Filed On 7/24/00 8:12pm ET · SEC File 333-48301 · Accession Number 774467-0-565
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
7/24/00 Nuveen Tax Free Unit Trust S..994 485BPOS 7/24/00 2:116 Nuveen Tax Exempt U..345
Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective 114 659K
2: EX-27.1NATINS368· Financial Data Schedule 2± 5K
NUVEEN TAX-FREE UNIT TRUSTS
PROSPECTUS
PART ONE
JUNE 30, 2000
Note: This Prospectus may be used only when accompanied by Part Two.
See Part Two for the "Schedules of Investments," essential information
based thereon, and financial statements, including the report of independent
public accountants, relating to the Series of the Trust offered hereby.
See the Information Supplement dated June 30, 2000 for specific state
risk factor and disclosure information.
THE NUVEEN TAX-FREE UNIT TRUST consists of a number of underlying
separate unit investment trusts, each of which contains a diversified portfolio
of obligations issued by or on behalf of states and territories of the United
States and authorities and political subdivisions thereof, the interest on which
is, in the opinion of bond counsel to each issuer, exempt from all Federal
income tax under existing law and, in the case of a State Trust, from certain
state income taxes in the state for which such state Trust is named. All Bonds
(as defined herein) in each Traditional Trust (as defined herein) were rated in
the category "A" or better by Standard & Poor's, a division of The McGraw Hill
Companies ("Standard & Poor's" or "S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.)
("Fitch"), on the date each Series was established (BBB or Baa or better by
Standard & Poor's and Moody's, respectively, in the case of National Trust 76
and earlier National Trusts and SP-1, MIG 2 or F-2 or better, respectively, in
the case of a Short Term Trust). All Bonds in each Insured Trust (as defined
herein) are covered by policies of insurance obtained from AMBAC Assurance
Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"), Financial
Security Assurance Inc. ("FSA") or MBIA Insurance Corporation ("MBIA"),
guaranteeing payment of principal and interest on the bonds when due. All such
policies of insurance remain effective so long as the obligations are
outstanding. As a result of such insurance, the Bonds in each portfolio of the
Insured Trusts have received a rating of "Aaa" by Moody's, "AAA" by Fitch and/or
"AAA" by Standard & Poor's. Insurance relates only to the Bonds in the Insured
Trusts and not to the Units offered or to the market value of the Bonds or the
Units.
THE OBJECTIVES of the Trusts are tax-exempt income and conservation of
capital through a diversified investment in tax-exempt Bonds (discount Bonds in
the case of the Discount Trusts). (See "Tax Status of Unitholders.") The payment
of interest and the preservation of capital are, of course, dependent upon the
continuing ability of the issuers or obligors, or both, of Bonds and of any
insurer thereof to meet their obligations thereunder. There is no guarantee that
the Trusts' objectives will be achieved. The price received upon redemption may
be more or less than the amount paid by Unitholders, depending upon the market
value of the Bonds on the date of tender for redemption.
INTEREST INCOME to each Trust in a Series of the Nuveen Tax-Free Unit
Trust and to the Unitholders thereof, in the opinion of counsel, under existing
law, is exempt from Federal income tax, and, in the case of a State Trust,
exempt to the extent indicated herein from state, and, in some cases, income
taxes and intangible taxes, for residents of the state in which the Bonds are
issued. (See the appropriate "Tax Status" section for the applicable state.)
Capital gains, if any, are subject to tax per Unit for a particular Trust.
PUBLIC OFFERING PRICE. The Public Offering Price per Unit for a
particular Trust for "secondary market" sales is based on a pro rata share of
the sum of bid prices per Unit of the Bonds in such Trust plus the sales charges
for the Bonds determined in accordance with the table set forth herein under the
caption "Public Offering Price" based on the number of years remaining to the
maturity of each such Bond and adjusted for cash, if any, held or owed by the
Trust. See the table in "Public Offering Price" regarding reduced sales charges
on large transactions. Units are offered at the Public Offering Price plus
interest accrued to, but not including, the date of settlement. (See "Public
Offering Price.") The minimum purchase is either $5,000 or 50 Units, whichever
is less. The bid prices of the Bonds in a portfolio may represent a "market"
discount from or premium over the par value of the Bonds.
THE UNITS being offered by this Prospectus are issued and outstanding
Units that have either been reacquired by John Nuveen & Co. Incorporated through
the purchase of Units tendered to the Trustee for redemption or by purchase by
John Nuveen & Co. Incorporated ("Nuveen") or dealers in the open market. The
price paid in each instance was not less than the Redemption Price determined as
provided herein under the caption "How Units May Be Redeemed Without Charge."
Any profit or loss resulting from the sale of the Units will accrue to Nuveen or
dealers and no proceeds from the sale will be received by the Trusts.
MARKET. A Unitholder may redeem Units at the office of the Trustee, The
Chase Manhattan Bank, at prices based upon the bid prices of the Bonds in such
Trust. The Sponsor, although not required to do so, intends to make a secondary
market for the Units at prices based upon the bid prices of the Bonds in each
Trust.
Both parts of this Prospectus should be retained for future reference.
Units are not deposits or obligations of, or guaranteed by any bank.
Units are not FDIC insured and involve investment risk, including the possible
loss of principal.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
THE NUVEEN TAX-FREE UNIT TRUST - DESCRIPTION..................................1
INSURANCE ON BONDS IN INSURED TRUSTS..........................................2
INSURANCE ON CERTAIN BONDS IN TRADITIONAL TRUSTS..............................7
PUBLIC OFFERING PRICE.........................................................7
MARKET FOR UNITS.............................................................10
ACCRUED INTEREST.............................................................11
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN......................11
DETERMINATION OF THE PRICE OF BONDS AT DATE OF DEPOSIT.......................12
SELECTION OF BONDS FOR DEPOSIT IN THE TRUSTS.................................12
TAX STATUS OF UNITHOLDERS....................................................17
TAXABLE EQUIVALENT YIELDS....................................................20
ALABAMA RISK FACTORS AND TAX STATUS..........................................23
ARIZONA RISK FACTORS AND TAX STATUS..........................................23
CALIFORNIA RISK FACTORS AND TAX STATUS.......................................25
COLORADO RISK FACTORS AND TAX STATUS.........................................26
CONNECTICUT RISK FACTORS AND TAX STATUS......................................28
FLORIDA RISK FACTORS AND TAX STATUS..........................................29
GEORGIA RISK FACTORS AND TAX STATUS..........................................30
MARYLAND RISK FACTORS AND TAX STATUS.........................................32
MASSACHUSETTS RISK FACTORS AND TAX STATUS....................................33
MICHIGAN RISK FACTORS AND TAX STATUS.........................................34
MINNESOTA RISK FACTORS AND TAX STATUS........................................36
MISSOURI RISK FACTORS AND TAX STATUS.........................................37
NEW JERSEY RISK FACTORS AND TAX STATUS.......................................38
NEW YORK RISK FACTORS AND TAX STATUS.........................................39
NORTH CAROLINA RISK FACTORS AND TAX STATUS...................................40
OHIO RISK FACTORS AND TAX STATUS.............................................41
OREGON RISK FACTORS AND TAX STATUS...........................................42
PENNSYLVANIA RISK FACTORS AND TAX STATUS.....................................43
TENNESSEE RISK FACTORS AND TAX STATUS........................................44
TEXAS RISK FACTORS AND TAX STATUS............................................47
VIRGINIA RISK FACTORS AND TAX STATUS.........................................47
OPERATING EXPENSES...........................................................48
DISTRIBUTIONS TO UNITHOLDERS.................................................49
NATIONAL TRADITIONAL TRUSTS 4 THROUGH 39 - SEMI-ANNUAL DISTRIBUTIONS.........50
NATIONAL TRADITIONAL TRUST 40 AND SUBSEQUENT NATIONAL TRADITIONAL
TRUSTS; ALL OTHER TRUSTS - OPTIONAL DISTRIBUTIONS............................50
ACCUMULATION PLAN............................................................51
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DETAILED REPORTS TO UNITHOLDERS..............................................51
UNIT VALUE AND EVALUATION....................................................52
DISTRIBUTION OF UNITS TO THE PUBLIC..........................................52
OWNERSHIP AND TRANSFER OF UNITS..............................................53
REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATES........................54
HOW UNITS MAY BE REDEEMED WITHOUT CHARGE.....................................54
HOW UNITS MAY BE PURCHASED BY THE SPONSOR....................................55
HOW BONDS MAY BE REMOVED FROM THE TRUSTS.....................................56
INFORMATION ABOUT THE TRUSTEE................................................56
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE............................56
SUCCESSOR TRUSTEES AND SPONSORS..............................................57
INFORMATION ABOUT THE SPONSOR................................................57
DESCRIPTIONS OF RATINGS......................................................57
AMENDMENT AND TERMINATION OF INDENTURE.......................................60
CODE OF ETHICS...............................................................60
LEGAL OPINION................................................................60
AUDITORS.....................................................................60
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NUVEEN TAX-FREE UNIT TRUSTS
PROSPECTUS
PART ONE
MAY 26, 2000
THE NUVEEN TAX-FREE UNIT TRUST
THE NUVEEN TAX-FREE UNIT TRUST - DESCRIPTION
Each Series of the Nuveen Tax-Free Unit Trust (the "Trust" or "Defined
Portfolio") is one of a series of separate but similar investment companies
created by John Nuveen & Co. Incorporated (the "Sponsor"), each of which is
designated by a different Series number. Each Series includes one or more
underlying separate unit investment trusts; the trusts in which few or none of
the Bonds are insured are sometimes referred to as the "Traditional Trusts," the
trusts in which all of the Bonds are insured as described herein are sometimes
referred to as the "Insured Trusts," and the state trusts (both Traditional and
Insured) are sometimes referred to as the "State Trusts." The general term
"Trust(s)" should be understood to refer collectively to both Traditional and
Insured Trusts. Each Trust includes only Bonds that are, in the opinion of
counsel, exempt from Federal income tax and, in the case of a State Trust, from
certain taxation in the state for which such State Trust is named. Each Series
was created under the laws of the State of New York pursuant to a Trust
Indenture and Agreement (the "Indenture") between the Sponsor and The Chase
Manhattan Bank (the "Trustee").
