rule or regulation. The Trustee shall keep
a certified copy or duplicate original of the Trust Agreement on file in its
office available for inspection at all reasonable times during usual business
hours by any Unitholder, together with a current list of the Securities held in
each Trust. Pursuant to the Trust Agreement, the Trustee may employ one or more
agents for the purpose of custody and safeguarding of Securities comprising the
Trusts. Under the Trust Agreement, the Trustee or any successor trustee may
resign and be discharged of its duties created by the Trust Agreement by
executing an instrument in writing and filing the same with the Sponsor.
The Trustee or successor trustee must mail a copy of the notice of
resignation to all Unitholders then of record, not less than 60 days before the
date specified in such notice when such resignation is to take effect. The
Sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within 30 days after
notification, the retiring Trustee may apply to a court of competent
jurisdiction for the appointment of a successor. If the Trustee becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities or shall fail to meet standards for its performance established by
the Sponsor, the Sponsor may remove the Trustee and appoint a successor trustee
as provided in the Trust Agreements. Notice of such removal and appointment
shall be mailed to each Unitholder by the Sponsor. Upon execution of a written
acceptance of such appointment by such successor trustee, all the rights,
powers, duties and obligations of the original Trustee shall vest in the
successor. The Trustee shall be a corporation organized under the laws of the
United States, or any state thereof, which is authorized under such laws to
exercise trust powers. The Trustee shall have at all times an aggregate capital,
surplus and undivided profits of not less than $5,000,000.
The Evaluator. The Evaluator for each Trust is set forth in Part I of
this Prospectus. The Evaluator may resign or be removed by the Trustee in which
event the Trustee is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon acceptance of
appointment by the successor evaluator. If upon resignation of the Evaluator no
successor has accepted appointment within 30 days after notice of
-36-
<PAGE> 68
resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor. Notice of such resignation or removal and
appointment shall be mailed by the Trustee to each Unitholder.
Amendment and Termination. The Trust Agreement may be amended by the
Trustee and the Sponsor without the consent of any of the Unitholders: (i) to
cure any ambiguity or to correct or supplement any provision which maybe
defective or inconsistent; (ii) to change any provision thereof as may be
required by the Securities and Exchange Commission or any successor governmental
agency; or (iii) to make such provisions as shall not adversely affect the
interests of the Unitholders. The Trust Agreement with respect to the Trusts may
also be amended in any respect by the Sponsor and the Trustee, or any of the
provisions thereof may be waived, with the consent of the holders of Units
representing 66-2/3% of the Units then outstanding of such Trust, provided that
no such amendment or waiver will reduce the interest of any Unitholder thereof
without the consent of such Unitholder or reduce the percentage of Units
required to consent to any such amendment or waiver without the consent of all
Unitholders of such Trust. In no event shall the Trust Agreement be amended to
increase the number of Units of a Trust issuable thereunder or to permit, except
in accordance with the provisions of such Trust Agreement, the acquisition of
any Securities in addition to or in substitution for those initially deposited
in a Trust. The Trustee shall promptly notify Unitholders of the substance of
any such amendment.
The Trust Agreement provides that the Trusts shall terminate upon the
maturity, redemption or other disposition of the last of the Securities held in
a Trust. If the value of a Trust shall be less than the applicable minimum value
stated under "Essential Information" in Part I of this Prospectus, the Trustee
may, in its discretion, and shall, when so directed by the Sponsor, terminate
the Trust. A Trust may be terminated at any time by the Unitholders representing
66-2/3% of the Units thereof then outstanding. In the event of termination of a
Trust, written notice thereof will be sent by the Trustee to all Unitholders of
such Trust. Within a reasonable period after termination, the Trustee will sell
any Securities remaining in such Trust and, after paying all expenses and
charges incurred by the Trust, will distribute to Unitholders thereof (upon
surrender for cancellation of certificates for Units, if issued) their pro rata
share of the balances remaining in the Interest and Principal Accounts of such
Trust.
Limitations on Liability. The Sponsor: The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the Trust
Agreement, but will be under no liability to the Unitholders for taking any
action or refraining from any action in good faith pursuant to the Trust
Agreement or for errors in judgment, except in cases of its own gross
negligence, bad faith or willful misconduct. The Sponsor shall not be liable or
responsible in any way for depreciation or loss incurred by reason of the sale
of any Securities.