The objectives of the Trusts are income exempt from Federal income tax
and, in the case of a State Trust, where applicable, from state income and
intangibles taxes, and conservation of capital, through an investment in
obligations issued by or on behalf of states and territories of the United
States and authorities and political subdivisions thereof, the interest on which
is, in the opinion of recognized bond counsel to the issuing governmental
authorities, exempt from Federal income tax under existing law. Bonds in any
State Trust have been issued primarily by or on behalf of the state for which
such Trust is named and counties, municipalities, authorities and political
subdivisions thereof, the interest on which is, in the opinion of bond counsel,
exempt from Federal and (except for certain Bonds in the Connecticut Trusts,
which were issued prior to the taxation by Connecticut of interest income of
resident individuals) certain state income tax and intangibles taxes, if any,
for purchasers who qualify as residents of that state. Insurance guaranteeing
the timely payment, when due, of all principal and interest on the Bonds in each
Insured Trust has been obtained by the Sponsor, the issuers of such Bonds or
certain third parties from AMBAC Assurance Corporation ("AMBAC"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance Inc. ("FSA")
or MBIA Insurance Corporation ("MBIA"), guaranteeing payment of principal and
interest on the bonds when due. As a result of such insurance the Bonds in the
Insured Trusts are rated "Aaa" by Moody's, "AAA" by Fitch and/or "AAA" by
Standard & Poor's. (See "Insurance on Bonds in Insured Trusts.") All obligations
in each Traditional Trust were rated at the date the Trust was established in
the category "A" or better (BBB or Baa or better by Standard & Poor's and
Moody's, respectively, in the case of National Trust 76 and earlier National
Trusts and SP-1, MIG 2 or F-2 or better, respectively, in the case of short-term
obligations included in a Short Term Traditional Trust) by Standard & Poor's,
Moody's and/or Fitch (including provisional or conditional ratings). (See
"Description of Ratings" herein.) In addition, certain Bonds in certain
Traditional Trusts may be covered by insurance guaranteeing the timely payment,
when due, of all principal and interest. There is, of course, no guarantee that
the Trusts' objectives will be achieved. The bid prices of the Bonds in the
portfolio of any Trust may represent a deep "market" discount from the par value
of the Bonds. At the time each Discount Trust was established, the market value
of the Bonds in the portfolio was significantly below face value, and the
current bid prices of the Bonds in such Trusts may continue to represent a deep
"market" discount from the par value of the Bonds.
Gains realized on the sale, payment on maturity or redemption of the
Bonds by the Trustee or on the sale or redemption of Units by a Unitholder are
included in a Unitholder's gross income for Federal income tax purposes. (See
"Tax Status of Unitholders.") The Sponsor has deposited with the Trustee the
interest-bearing obligations listed in the Schedules of Investments in Part Two
(the "Bonds"), which constitute the Trusts' underlying securities. The State of
Florida imposes no income tax on individuals, and exemption from that State's
intangibles tax provides only a slight tax advantage to purchasers of a Florida
Trust. The State of Texas currently
imposes no income tax on individuals; accordingly, there is no State tax
advantage to purchasers of a Texas Trust. (See "Tax Status of Unitholders" for a
discussion of these matters.)
Payment of interest on the Bonds in each Insured Trust, and of
principal at maturity, is guaranteed under policies of insurance obtained
generally by the Sponsor or by the issuers of the Bonds. (See "Insurance on
Bonds in Insured Trusts.")
At the Date of Deposit, each National Trust, State Trust and Discount
Trust consisted of long-term (approximately 15 to 40 year maturities)
obligations; each Long Intermediate Trust consisted of intermediate to long-term
(approximately 11 to 19 year maturities) obligations; each Intermediate Trust
and State Intermediate Trust consisted of intermediate-term (approximately 5 to
15 year maturities) obligations; each Short Intermediate Trust and State Short
Intermediate Trust consisted of short to intermediate-term (approximately 3 to 7
year maturities) obligations; and each Short Term Trust consisted of short-term
(approximately 1 to 5 year maturities) obligations.
Each Trust consists of fixed-rate municipal debt obligations. Because
of this an investment in a Trust should be made with an understanding of the
risks which investment in debt obligations may entail, including the risk that
the value of the debt obligations, and therefore of the Units, will decline with
increases in market interest rates. In general, the longer the period until the
maturity of a Bond, the more sensitive its value will be to fluctuations in
interest rates. During the past decade there have been substantial fluctuations
in interest rates and, accordingly, in the value of long-term debt obligations.
The Sponsor cannot predict the extent or timing of such fluctuations and,
accordingly, their effect upon the value of the Bonds. Other risks include the
ability of the issuer, or, if applicable, the insurer, to make payments of
interest and principal when due, "mandatory put" features, early call provisions
and the potential for changes in the tax status of the Bonds.
Each Unit of a Trust represents a fractional undivided interest in the
principal and net income of such Trust in the ratio set forth in "Essential
Information" in Part Two for the applicable Trust. To the extent that any Units
are redeemed by the Trustee, the aggregate value of the Trust's assets will
decrease by the amount paid to the redeeming Unitholder, but the fractional
undivided interest of each unredeemed Unit in such Trust will increase
proportionately. The Units offered hereby are issued and outstanding Units which
have either been reacquired by the Sponsor through the purchase of Units
tendered to the Trustee for redemption or by purchase by the Sponsor or dealers
in the open market. No offering is being made on behalf of the Trusts and any
profit or loss realized on the sale of Units will accrue to the Sponsor.
INSURANCE ON BONDS IN INSURED TRUSTS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on the Bonds in each Insured Trust has been obtained by the
Sponsor, the issuers or underwriters of Bonds or other third parties from the
Municipal Bond Insurance Association (the "Association") (for Insured Series 1
through 107), "MBIA" (for Insured Series 108 through Series 1153) or from AMBAC,
FSA or MBIA guaranteeing payment of principal and interest on the bonds when due
(the aforementioned companies referred to collectively as the "Insurers"). From
Series 1154 onward, the Schedule of Investments in Part Two of this Prospectus
identifies the insurer of each bond. Each insurance policy is an obligation only
of the Insurer that issued it and not of any other. Insurance guarantees the
timely payment, when due, of all principal and interest on the bonds. Such
insurance is effective so long as the insured bond is outstanding and the
insurer remains in business. Insurance relates only to the particular bond and
not to the Units offered hereby or to their market value. The bonds have
received a rating of "Aaa" by Moody's, "AAA" by Fitch and/or "AAA" by Standard &
Poor's in recognition of such insurance. There can be no assurance that any
Insurer listed will be able to satisfy its commitments in the event claims are
made in the future. However, Standard & Poor's, Fitch and/or Moody's have rated
the claims-paying ability of each Insurer "AAA," "AAA" or "Aaa," respectively.
AMBAC Assurance Corporation. Effective July 14, 1997, AMBAC Indemnity
Corporation changed its name to AMBAC Assurance Corporation. AMBAC is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin and licensed to do business
in 50 states, the District of Columbia, the Territory of Guam and the
Commonwealth of Puerto Rico, with admitted assets of approximately
$4,013,000,000 (unaudited) and statutory capital of approximately $2,402,000,000
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(unaudited) as of December 31, 1999. Statutory capital consists of AMBAC's
policyholders' surplus and statutory contingency reserve. AMBAC is a wholly
owned subsidiary of AMBAC Financial Group, Inc., a 100% publicly-held company.
Moody's Investors Service, Inc., Fitch IBCA and Standard & Poor's have both
assigned a triple-A financial strength rating to AMBAC.
Copies of its financial statements prepared in accordance with
statutory accounting standards are available from AMBAC. The address of AMBAC's
administrative offices and its telephone number are One State Street Plaza, 17th
Floor, New York, New York 10004 and (212) 668-0340.
AMBAC has entered into quota share reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of AMBAC has been and will be assumed by a number of foreign
and domestic unaffiliated reinsurers.
MBIA Insurance Corporation. 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 MBIA, 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, 1999, MBIA had admitted assets of $7.0 billion
(audited), total liabilities of $4.6 billion (audited), and total capital and
surplus of $2.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 2000, MBIA had admitted assets of $7.1 billion
(unaudited), total liabilities of $4.7 billion (unaudited), and total capital
and surplus of $2.4 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of MBIA's year end financial statements prepared in
accordance with statutory accounting practices are available without charge from
MBIA. A copy of the Annual Report on Form 10-K of the Company is available from
the Insurer or the Securities and Exchange Commission. The address of the
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Insurer is (914) 273-4545.
The following information has been furnished by MBIA. The MBIA policy
unconditionally and irrevocably guarantees the full and complete payment
required to be made by or on behalf of the Issuer to the Trustee or its
successor of an amount equal to (i) the principal of (either at the stated
maturity or by any advancement of maturity pursuant to a mandatory sinking fund
payment) and interest on, the Bonds as such payments shall become due but shall
not be so paid (except that in the event of any acceleration of the due date of
such principal by reason of mandatory or optional redemption or acceleration
resulting from default or otherwise, other than any advancement of maturity
pursuant to a mandatory sinking fund payment, the payments guaranteed by the
MBIA policy shall be made in such amounts and at such times as such payments of
principal would have been due had there not been any such acceleration); and
(ii) the reimbursement of any such payment which is subsequently recovered from
any owner of the Bonds pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes an avoidable preference to such owner
within the meaning of any applicable bankruptcy law (a "Preference").
The MBIA policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Bond. The MBIA policy does
not, under any circumstance, insure against loss relating to: (i) optional or
mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any
payments to be made on an accelerated basis; (iii) payments of the purchase
price of Bonds upon tender by an owner thereof; or (iv) any Preference relating
to (i) through (iii) above. The MBIA policy also does not insure against
nonpayment of principal of or interest on the Bonds resulting from the
insolvency, negligence or any other act or omission of the Trustee or other
paying agent for the Bonds.
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Upon receipt of telephonic or telegraphic notice, such notice
subsequently confirmed in writing by registered or certified mail, or upon
receipt of written notice by registered or certified mail, by the General
Manager of MBIA or its designee from the Trustee or any owner of a Bond the
payment of an insured amount for which is then due, that such required payment
has not been made, MBIA on behalf of its members on the due date of such payment
or within one business day after receipt of notice of such nonpayment, whichever
is later, will make a deposit of funds, in an account with Citibank, N.A., in
New York, New York, or its successor, sufficient for the payment of any such
insured amounts which are then due. Upon presentment and surrender of such Bonds
or presentment of such other proof of ownership of the Bonds, together with any
appropriate instruments of assignment to evidence the assignment of the insured
amounts due on the Bonds as are paid by MBIA, and appropriate instruments to
effect the appointment of MBIA or the General Manager of MBIA as agent for such
owners of the Bonds in any legal proceeding related to payment of insured
amounts on the Bonds, such instruments being in a form satisfactory to Citibank,
N.A., Citibank, N.A. shall disburse to such owners or the Trustee payment of the
insured amounts due on such Bonds, less any amount held by the Trustee for the
payment of such insured amounts and legally available therefor.
Each insurance company comprising MBIA will be severally and not
jointly obligated under the MBIA policy in the following respective percentages:
The Travelers Casualty & Surety Company (formerly The Aetna Casualty & Surety
Company), 33%, Fireman's Fund Insurance Company, 30%; The Travelers Indemnity
Company, 15%; ACE Property and Casualty Insurance Company (Formerly CIGNA
Insurance Company), 12%; and The Continental Insurance Company, 10%. As a
several obligor, each such insurance company will be obligated only to the
extent of its percentage of any claim under the MBIA policy and will not be
obligated to pay any unpaid obligation of any other member of MBIA. Each
insurance company's participation is backed by all of its assets. However, each
insurance company is a multiline insurer involved in several lines of insurance
other than municipal bond insurance, and the assets of each insurance company
also secure all of its other insurance policy and surety bond obligations.
The following table sets forth certain financial information with
respect to the five insurance companies comprising MBIA. The statistics, which
have been furnished by MBIA, are as reported by the insurance companies to the
New York State Insurance Department and are determined in accordance with
statutory accounting principles. No representation is made herein as to the
accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof. In addition,
these numbers are subject to revision by the New York State Insurance Department
which, if revised, could either increase or decrease the amounts.
MUNICIPAL BOND INSURANCE ASSOCIATION
FIVE MEMBER COMPANIES ASSETS, LIABILITIES AND POLICYHOLDERS' SURPLUS
AS OF DECEMBER 31, 1999 (UNAUDITED)
(000'S OMITTED)
[Enlarge/Download Table]
NEW YORK NEW YORK
NEW YORK STATUTORY POLICYHOLDERS
STATUTORY ASSETS LIABILITIES SURPLUS
The Travelers Casualty & Surety Company
(Formerly The Aetna Casualty & Surety Company) $11,587,797 $8,261,870 $3,325,927
Fireman's Fund Insurance Company 11,056,447 7,804,046 3,252,401
The Travelers Indemnity Company 11,169,231 7,713,864 3,455,367
ACE Property and Casualty Insurance Company
(Formerly CIGNA Insurance Company) 2,450,430 1,962,511 487,919
The Continental Insurance Company 1,738,322 1,000,657 737,665
-------------- ------------- -------------
TOTAL $38,002,227 $26,742,948 $11,259,279
============== ============= =============
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Some of the members of the Association are among the shareholders of
MBIA, Inc. MBIA, Inc. is the parent of the Municipal Bond Investors Assurance
Corporation (the "Corporation"). The Corporation commenced municipal bond
insurance operations on January 5, 1987. The Corporation is a separate and
distinct entity from the Association. The Corporation has no liability to the
bondholders for the obligations of the Association under the Policy.
Standard & Poor's Ratings Group, a division of McGraw Hill ("Standard &
Poor's"), rates all new issues insured by MBIA "AAA" Prime Grade.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa"
and short term loans "MIG 1," both designated to be of the highest quality.
Each rating of MBIA should be evaluated independently of any other
rating. No application has been made to any other rating agency in order to
obtain additional ratings on the Bonds. The ratings reflect the respective
rating agency's current assessment of the creditworthiness of MBIA and its
ability to pay claims on its policies of insurance. Any further explanation as
to the significance of the above ratings may be obtained only from the
applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Bonds, and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of either or both
ratings may have an adverse effect on the market price of the Bonds.
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 Standard & Poor's and/or "Aaa" by Moody's) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's and "Aaa" by
Moody's. In selecting Corporate Bonds for the portfolio of a Corporate Trust,
the Sponsor has applied the criteria hereinbefore described. See "Description of
Ratings" in the Information Supplement for a discussion of rating symbols and
their meanings.
Financial Guaranty Insurance Company. FGIC is a wholly-owned subsidiary
of FGIC Corporation (the "Corporation"), a Delaware holding company. The
Corporation is a subsidiary of General Electric Capital Corporation ("GE
Capital"). Neither the Corporation nor GE Capital is obligated to pay the debts
of or the claims against FGIC. FGIC is a monoline financial guaranty insurer
domiciled in the State of New York and subject to regulation by the State of New
York Insurance Department. As of March 31, 2000, the total capital and surplus
of FGIC was $1.281 billion. FGIC prepares financial statements on the basis of
both statutory accounting principles, and generally accepted accounting
principles. Copies of such financial statements may be obtained by writing to
FGIC at 115 Broadway, New York, New York 10006, Attention: Communications
Department, telephone number: (212) 312-3000 or to the New York State Insurance
Department at 25 Beaver Street, New York, New York 10004-2319, Attention:
Financial Condition Property/Casualty Bureau, telephone number: (212) 480-5187.
In addition, FGIC is currently licensed to write insurance in all 50
states and the District of Columbia.
Financial Security Assurance Inc. FSA is a monoline insurance company
incorporated in 1984 under the laws of the State of New York. FSA is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
FSA and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. Financial guaranty insurance provides a guaranty
of scheduled payments of an issuer's securities--thereby enhancing the credit
rating of those securities--in consideration of payment of a premium to the
insurer. FSA and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are typically
supported by residential mortgage loans, consumer or trade receivables,
securities or other asset having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities include general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. FSA insures both newly issued securities sold in the primary market
and outstanding securities sold in the secondary market that satisfy FSA
underwriting criteria.
FSA is a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Major
shareholders of Holdings include White Mountains Insurance Group,
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Ltd., The Tokio Marine and Fire Insurance Co., Ltd. and XL Capital Ltd. No
shareholder of FSA is obligated to pay any debt of FSA or its subsidiaries or
any claim under any insurance policy issued by FSA or its subsidiaries or to
make any additional contribution to the capital of FSA. As of December 31, 1999,
the total policyholders' surplus and contingency reserves and the total unearned
premium reserve, respectively, of FSA and its consolidated subsidiaries were, in
accordance with statutory accounting principles, approximately $1,320,082,000
(unaudited) and $669,691,000 (unaudited), and the total shareholders' equity and
the total unearned premium reserve, respectively, of FSA and its consolidated
subsidiaries were, in accordance with generally accepted accounting principles,
approximately $1,294,946,000 (audited) and $559,041,000 (audited). Copies of
FSA's financial statements may be obtained by writing to FSA at 350 Park Avenue,
New York, New York 10022, Attention: Communications Department. Its telephone
number is (212) 826-0100.
Under an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by FSA or its domestic or
Bermuda operating insurance company subsidiaries are generally reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis. This
reinsurance is used by FSA as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
FSA's obligations under any financial guaranty insurance policy.
FSA's insurance financial strength is rated "Aaa" by Moody's Investors
Service, Inc. FSA's insurer financial strength is rated "AAA" by Standard &
Poor's Ratings Services and Standard & Poor's (Australia) Pty. Ltd. FSA's
claims-paying ability is rated "AAA" by Fitch IBCA Inc. and Japan Rating and
Investment Information, Inc. These ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by those rating
agencies.
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and limitations on
investments, reports of financial condition, and requirements regarding reserves
for unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies is required by law to be held in reserve against
potential claims on policies and is not available to general creditors. Although
the federal government does not regulate the business of insurance, federal
initiatives including pension regulation, controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
tax law changes affecting life insurance companies and repeal of the antitrust
exemption for the insurance business can significantly impact the insurance
business.
The above ratings are not recommendations to buy, sell or hold the
Bonds, and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of either or both
ratings may have an adverse effect on the market price of the Bonds. See the
Information Supplement for further information concerning insurance.
Because the insurance on the Bonds will be effective so long as the
Bonds are outstanding, such insurance will be taken into account in determining
the market value of the Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Insured Trusts. The
insurance does not, however, guarantee the market value of the Bonds or of the
Units nor does it guaranty that the ratings on the Bonds will not be revised or
withdrawn.