The Trustee: The Trust Agreement provides that the Trustee shall be
under no liability for any action taken in good faith in reliance upon prima
facie properly executed documents or for the disposition of monies, Securities
or certificates except by reason of its own gross negligence, bad faith or
willful misconduct, nor shall the Trustee be liable or responsible in any way
for depreciation or loss incurred by reason of the sale by the Trustee of any
Securities. In the event that the Sponsor shall fail to act, the Trustee may act
and shall not be liable for
-37-
<PAGE> 69
any such action taken by it in good faith. The Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon or in respect of
the Securities or upon the interest thereon. In addition, the Trust Agreement
contains other customary provisions limiting the liability of the Trustee.
The Evaluator: The Trustee and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. The Trust Agreement provides that the determinations made by the
Evaluator shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee or Unitholders for errors in judgment, but shall be
liable only for its gross negligence, lack of good faith or willful misconduct.
TRUST EXPENSES
The Sponsor will charge the Trusts a surveillance fee for services
performed for the Trusts in an amount not to exceed that amount set forth in
"Essential Information" in Part I of this Prospectus, but in no event will such
compensation, when combined with all compensation received from other unit
investment trusts for which the Sponsor both acts as sponsor and provides
portfolio surveillance, exceed the aggregate cost to the Sponsor for providing
such services. Such fee shall be based on the total number of Units of the
related Trust outstanding as of the December Record Date preceding any annual
period. The Sponsor will receive a portion of the sales commissions paid in
connection with the purchase of Units.
The Trustee receives for its services fees set forth under "Essential
Information" in Part I of this Prospectus. The Trustee fee which is calculated
monthly is based on the largest aggregate principal amount of Securities in a
Trust at any time during the period. In no event shall the Trustee be paid less
than $2,000 per Trust in any one year. Funds that are available for future
distributions, redemptions and payment of expenses are held in accounts which
are non-interest bearing to Unitholders and are available for use by the Trustee
pursuant to normal trust procedures; however, the Trustee is also authorized by
the Trust Agreements to make from time to time certain non-interest bearing
advances to the Trusts.
The Trustee's fee is payable on or before each Distribution Date. The
Trustee has agreed to pay the Sponsor that portion of the Trustee's annual fee
as set forth under "Essential Information" in Part I of this Prospectus in
return for the Sponsor providing certain bookkeeping and administrative services
to its own customers.
For evaluation of Securities in each Trust, the Evaluator shall receive
a fee, payable monthly, calculated on the basis of that annual rate set forth
under "Essential Information" in Part I of this Prospectus, based upon the
largest aggregate principal amount of Securities in such Trust at any time
during such monthly period.
The Trustee's and Evaluator's fees are deducted first from the Interest
Account of a Trust to the extent funds are available and then from the Principal
Account. Such fees maybe increased without approval of Unitholders by amounts
not exceeding a proportionate
-38-
<PAGE> 70
increase in the Consumer Price Index entitled "All Services Less Rent of
Shelter," published by the United States Department of Labor, or any equivalent
index substituted therefor. In addition, the Trustee's fee may be periodically
adjusted in response to fluctuations in short-term interest rates (reflecting
the cost to the Trustee of advancing funds to a Trust to meet scheduled
distributions).
Expenses incurred in establishing the Trusts, including the cost of the
initial preparation of documents relating to the Trusts, federal and state
registration fees, the initial fees and expenses of the Trustee, legal expenses
and any other non-material out-of-pocket expenses, will be paid by the Trusts
and amortized over the lesser of five years or the life of the Trusts. The
following additional charges are or may be incurred by the Trusts: (i) fees for
the Trustee's extraordinary services; (ii) expenses of the Trustee (including
legal and auditing expenses (not to exceed $.50 per 100 Units), but not
including any fees and expenses charged by any agent for custody and
safeguarding of Securities) and of bond counsel, if any; (iii) various
governmental charges; (iv) expenses and costs of any action taken by the trustee
to protect a Trust or the rights and interests of the Unitholders; (v)
indemnification of the Trustee for any loss, liability or expense incurred by it
in the administration of a Trust not resulting from gross negligence, bad faith
or willful misconduct on its part; (vi) indemnification of the Sponsor for any
loss, liability or expense incurred in acting in that capacity without gross
negligence, bad faith or willful misconduct; and (vii) expenditures incurred in
contacting Unitholders upon termination of the Trusts. The fees and expenses set
forth herein are payable out of the appropriate Trust and, when owing to the
Trustee, are secured by a lien on such Trust. Fees or charges relating to a
Trust shall be allocated to each Trust in the same ratio as the principal amount
of such Trust bears to the total principal amount of all Trusts. Fees or charges
relating solely to a particular Trust shall be charged only to such trust.