INSURANCE ON CERTAIN BONDS IN TRADITIONAL TRUSTS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on certain Bonds in a Traditional Trust may have been obtained by
the Sponsor, issuer, or underwriter of the particular Bonds involved or by
another party. Such insurance, which provides coverage substantially the same as
that obtained with respect to Bonds in Insured Trusts as described above, is
effective so long as the insured Bond is outstanding and the insurer remains in
business. Insurance relates only to the particular Bond and not to the Units
offered hereby or to their market value. Insured Bonds have received a rating of
"AAA" by Standard & Poor's, "AAA" by Fitch and/or "Aaa" by Moody's, in
recognition of such insurance.
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If a Bond in a Traditional Trust is insured, the Schedule of
Investments will identify the insurer. Such insurance will be provided by FGIC,
AMBAC, Bond Investors Guaranty Insurance Company, now known as MBIA Corp. of
Illinois ("BIG"), FSA, Municipal Bond Insurance Association (the "Association"),
MBIA or Connie Lee Insurance Company ("Connie Lee"). There can be no assurance
that any insurer listed herein will be able to satisfy its commitments in the
event claims are made in the future. However, at the date hereof, Standard &
Poor's has rated the claims-paying ability of each insurer "AAA," and Moody's
has rated all bonds insured by each such insurer, except Connie Lee, "Aaa."
Moody's gives no ratings for bonds insured by Connie Lee.
Insurance companies are subject to extensive regulation and supervision
where they do business by state insurance commissioners who regulate the
standards of solvency which must be maintained, the nature of and limitations on
investments, reports of financial condition, and requirements regarding reserves
for unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies is required by law to be held in reserve against
potential claims on policies and is not available to general creditors. Although
the federal government does not regulate the business of insurance, federal
initiatives including pension regulation, controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
tax law changes affecting life insurance companies and repeal of the antitrust
exemption for the insurance business can significantly impact the insurance
business.
The above ratings are not recommendations to buy, sell or hold the
Bonds, and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of either or both
ratings may have an adverse effect on the market price of the Bonds. See the
Information Supplement for further information concerning insurance.
Because any such insurance will be effective so long as the insured
Bonds are outstanding, such insurance will be taken into account in determining
the market value of such Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Trust that includes
such Bonds. The insurance does not, however, guarantee the market value of the
Bonds or of the Units.
PUBLIC OFFERING PRICE
The Sponsor will appraise or cause to be appraised daily the value of
the underlying Bonds in each Trust (1) as of 4:00 p.m. eastern time on each day
on which the New York Stock Exchange (the "Exchange") is normally open, or (2)
as of such earlier closing time on each day on which the Exchange is scheduled
in advance to close at an earlier time, and will adjust the Public Offering
Price of the Units commensurate with such appraisal. Such Public Offering Price
will be effective for all orders received by a dealer or the Sponsor at or prior
to 4:00 p.m. eastern time, or such earlier closing time, on each such day.
Orders received after that time, or on a day when the Exchange is closed for a
scheduled holiday or weekend, will be held until the next determination of
price.
The sales charge applicable to quantity purchases is reduced on a
graduated scale for sales to any purchaser of at least $50,000 or 500 Units and
will be applied on whichever basis is more favorable to the purchaser. For
purposes of calculating the applicable sales charge, purchasers who have
indicated their intent to purchase a specified amount of Units of any
Nuveen-sponsored unit trust by executing and delivering a letter of intent to
the Sponsor, which letter of intent must be in a form acceptable to the Sponsor
and shall have a maximum duration of thirteen months, will be eligible to
receive a reduced sales charge, according to the table set forth below, based on
the amount of intended aggregate purchases (excluding purchases which are
subject only to a deferred sales charge) as expressed in the letter of intent.
For purposes of letter of intent calculations, units of equity products are
valued at $10 per unit. Due to administrative limitations and in order to permit
adequate tracking, the only secondary market purchases that will be permitted to
be applied toward the intended specified amount and that will receive the
corresponding reduced sales charge are those Units that are acquired through or
from the Sponsor.
By establishing a letter of intent, a Unitholder agrees that the first
purchase of Units following the execution of such letter of intent will be at
least 5% of the total amount of the intended aggregate purchases expressed in
such Unitholder's letter of intent. Further, through the establishment of the
letter of intent, such Unitholder agrees that Units representing 5% of the total
amount of the intended purchases will be held in escrow by The Chase Manhattan
Bank, Trustee, pending completion of these purchases. All distributions on Units
held in
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escrow will be credited to such Unitholder's account. If total purchases
prior to the expiration of the letter of intent period equal or exceed the
amount specified in a Unitholder's letter of intent, the Units held in escrow
will be transferred to such Unitholder's account. A Unitholder who purchases
Units during the letter of intent period in excess of the number of Units
specified in a Unitholder's letter of intent, the amount of which would cause
the Unitholder to be eligible to receive an additional sales charge reduction,
will be allowed such additional sales charge reduction on the purchase of Units
which caused the Unitholder to reach such new breakpoint level and on all
additional purchases of Units during the letter of intent period. If the total
purchases are less than the amount specified, the Unitholder involved must pay
the Sponsor an amount equal to the difference between the amounts paid for those
purchases and the amounts which would have been paid if the higher sales charge
had been applied; the Unitholder will, however, be entitled to any reduced sales
charge qualified for by reaching any lower breakpoint level. If such Unitholder
does not pay the additional amount within 20 days after written request by the
Sponsor or the Unitholder's securities representative, the Sponsor will instruct
the Trustee to redeem an appropriate number of the escrowed Units to meet the
required payment. By establishing a letter of intent, a Unitholder irrevocably
appoints the Sponsor as attorney to give instructions to redeem any or all of
such Unitholder's escrowed Units, with full power of substitution in the
premises. A Unitholder or his securities representative must notify the Sponsor
whenever such Unitholder makes a purchase of Units that he wishes to be counted
toward the intended amount.
The Public Offering Price of the Units of each Trust for secondary
market purchases is determined by adding to the Sponsor's determination of the
bid price of each Bond in the Trust the appropriate sales charge determined in
accordance with the table set forth below based upon the number of years
remaining to the maturity of each such Bond, adjusting the total to reflect the
amount of any cash held in or advanced to the principal account of the Trust,
and dividing the result by the number of Units of such Trust then outstanding.
For purposes of this calculation, Bonds will be deemed to mature on their stated
maturity dates unless: (a) the Bonds 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 shall be deemed to be the date upon which they mature;
or (b) such Bonds are subject to a "mandatory put," in which case such mandatory
put date shall be deemed to be the date upon which they mature. Any assumptions
regarding maturity made for purposes of determining the appropriate sales charge
in no way predict or guarantee the actual remaining life of a given Trust.
The effect of this method of sales charge calculation will be that
different sales charge rates will be applied to each of the various Bonds in a
Trust portfolio based upon the maturities of such Bonds, in accordance with the
following schedule. As shown, the sales charge on Bonds in each maturity range
(and therefore the aggregate sales charge on the purchase) is reduced with
respect to purchases of at least $50,000 or 500 Units:
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AMOUNT OF PURCHASE*
[Enlarge/Download Table]
$50,000 $100,000 $250,000 $500,000 $1,000,000 $2,500,000 WRAP
UNDER TO TO TO TO TO OR ACCOUNT
YEARS TO MATURITY $50,000 $99,999 $249,999 $499,999 $999,999 $2,499,999 MORE PURCHASES
Less than 1 0 0 0 0 0 0 0 0.000%
1 but less than 2 1.523% 1.446% 1.369% 1.317% 1.215% 1.061% .900% 0.523%
2 but less than 3 2.041 1.937 1.833 1.729 1.626 1.420 1.225 0.741%
3 but less than 4 2.564 2.433 2.302 2.175 2.041 1.781 1.546 0.964%
4 but less than 5 3.093 2.961 2.828 2.617 2.459 2.175 1.883 1.093%
5 but less than 7 3.627 3.433 3.239 3.093 2.881 2.460 2.165 1.327%
7 but less than 10 4.167 3.951 3.734 3.520 3.239 2.828 2.489 1.567%
10 but less than 13 4.712 4.467 4.221 4.004 3.788 3.253 2.842 1.712%
13 but less than 16 5.263 4.988 4.712 4.439 4.167 3.627 3.169 2.013%
16 or more 5.820 5.542 5.263 4.987 4.603 4.004 3.500 2.320%
--------------------
* Breakpoint sales charges are computed both on a dollar basis and on the
basis of the number of Units purchased, using the equivalent of 500
Units to $50,000, 2,500 Units to $250,000, etc., and will be applied on
that basis which is more favorable to the purchaser.
The secondary market sales charges above are expressed as a percent of
the net amount invested; expressed as a percent of the Public Offering Price,
the maximum sales charge on a Trust, for instance one consisting entirely of
Bonds with 16 years or more to maturity, would be 5.50% (5.820% of the net
amount invested). For purposes of illustration, the sales charge on a Trust
consisting entirely of Bonds maturing in 13 to 16 years would be 5% (5.263% of
the net amount invested); on a Trust consisting entirely of Bonds maturing in 10
to 13 years, 4.5% (4.712% of the net amount invested); on a Trust consisting
entirely of Bonds maturing in 5 to 7 years, 3.5% (3.627% of the net amount
invested); and on a Trust consisting entirely of Bonds maturing in 3 to 4 years,
2.5% (2.564% of the net amount invested). The actual secondary sales charge
included in the Public Offering Price of any particular Trust will depend on the
maturities of the Bonds in the portfolio of such Trust.
As more fully set forth under "Accrued Interest" below, accrued
interest from the preceding Record Date to, but not including, the settlement
date of the transaction (three business days after purchase) will be added to
the Public Offering Price to determine the purchase price of Units.
The above graduated sales charge will apply on all applicable purchases
of Nuveen investment company securities on any one day by the same purchaser in
the amounts stated, and for this purpose purchases of any Series will be
aggregated with concurrent purchases of Units of any other Series or of shares
of any open-end management investment company of which the Sponsor is principal
underwriter and with respect to the purchase of which a sales charge is imposed.
Purchases by or for the account of individuals and their spouses,
parents, children, grandchildren, grandparents, parents-in-law, sons- and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings
("Immediate Family Members") will be aggregated to determine the applicable
sales charge. The graduated sales charges are also applicable to a trustee or
other fiduciary purchasing securities for a single trust estate or single
fiduciary account.
Units may be purchased in the secondary market with the reduced sales
charges for "Wrap Account Purchases" provided in the Secondary Market Sales
Charge Tables provided above for the following types of investors: (1) investors
who purchase Units through registered investment advisors, certified financial
planners and registered broker-dealers who in each case either charge periodic
fees for financial planning, investment advisory services, brokerage services,
investment services or asset management services, or provide such services in
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connection with the establishment of an investment account for which a
comprehensive "wrap fee" charge is imposed, (2) bank trust departments investing
funds over which they exercise exclusive discretionary investment authority and
that are held in a fiduciary, agency, custodial or similar capacity, (3) any
person who, for at least 90 days, has been an officer, director or bona fide
employee of any firm offering Units for sale to investors, (4) officers and
directors of bank holding companies that make Units available directly or
through subsidiaries or bank affiliates, (5) officers or directors and bona
fide, full-time employees of Nuveen, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Rittenhouse Financial Services, Inc., and The John Nuveen
Company, including in each case these individuals and their spouses, children,
parents and spouses' parents, however, purchases by parents and adult children
who are not members of the household of the officers, directors or full-time
employees described above, must be made through a registered broker-dealer, and
(6) any person who for at least 90 days, has been an officer, director or bona
fide employee of any vendor who provides services to the Sponsor and who
purchases Units through a registered broker-dealer (collectively, the
"Discounted Purchases"). Notwithstanding anything to the contrary in this
Prospectus, investors who purchase Units with the reduced sales charges
described in this paragraph will not receive sales charge reductions for
quantity purchases.
Cash, if any, made available to the Sponsor prior to the settlement
date for a purchase of Units may be available for use in the Sponsor's business,
and may be of benefit to the Sponsor.
Whether or not Units are being offered for sale, the Sponsor shall also
determine the aggregate value of each Trust as of 4:00 p.m. eastern time: (i) on
each June 30 or December 31 (or, if such date is not a business day, the last
business day prior thereto), (ii) on each day on which any Unit is tendered for
redemption (or the next succeeding business day if the date of tender is a
non-business day), and (iii) at such other times as may be necessary. For this
purpose, a "business day" shall be any day on which the Exchange is normally
open. (See "Unit Value and Evaluation.")
Pursuant to the terms of the Indenture, the Trustee may terminate a
Trust if the net asset value of such Trust, as shown by certain evaluations, is
less than 20% of the original principal amount of the Trust. In the course of
regularly appraising the value of Bonds in each Trust, the Sponsor will attempt
to estimate the date on which a Trust's value will fall below the 20% level
based on anticipated bond events over a five-year period, including maturities,
escrow calls and current calls or refundings, assuming certain market rates. The
Sponsor intends from time to time to recommend that certain Trusts whose values
have fallen or are anticipated to fall below the 20% level be terminated based
on certain criteria which could adversely affect the Trust's diversification.
Once the Sponsor has determined that a Trust's value has fallen or may fall
below the 20% level within a five-year period, for purposes of computing the
sales charge, the maturity of each bond in such Trust will be deemed to be the
earlier of the estimated termination date of the Trust or the actual date used
when pricing the bond under Municipal Securities Rulemaking Board rules and
interpretations issued thereunder.
MARKET FOR UNITS
Although it is not obligated to do so, the Sponsor intends to maintain
a secondary market for outstanding Units of certain Trusts at its own expense
and continuously to offer to purchase Units of such Trusts at prices, subject to
change at any time, which are based upon the bid prices of Bonds in the
respective portfolios of the Trusts. If the supply of Units of any of the Trusts
exceeds the demand, or for some other business reason, the Sponsor may
discontinue purchases of Units of such Trust at such prices. Unitholders who
wish to dispose of Units should inquire of the Trustee or their broker as to
current redemption prices. (See "How Units May Be Redeemed Without Charge.")
In connection with its secondary market-making activities, the Sponsor
may from time to time enter into secondary market joint account agreements with
other brokers and dealers. Pursuant to such an agreement, the Sponsor will
purchase Units from the broker or dealer at the bid price and will place the
Units into a joint account managed by the Sponsor; sales from the account will
be made in accordance with the then current prospectus and the Sponsor and the
broker or dealer will share profits and losses in the joint account in
accordance with the terms of their joint account agreement.
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ACCRUED INTEREST
Accrued interest is the accumulation of unpaid interest on a Bond from
the last day on which interest thereon was paid. Interest on Bonds in each Trust
is accounted for daily on an accrual basis. For this reason, the purchase price
of Units of each Trust will include not only the Public Offering Price but also
the proportionate share of accrued interest to the date of settlement. Accrued
interest does not include accrual of original issue discount on zero coupon
bonds, stripped obligations or other original issue discount bonds. (See
"Selection of Bonds for Deposit in the Trusts" and "Tax Status of Unitholders.")
Interest accrues to the benefit of Unitholders commencing with the settlement
date of their purchase transaction.
The Trustee has no cash for distribution to Unitholders until it
receives interest payments on the Bonds in the Trusts. Since municipal bond
interest is accrued daily but generally paid only semi-annually, during the
initial months of each Trust, the Interest Account, consisting of accrued but
uncollected interest and collected interest (cash), will be predominantly the
uncollected accrued interest that is not available for distribution. However,
due to advances by the Trustee, the Trustee will provide a first distribution
between approximately 30 and 60 days after the Date of Deposit. Assuming each
Trust retains the size and composition shown in the accompanying Part Two and
expenses and fees remain the same, annual interest collected and distributed in
future periods will approximate the estimated Net Annual Interest Income stated
therein. However, the amount of accrued interest at any point in time will be
greater than the amount that the Trustee will have actually received and
distributed to Unitholders. Therefore, there will always remain an item of
accrued interest that is included in the purchase price and the redemption price
of the Units.
Interest is accounted for daily, and a proportionate share of accrued
and undistributed interest computed from the preceding Record Date is added to
the daily valuation of each Unit of each Trust. (See "Distributions to
Unitholders.") As Bonds mature, or are redeemed or sold, the accrued interest
applicable to such Bonds is collected and subsequently distributed to
Unitholders. Unitholders who sell or redeem all or a portion of their Units will
be paid their proportionate share of the remaining accrued interest to, but not
including, the third business day following the date of sale or tender.
ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN
The Estimated Long Term Return for each Trust is a measure of the
return to the investor expected to be earned over the estimated life of the
Trust. The Estimated Long Term Return represents an average of the yields to
maturity (or call) of the Bonds in the Trust's portfolio calculated in
accordance with accepted bond practice and adjusted to reflect expenses and
sales charges. Under accepted bond practice, tax-exempt bonds are customarily
offered to investors on a "yield price" basis, which involves computation of
yield to maturity or to an earlier call date (whichever produces the lower
yield), and which takes into account not only the interest payable on the bonds
but also the amortization or accretion of any premium over, or discount from,
the par (maturity) value inherent in the bond's purchase price. In the
calculation of Estimated Long Term Return, the average yield for a Trust's
portfolio is derived by weighting each Bond's yield by the market value of the
Bond and by the amount of time remaining to the date to which the Bond is
priced. This weighted average yield is then adjusted to reflect estimated
expenses, is compounded, and is reduced by a factor which represents the
amortization of the sales charge over the expected average life of a Trust. The
Estimated Long Term Return calculation does not take into account the effect of
a first distribution which may be less than a regular distribution or may be
paid at some point after 30 days (or a second distribution which may be less
than a normal distribution for Unitholders who choose quarterly or semi-annual
plans of distribution), and it also does not take into account the difference in
timing of payments to Unitholders who choose quarterly or semi-annual plans of
distribution, each of which will reduce the return.
Estimated Current Return is computed by dividing the Net Annual
Interest Income per Unit by the Public Offering Price. In contrast to Estimated
Long Term Return, Estimated Current Return does not reflect the amortization of
premium or accretion of discount, if any, on the Bonds in a Trust's portfolio.
Net Annual Interest Income per Unit is calculated by dividing the annual
interest income to a Trust, less estimated expenses, by the number of Units
outstanding.
Net Annual Interest Income per Unit, used to calculate Estimated
Current Return, will vary with changes in fees and expenses of the Trustee and
the Evaluator and with the redemption, maturity, exchange or sale of
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Bonds. A Trust may experience expenses and portfolio changes different from
those assumed in the calculation of estimated Long Term Return. There can be no
assurance that the Estimated Current Returns or Estimated Long Term Returns
quoted to a Trust will be realized in the future. A Unitholder's actual return
may vary significantly from the Estimated Long Term Return, based on their
holding period, market interest rate changes, other factors affecting the prices
of individual bonds in the portfolio, and differences between the expected
remaining life of portfolio bonds and the actual length of time that they remain
in a Trust; such actual holding periods may be reduced by termination of a
Trust, as described in "Amendment and Termination of Indenture". Since both the
Estimated Current Return and the Estimated Long Term Return quoted on a given
business day are based on the market value of the underlying Bonds on that day,
subsequent calculations of these performance measures will reflect the then
current market value of the underlying Bonds and may be higher or lower. The
Sponsor will provide estimated cash flow information relating to a Trust without
charge to each potential investor in a Trust who receives this prospectus and
makes an oral or written request to the Sponsor for such information.