Fees and expenses of the Trusts shall be deducted from the Interest
Account thereof, or, to the extent funds are not available in such Account, from
the Principal Accounts. The Trustee may withdraw from the Principal Account or
the Interest Account of any Trust such amounts, if any, as it deems necessary to
establish a reserve for any taxes or other governmental charges or other
extraordinary expenses payable out of a Trust. Amounts so withdrawn shall be
credited to a separate account maintained for a trust known as the Reserve
Account and shall not be considered a part of the Trust when determining the
value of the Units until such time as the Trustee shall return all or any part
of such amounts to the appropriate account.
THE SPONSOR
NFSC is a registered broker and dealer and a member of The New York
Stock Exchange, Inc., and various other national and regional exchanges. As a
securities broker and dealer, NFSC is engaged in various securities trading,
brokerage and clearing activities serving a diverse group of domestic
corporations, institutional and individual investors, and brokers and dealers.
NFSC is a wholly owned subsidiary of Fidelity Global Brokerage Group,
Inc. NFSC was incorporated in Massachusetts, June 3, 1981. Fidelity Global
Brokerage Group, Inc. is a
-39-
<PAGE> 71
wholly owned subsidiary of FMR Corp. ("FMR"), Edward C. Johnson III owns
approximately 12% and Abigail P. Johnson owns approximately 24.5% of the issued
and outstanding shares of the Voting Common Stock of FMR. Members of the Edward
C. Johnson III family and trusts for their benefit control up to 49% of the
voting shares of FMR.
Fidelity Management & Research Company, a subsidiary of FMR, is the
management arm of Fidelity Investments, which was established in 1946. It
provides a number of mutual funds and other clients with investment research and
portfolio management services. It maintains a large staff of experienced
investment personnel and a full complement of related support facilities. It is
now America's largest mutual fund manager and as of December 31, 1997, it
manages more than $529 billion in assets in over 34 million shareholder
accounts.
If at any time the Sponsor shall fail to perform any of its duties
under a Trust Agreement or shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Trust Agreement and liquidate the Trusts as
provided therein, or (c) continue to act as Trustee without terminating the
Trust Agreement.
The foregoing information with regard to the Sponsor relates to the
Sponsor only and not to the Trusts. Such information is included in this
Prospectus only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its contractual
obligations with respect to the Trusts. More comprehensive information can be
obtained upon request from the Sponsor.
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating
to federal tax law have been passed upon by Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, as special counsel to the Sponsor. Carter,
Ledyard & Milburn has acted as special counsel to the Trusts with respect to
certain New York State and City tax matters affecting all Trusts but Rolling
Trusts.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related portfolios at the date of
Part I of this Prospectus as included in Part I of this Prospectus have been
audited by Deloitte & Touche LLP, independent certified public accountants, as
set forth in their report in Part I of the Prospectus, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
-40-
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Fidelity Defined Trusts, Series 1, certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Boston and State of Massachusetts on
the 1st day of May, 1998.
Fidelity Defined Trusts, Series 3
(Registrant)
By National Financial Services Corporation
(Depositor)
By /s/David J. Pearlman
--------------------
Assistant Clerk
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities on May 1, 1998:
Norman R. Malo
- --------------------
Norman R. Malo President and Chief Operating Officer
*James H. Messenger
- --------------------
James H. Messenger Director and Chief Executive Officer
*Timothy M. McKenna
- --------------------
Timothy M. McKenna Director
John J. Mulherin
- --------------------
John J. Mulherin Director
Kenneth A. Rathgeber
- --------------------
Kenneth A. Rathgeber Director
S-3
<PAGE> 73
Kenneth Klipper
- --------------------
Kenneth Klipper Vice President and Chief Financial Officer
David J. Pearlman
- --------------------
(Attorney-in-fact)*
* An executed copy of the related powers of attorney were filed as
Exhibit 7.1 to the initial Registration Statement on Form S-6 for Fidelity
Defined Trusts, Series 1 as filed on August 29, 1995 (File No. 33-62243) and the
same is hereby incorporated herein by this reference.