DETERMINATION OF THE PRICE OF BONDS AT DATE OF DEPOSIT
Except as indicated below, for Series 590 and all prior Trusts, the
prices at which the Bonds deposited in each Trust would have been offered to the
public on the business day prior to the Date of Deposit were determined by the
Trustee on the basis of an evaluation of the Bonds prepared by Standard &
Poor's, a firm regularly engaged in the business of evaluating, quoting and
appraising comparable bonds. For Series 591 and all subsequent Series, the
prices at which the bonds deposited in each Trust would have been offered to the
public on the business day prior to the Date of Deposit were determined on the
basis of an evaluation of the Bonds by Kenny S&P Evaluation Services, a division
of J.J. Kenny Co., Inc. ("Kenny S&P"), a firm regularly engaged in the business
of evaluating, quoting and appraising comparable bonds. With respect to Bonds in
Insured Trusts and insured Bonds in Traditional Trusts, either Standard & Poor's
or Kenny S&P, as applicable, evaluated the Bonds as so insured. For National
Trust 4 through 22, such prices were determined by the Trustee on the basis of
consultation with dealers in public bonds other than the Sponsor, by reference
to the Blue List of Current Municipal Offerings (a daily publication containing
the current public offering prices of public bonds of all grades currently being
offered by dealers and banks).
SELECTION OF BONDS FOR DEPOSIT IN THE TRUSTS
In selecting Bonds for the Trusts, the following factors, among others,
were considered: (i) the Standard & Poor's, Moody's and/or Fitch ratings of the
Bonds (see page 1 for a description of minimum rating standards), (ii) the
prices of the Bonds relative to other bonds of comparable quality and maturity
(in addition, in the case of Discount Trusts, the prices relative to newly
issued bonds of comparable quality, coupon, and maturity, i.e., the existence of
"market" discount), (iii) the diversification of Bonds as to purpose of issue
and location of issuer, (iv) the maturity dates of the Bonds, and (v) in the
case of Insured Trusts only, the availability of insurance on such Bonds.
Each Trust consists of such Bonds listed in the Schedules of
Investments in Part Two as may continue to be held from time to time (including
certain securities deposited in the Trust in exchange or substitution for Bonds
upon certain refundings), together with accrued and undistributed interest
thereon and undistributed cash realized from the disposition of Bonds. Neither
the Sponsor nor the Trustee shall be liable in any way for any default, failure
or defect in any Bond. Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be used to pay for Units
redeemed or distributed to Unitholders, and not reinvested, no assurance can be
given that a Trust will retain for any length of time its present size and
composition.
A Trust portfolio may consist of Bonds priced at a deep "market"
discount from par value at maturity. A primary reason for the market values of
the Bonds being less than their par values is that the coupon interest rates on
the Bonds are lower than the current market interest rates for newly issued
bonds of comparable rating and type. At the time of issuance the Bonds were for
the most part issued at then current coupon interest rates. The current yields
(coupon interest income as a percentage of market price) of discount bonds are
lower than the current yields of comparably rated bonds of similar type newly
issued at current interest rates because discount bonds tend to
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increase in market value as they approach maturity and the full principal amount
becomes payable. A discount bond held to maturity will have a larger portion of
its total return in the form of capital gain and less in the form of tax-exempt
interest income than a comparable bond newly issued at current market rates.
(See "Tax Status of Unitholders.") Discount bonds with a longer term to maturity
tend to have a higher current yield and a lower current market value than
otherwise comparable bonds with a shorter term to maturity. If interest rates
rise, the market discount of discount bonds will increase and the value of such
bonds will decrease; and if interest rates decline, the market discount of
discount bonds will decrease and the value of the bonds will increase. Market
discount attributable to interest rate changes does not necessarily indicate a
lack of market confidence in the issuer. Investors should also be aware that
many of the Bonds in each Trust portfolio are subject to special or
extraordinary redemption at par (in the case of original issue discount bonds,
such redemption is generally to be made at the issue price plus the amount of
original issue discount accreted to redemption; such price is hereafter referred
to as "Accreted Value") under certain circumstances, including economic and
other defaults. Under such circumstances the redemption price for such Bonds
would not include any premium over par or Accreted Value which the investor may
have paid for such Bonds.
As a number of the Trusts contain Bonds issued by school districts,
investors should be aware that litigation challenging the validity, under state
constitutions, of present systems of financing public education has been
initiated in a number of states. Decisions have been reached in some states
holding such school financing in violation of state constitutions. In addition,
legislation to effect changes in public school financing has been introduced in
a number of states. The Sponsor, however, does not believe that such efforts,
even if successful, will have a material adverse effect on the ability of any of
the issuers of Bonds contained in the Trusts' portfolios to make principal and
interest payments when due.
The Sponsor participated as either the sole underwriter or manager or
as a member of the syndicates which were the original underwriters of a number
of the Bonds in certain Trusts. An underwriter or underwriting syndicate
purchases bonds from the issuer on a negotiated or competitive bid basis as
principal with the intention of marketing such bonds to investors at a profit.
All of the Bonds in each Trust are subject to being called or redeemed
in whole or in part prior to their stated maturities pursuant to the optional
redemption provisions described in the "Schedules of Investments" in Part Two
and in most cases pursuant to a sinking fund or special or extraordinary
redemption provisions. A bond subject to optional call is one which is subject
to redemption or refunding prior to maturity at the option of the issuer. 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 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 of all or a portion of an issue upon the occurrence of certain
circumstances usually related to defaults or unanticipated changes in
circumstances. Events that may permit or require the special or extraordinary
redemption of bonds include, among others: substantial damage to or destruction
of the project for which the proceeds of the bonds were used; exercise by a
local, state or Federal governmental unit of its power of eminent domain to take
all or substantially all of the project for which the proceeds of the bonds were
used; a final determination that the interest on the bonds is taxable; changes
in the economic availability of raw materials, operating supplies or facilities
or technological or other changes which render the operation of the project for
which the proceeds of the bonds were used uneconomical; changes in law or an
administrative or judicial decree which render the performance of the agreement
under which the proceeds of the bonds were made available to finance the project
impossible or which create unreasonable burdens or which impose excessive
liabilities, such as taxes, not imposed on the date the bonds were issued, on
the issuer of the bonds or the user of the proceeds of the bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the bonds;
an overestimate of the costs of the project to be financed with the proceeds of
the bonds resulting in excess proceeds which may be applied to redeem bonds; an
underestimate of a source of funds securing the bonds resulting in excess funds
which may be applied to redeem bonds; or a default in payment or failure to
comply with the restrictions created as part of the bond financing on the part
of the operator or principal user of a project financed by the bonds. The
Sponsor is unable to predict all of the circumstances which may result in such
redemption of an issue of Bonds. See the discussion of the various types of bond
issues, below, for certain information on the call provisions of such bonds,
particularly single family mortgage revenue bonds.
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The exercise of redemption or call provisions will (except to the
extent the proceeds of the called Bonds are used to pay for Unit redemptions)
result in the distribution of principal and may result in a reduction in the
amount of subsequent interest distributions; it may also affect the current
return on Units of the Trust involved. Redemption pursuant to optional call
provisions is more likely to occur, and redemption pursuant to sinking fund or
special or extraordinary redemption provisions may occur, when the Bonds have an
offering side evaluation which represents a premium over par (as opposed to a
discount from par). Redemption pursuant to optional call provisions may be, and
redemption pursuant to sinking fund or special or extraordinary redemption
provisions is likely to be, at a price equal to the par value of the bonds
without any premium (in the case of original issue discount bonds, such
redemption is generally to be made at the issue price plus the amount of
original issue discount accreted to the date of redemption; such price is
referred to as "Accreted Value"). Because Bonds may have been valued at prices
above or below par value or the then-current Accreted Value at the time Units
were purchased, Unitholders may realize gain or loss upon the redemption of
portfolio Bonds. (See "Estimated Long-Term Return and Estimated Current Return"
and the "Schedules of Investments" in Part Two.)
Certain of the Bonds in each Trust's portfolio may be subject to
continuing requirements regarding the actual use of Bond proceeds, the manner of
operation of the project financed from Bond proceeds or the rebate of excess
earnings on Bond proceeds, any of which may affect the exemption of interest on
such Bonds from Federal income taxation. Although at the time of issuance of
each of the Bonds in each Trust an opinion of bond counsel was rendered as to
the exemption of interest on such obligations from Federal income taxation, and
the issuers covenanted to comply with all requirements necessary to retain the
tax-exempt status of the Bonds, there can be no assurance that the respective
issuers or other obligors on such obligations will fulfill the various
continuing requirements established upon issuance of the Bonds. A failure to
comply with such requirements may cause a determination that interest on such
obligations is subject to Federal income taxation, perhaps even retroactively
from the date of issuance of such Bonds, thereby reducing the value of the Bonds
and subjecting Unitholders to unanticipated tax liabilities.
Certain Bonds may carry a "mandatory put" (also referred to as a
"mandatory tender" or "mandatory repurchase") feature pursuant to which the
holder of such a Bond will receive payment of the full principal amount thereof
on a stated date prior to the maturity date unless such holder affirmatively
acts to retain the Bond. Under the Indenture, the Trustee does not have the
authority to act to retain any Bonds with such features; accordingly, it will
receive payment of the full principal amount of any such Bonds on the stated put
date and such date is therefore treated as the maturity date of such Bonds in
selecting Bonds for the respective Trust and for purposes of calculating the
average maturity of the Bonds in any Trust.
Except as otherwise indicated herein or in Part Two of the Prospectus,
to the best knowledge of the Sponsor, there was no litigation pending as of the
date of this Prospectus in respect of any Bonds which might reasonably be
expected to have a material adverse effect on any of the Trusts. It is possible
that after the date of this Prospectus, litigation may be initiated with respect
to Bonds in any Trust. Any such litigation may affect the validity of such Bonds
or the tax-exempt nature of the interest thereon, but while the outcome of
litigation of such nature can never be entirely predicted, the opinions of bond
counsel to the issuer of each Bond on the date of issuance state that such Bonds
were validly issued and that the interest thereon is, to the extent indicated,
exempt from Federal income tax.
An investment in Units of any Trust should be made with an
understanding of the risks that such an investment may entail. These include but
are not limited to the ability of the issuer, or, if applicable, the insurer, to
make payments of interest and principal when due, the effects of changes in
interest rates generally, early call provisions and the potential for changes in
the tax status of the Bonds. The following paragraphs discuss certain
characteristics of the Bonds in the Trusts and of certain types of issuers in
whose securities a Trust portfolio may be deemed to be "concentrated." These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payment of principal and
interest on Bonds held in the portfolio of a Trust or which may adversely affect
the ratings of such Bonds; with respect to the Insured Trusts, however, because
of the insurance obtained by the Sponsor or by the Bond issuers, such changes
should not adversely affect any Insured Trust's receipt of principal and
interest, or the Standard & Poor's AAA, Fitch's AAA or Moody's Aaa ratings of
the Bonds in an Insured Trust's portfolio.
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Escrow Secured Obligations. Some of the Bonds in a Trust may be
obligations of issuers which are typically secured by direct obligations of the
U.S. Government or in some cases obligations guaranteed by the U.S. Government
placed in an escrow account maintained by an independent trustee until maturity
or a predetermined redemption date. These obligations are generally noncallable
prior to maturity or the predetermined redemption date. In a few isolated
instances, however, bonds which were thought to be escrowed to maturity have
been called for redemption prior to maturity.
Health Care Facility Obligations. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from services provided by
hospitals or other health care facilities, including nursing homes. The ability
of such issuers to make debt service payments on these obligations is dependent
on various factors, including occupancy levels of the facility, demand for
services, wages of employees, overhead expenses, competition from other similar
providers, government regulation, the cost of malpractice insurance, and the
degree of governmental financial assistance, including Medicare and Medicaid.
Housing Obligations. Some of the Bonds in a Trust may be obligations of
issuers whose revenues are primarily derived from mortgage loans to single
family residences or housing projects for low to moderate income families.
Housing obligations are generally prepayable at any time and therefore their
average life will ordinarily be less than their stated maturities. The ability
of such issuers to make debt service payments on these obligations is dependent
on various factors, including, occupancy levels, rental income, mortgage default
rates, operating expenses, governmental regulations and the appropriation of
subsidies.
Industrial Revenue Obligations. Certain of the Bonds in a Trust may be
industrial revenue bonds ("IRBs"), including pollution control revenue bonds,
which are tax-exempt securities issued by states, municipalities, public
authorities or similar entities to finance the cost of acquiring, constructing
or improving various industrial projects. Debt service payment on IRBs is
dependent upon various factors, including the creditworthiness of the corporate
operator of the project and, if applicable, corporate guarantor, revenues
generated from the project, expenses associated with the project and regulatory
and environmental restrictions.
Utility Obligations. Some of the Bonds in a Trust may be obligations of
issuers whose revenues are primarily derived from the sale of several types of
energy, including electric and natural gas. The ability of such issuers to make
debt service payments on these obligations is dependent on various factors,
including the rates for electricity and natural gas, the demand for electricity
and natural gas, the degree of competition, governmental regulation, overhead
expenses and variable costs, such as fuel.
Transportation Facility Revenue Bonds. Some of the Bonds in a Trust may
be obligations of issuers which are payable from and secured by revenues derived
from the ownership and operation of airports, public transit systems and ports.
The ability of issuers to make debt service payments on airport obligations is
dependent on the capability of airlines to meet their obligations under use
agreements. Due to increased competition, deregulation, increased fuel costs and
other factors, many airlines may have difficulty meeting their obligations under
these use agreements. Bonds that are secured primarily by the revenue collected
by a public transit system typically are additionally secured by a pledge of
sales tax receipts collected at the state or local level, or of other
governmental financial assistance. The revenue of issuers of transit system
obligations will be affected by variations in utilization, which in turn may be
affected by the degree of local governmental subsidization, competition from
other forms of transportation, and increased costs. Port authorities derive
their revenues primarily from fees imposed on ships using the facilities which
may fluctuate depending on the local economy and on competition from competing
forms of transportation such as air, rail and trucks. The revenues of issuers
which derive their payments from bridge, road or tunnel toll revenues could be
adversely affected by increases in fuel costs, competition from toll-free
vehicular bridges and roads and alternative modes of transportation.
Water and/or Sewerage Obligations. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from the sale of water and/or
sewerage services. The problems of such issuers include the ability to obtain
rate increases, population declines, the limitations on operations and increased
costs and delays attributable to environmental considerations, the difficulty of
obtaining new supplies of fresh water, the effect of conservation programs and
"no-growth" zoning ordinances.
University and College Revenue Obligations. Some of the Bonds in a
Trust may be obligations of issuers which are, or which govern the operation of,
colleges and universities and whose revenues are derived mainly from
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tuition, dormitory revenues, grants and endowments. General problems of such
issuers include the prospect of a declining percentage of the population
consisting of "college" age individuals, possible inability to raise tuitions
and fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of Federal grants and state funding, and government
legislation or regulations which may adversely affect the revenues or costs of
such issuers.
Bridge Authority and Tollroad Obligations. Some of the Bonds in a Trust
may be obligations of issuers which derive their payments from bridge, road or
tunnel toll revenues. The revenues of such an issuer could be adversely affected
by competition from toll-free vehicular bridges and roads and alternative modes
of transportation. Such revenues could also be adversely affected by a reduction
in the availability of fuel to motorists or significant increases in the costs
thereof. Specifically, governmental regulations restricting the use of vehicles
in the New York City metropolitan area may adversely affect revenues of the
Triborough Bridge and Tunnel Authority.
Dedicated-Tax Supported Bonds. Some of the Bonds in a Trust may be
obligations of issuers which are payable from and secured by tax revenues from a
designated source, which revenues are pledged to secure the bonds. The various
types of Bonds described below differ in structure and with respect to the
rights of the bondholders to the underlying property. Each type of dedicated-tax
supported Bond has distinct risks, only some of which are set forth below. One
type of dedicated-tax supported Bond is secured by the incremental tax received
on either real property or on sales within a specifically defined geographical
area; such tax generally will not provide bondholders with a lien on the
underlying property or revenues. Another type of dedicated-tax supported Bond is
secured by a special tax levied on real property within a defined geographical
area in such a manner that the tax is levied on those who benefit from the
project; such bonds typically provide for a statutory lien on the underlying
property for unpaid taxes. A third type of dedicated-tax supported Bond may be
secured by a tax levied upon the manufacture, sale or consumption of commodities
or upon the license to pursue certain occupations or upon corporate privileges
within a taxing jurisdiction. As to any of these types of Bonds, the ability of
the designated revenues to satisfy the interest and principal payments on such
Bonds may be affected by changes in the local economy, the financial success of
the enterprise responsible for the payment of the taxes, the value of any
property on which taxes may be assessed and the ability to collect such taxes in
a timely fashion. Each of these factors will have a different affect on each
distinct type of dedicated-tax supported bonds.
Municipal Lease Obligations. Some of the Bonds in a Trust may be
obligations that are secured by lease payments of a governmental entity. Such
payments are normally subject to annual budget appropriations of the leasing
governmental entity. A governmental entity that enters into such a lease
agreement cannot obligate future governments to appropriate for and make lease
payments but covenants to take such action as is necessary to include any lease
payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby.
Original Issue Discount Bonds and Stripped Obligations. Certain of the
Bonds in a Trust may be original issue discount bonds. These Bonds were issued
with nominal interest rates less than the rates then offered by comparable
securities and as a consequence were originally sold at a discount from their
face, or par, values. In a stable interest rate environment, the market value of
an original issue discount bond would tend to increase more slowly in early
years and in greater increments as the bond approached maturity.
Certain of the original issue discount bonds in a Trust may be zero
coupon bonds. Zero coupon bonds do not provide for the payment of any current
interest; the buyer receives only the right to receive a final payment of the
face amount of the bond at its maturity. Zero coupon bonds are subject to
substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality that pay interest
currently.
Original issue discount bonds, including zero coupon bonds, may be
subject to redemption at prices based on the issue price plus the amount of
original issue discount accreted to redemption (the "accreted value") plus, if
applicable, some premium. Pursuant to such call provisions an original issue
discount bond may be called prior to its maturity date at a price less than its
face value. See the "Schedules of Investments" in Part Two for call provisions
of portfolio Bonds.
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Certain of the Bonds in a Trust may be Stripped Obligations, which
represent evidences of ownership with respect to either the principal amount of
or a payment of interest on a tax-exempt obligation. An obligation is "stripped"
by depositing it with a custodian, which then effects a separation in ownership
between the bond and any interest payment which has not yet become payable, and
issues evidences of ownership with respect to such constituent parts. A Stripped
Obligation therefore has economic characteristics similar to zero coupon bonds,
as described above.