S-4
<PAGE> 74
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report, dated April 8, 1998, accompanying
the financial statements of the Fidelity Defined Trusts Series 1 (Laddered
Government Series 1, Short Treasury Portfolio, Laddered Government Series 2,
Short/Intermediate Treasury Portfolio, Rolling Government Series 1, Short
Treasury Portfolio) included herein and to the reference to our Firm as experts
under the heading "Auditors" in the prospectus which is a part of this
registration statement.
Deloitte & Touche LLP
New York, New York
April 30, 1998
S-5
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 2;
SHORT TREASURY PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000947056
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 2; SHORT
TREASURY PORTFOLIO
<SERIES>
<NUMBER> 1
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 2;
SHORT TREASURY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 10,328,103
<INVESTMENTS-AT-VALUE> 10,310,856
<RECEIVABLES> 63,147
<ASSETS-OTHER> 28,909
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,402,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,432
<TOTAL-LIABILITIES> 39,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,331,519
<SHARES-COMMON-STOCK> 1,290,000
<SHARES-COMMON-PRIOR> 1,620,000
<ACCUMULATED-NII-CURRENT> 59,456
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,247
<NET-ASSETS> 10,363,480
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 817,881
<OTHER-INCOME> 0
<EXPENSES-NET> 37,691
<NET-INVESTMENT-INCOME> 780,190
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 39,623
<NET-CHANGE-FROM-OPS> 781,915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 733,150
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 2,940,000
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 330,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,801,946
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 1;
SHORT TREASURY PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000947056
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 1; SHORT
TREASURY PORTFOLIO
<SERIES>
<NUMBER> 2
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; LADDERED GOVERNMENT SERIES 1; SHORT
TREASURY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,278,075
<INVESTMENTS-AT-VALUE> 17,312,163
<RECEIVABLES> 430,096
<ASSETS-OTHER> 28,909
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,771,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 364,853
<TOTAL-LIABILITIES> 364,853
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,277,160
<SHARES-COMMON-STOCK> 2,878,500
<SHARES-COMMON-PRIOR> 3,290,000
<ACCUMULATED-NII-CURRENT> 95,977
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,088
<NET-ASSETS> 17,406,315
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,323,091
<OTHER-INCOME> 0
<EXPENSES-NET> 53,355
<NET-INVESTMENT-INCOME> 1,269,736
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 45,701
<NET-CHANGE-FROM-OPS> 1,275,091
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,310,650
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 12,672,000
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 411,500
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,670,413
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR FIDELITY DEFINED TRUSTS SERIES 1; ROLLING GOVERNMENT SERIES 1,
SHORT TREASURY PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000947056
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; ROLLING GOVERNMENT SERIES 1, SHORT
TREASURY PORTFOLIO
<SERIES>
<NUMBER> 3
<NAME> FIDELITY DEFINED TRUSTS SERIES 1; ROLLING GOVERNMENT SERIES 1, SHORT
TREASURY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,294,346
<INVESTMENTS-AT-VALUE> 6,301,418
<RECEIVABLES> 42,000
<ASSETS-OTHER> 28,910
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,372,328
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,484
<TOTAL-LIABILITIES> 41,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,299,183
<SHARES-COMMON-STOCK> 629,125
<SHARES-COMMON-PRIOR> 791,010
<ACCUMULATED-NII-CURRENT> 19,743
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,072
<NET-ASSETS> 6,330,844
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 402,188
<OTHER-INCOME> 0
<EXPENSES-NET> 34,298
<NET-INVESTMENT-INCOME> 367,890
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 7,187
<NET-CHANGE-FROM-OPS> 367,807
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 392,759
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 161,885
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,647,926
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