Unitholders should consult their own tax advisers with respect to the
state and local tax consequences of owning original issue discount bonds or
Stripped Obligations. Under applicable provisions governing determination of
state and local taxes, interest on original issue discount bonds or Stripped
Obligations may be deemed to be received in the year of accrual even though
there is no corresponding cash payment.
TAX STATUS OF UNITHOLDERS
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal gross
income were rendered by bond counsel to the respective issuing authorities. In
addition, with respect to State Trusts, where applicable, bond counsel to the
issuing authorities rendered opinions as to the exemption of interest on such
Bonds, when held by residents of the state in which the issuers of such Bonds
are located, from state income taxes and certain state or local intangibles and
local income taxes. Neither the Sponsor nor its counsel have made any review of
the Trusts' proceedings relating to the issuance of the Bonds or of the basis
for the opinions rendered in connection therewith. If the interest on a Bond
should be determined to be taxable, the Bond would generally have to be sold at
a substantial discount. In addition, investors could be required to pay income
tax on interest received prior to the date of which interest is determined to be
taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or
of a Unit by a Unitholder is includable in gross income for Federal income tax
purposes, and may be includable in gross income for state tax purposes. (Such
gain does not include any amounts received in respect of accrued interest or
accrued original issue discount, if any.)
For purposes of the following opinions, it is assumed that each asset
of the Trusts is debt, the interest on which is excluded for Federal income tax
purposes.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under
existing law:
(1) the Trusts are not associations taxable as corporations
for Federal income tax purposes, and interest and accrued original
issue discount on Bonds which is excludible from gross income under the
Internal Revenue Code of 1986, as amended (the "Code") will retain its
status for Federal income tax purposes, when received by the Trusts and
when distributed to the Unitholders; however, such interest may be
taken into account in computing the alternative minimum tax, an
additional tax on branches of foreign corporations and the
environmental tax (the "Superfund Tax"). See "Certain Tax Matters
Applicable to Corporate Unitholders" below;
(2) each Unitholder of a Trust is considered to be the owner
of a pro rata portion of each asset of such Trust under Subpart E,
subchapter J of Chapter 1 of the Code and will have a taxable event
when such Trust disposes of a Bond or when the Unitholder redeems or
sells Units. If the Unitholder disposes of a Unit, he is deemed thereby
to have disposed of his entire pro rata interest in all the assets of
the Trust involved including his pro rata portion of all the Bonds
represented by the Unit. The Taxpayer Relief Act of 1997 includes
provisions that treat certain transactions designed to reduce or
eliminate risk of loss and opportunities for gain (e.g., short sales,
offsetting notional principal contracts, futures or forward contracts,
or similar transactions) as constructive sales for purposes of
recognition of gain (but not loss) and for purposes of determining the
holding period. Unitholders should consult their own tax advisors with
regard to any such constructive sale rules. Unitholders must reduce the
tax basis of their Units for their share of accrued interest received
by the respective Trust, if any, on Bonds delivered after the date the
Unitholders pay for their Units to the extent that such interest
accrued on such Bonds before the date the Trust acquired ownership of
the Bonds (and the amount of this reduction may exceed the
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amount of accrued interest paid to the seller) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in
capital loss upon the disposition of such Units. Gain or loss upon the
sale or redemption of Units is measured by comparing the proceeds of
such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Bonds (whether by sale, payment at maturity,
redemption or otherwise), gain or loss is recognized to the Unitholder
(subject to various non-recognition provisions of the Code). The amount
of any such gain or loss is measured by comparing the Unitholder's pro
rata share of the total proceeds from such disposition with the
Unitholder's basis for his or her fractional interest in the asset
disposed of. In the case of a Unitholder who purchases Units, such
basis (before adjustment for accrued original issue discount and
amortized bond premium, if any) is determined by apportioning the cost
of the Units among each of the Trust assets ratably according to value
as of the valuation date nearest the date of acquisition of the Units.
The tax basis reduction requirements of the Code relating to
amortization of bond premium may, under some circumstances, result in
the Unitholder realizing a taxable gain when his or her Units are sold
or redeemed for an amount less than or equal to their original cost;
Unitholders should consult their own tax advisors with regard to the
calculation of basis; and
(3) any amounts paid on defaulted Bonds held by the Trustee
under policies of insurance issued with respect to such Bonds which
represent maturing interest on defaulted Bonds held by the Trustee will
be excludable from Federal gross income if, and to the same extent as,
such interest would have been so excludable if paid in the normal
course by the issuer of the defaulted Bonds; provided that, at the time
such policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the Bonds, rather than the insurer, will pay debt
service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based on its issue price (its "adjusted
issue price") to prior owners. If a Bond is acquired with accrued interest, that
portion of the price paid for the accrued interest is added to the tax basis of
the Bond. When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased for a
premium, the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax basis of
the Bond is reduced each tax year by the amount of the premium amortized in that
tax year. The application of these rules will also vary depending on the value
of the Bonds on the date a Unit holder acquires his Units, and the price the
Unit holder pays for his Units. Unit holders should consult their tax advisors
regarding these rules and their application.
The Revenue Reconciliation Act of 1993 o (the "1993 Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued), subject to statutory
de minimis rule. Market discount can arise based on the price a Trust pays for
Bonds or the price a Unit holder pays for his or her Units. Under the 1993 Tax
Act, accretion of market discount is taxable as ordinary income; under prior
law, the accretion had been treated as capital gain. Market discount that
accretes while a Trust holds a Bond would be recognized as ordinary income by
the Unit holders when principal payments are received on the Bond, upon sale or
at redemption (including early redemption) or upon the sale or redemption of his
or her Units, unless a Unit holder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and Unit holders
should consult their tax advisors regarding these rules and their application.
Certain Tax Matters Applicable to Corporate Unitholders. In the case of
certain corporations, the alternative minimum tax and the Superfund Tax for
taxable years beginning after December 31, 1986 depend upon the corporation's
alternative minimum taxable income ("AMTI"), which is the corporation's taxable
income with certain adjustments. One of the adjustment items used in computing
AMTI of a corporation (other than an S corporation, Regulated Investment
Company, Real Estate Investment Trust, REMIC or FASIT) is an amount equal to 75%
of the excess of such corporation's "adjusted current earnings" over an amount
equal to its AMTI (before such adjustment item and the alternative tax net
operating loss deduction). "Adjusted current earnings" includes
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all tax-exempt interest, including interest on all Bonds in the Trust. Under
current Code provisions, the Superfund Tax does not apply to tax years beginning
on or after January 1, 1996. Legislative proposals have been introduced that
would reinstate the Superfund Tax for taxable years after December 31, 1997 and
before January 1, 2009. Also, under the provisions of Section 884 of the Code, a
branch profits tax is levied on the "effectively connected earnings and profits"
of certain foreign corporations which include tax-exempt interest such as
interest on the Bonds in the Trust. Unit holders should consult their tax
advisors with respect to the particular tax consequences to them, including the
corporate alternative minimum tax, the Superfund Tax and the branch profits tax
imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase or
improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units generally would not be able to deduct
any of the interest expense attributable to ownership of Units. Legislative
proposals have been made that would extend the financial institution rules to
certain other corporations, including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should consult
with their tax advisors.
In the case of certain of the Bonds in a Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user" of
the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or related
person, will not be excludable from Federal gross income, although interest on
such Bonds received by others would be excludable from Federal gross income.
"Substantial user" and "related person" are defined under the Code and the U.S.
Treasury Regulations. Any person who believes he or she may be a "substantial
user" or "related person" as so defined should contact his or her tax advisor.
All statements in the prospectus concerning exclusion from gross income
for Federal, state or other tax purposes are the opinion of Counsel and are to
be so construed.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Tax Act") provides that for taxpayers other than corporations, net capital
gain (which is defined as net long-term capital gain over net short-term capital
loss for the taxable year) realized from property (with certain exclusions) is
subject to a maximum marginal stated tax rate of 20% (10% in the case of certain
taxpayers in the lowest tax bracket). Capital gain or loss is long-term if the
holding period for the asset is more than one year, and is short-term if the
holding period for the asset is one year or less. The date on which a Unit is
acquired (i.e., the "trade date") is excluded for purposes for determining the
holding period of the Unit. Capital gains realized from assets held for one year
or less are taxed at the same rates as ordinary income.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
For purposes of computing the alternative minimum tax for individuals
and corporations and the Superfund Tax (to the extent reenacted) for
corporations, interest on certain private activity bonds (which includes most
industrial and housing revenue bonds) issued on or after August 8, 1996 is
included as an item of tax preference. However, the assets of the Trust do not
include any such private activity bonds issued on or after that date.
In general, Section 86 of the Code, provides that 50% of Social
Security benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security benefits
received exceeds a "base amount." The base amount is $25,000 for unmarried
taxpayers, $32,000 for married
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taxpayers filing a joint return and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Modified adjusted gross income is adjusted gross income determined without
regard to certain otherwise allowable deductions and exclusions from gross
income and by including tax-exempt interest. To the extent that Social Security
benefits are includable in gross income, they will be treated as any other item
of gross income.
In addition, under the 1993 Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includable in gross
income to the extent that the sum of "modified adjusted gross income" plus 50%
of Social Security benefits received exceeds as "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from the Trusts, will be subject to tax. A taxpayer
whose adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his Social Security benefits in
gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits in
gross income.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers who
may be deemed to have incurred (or continued) indebtedness to purchase or carry
tax-exempt obligations. Prospective investors should consult their tax advisors
as to the applicability of any such collateral consequences.
Except as noted herein, the exemption of interest on state and local
obligations for Federal income tax purposes discussed above does not necessarily
result in exemption under the income or other tax laws of any state or city. The
laws of the several states vary with respect to the taxation of such
obligations.
In the opinion of Carter, Ledyard & Milburn, counsel to the Trustee and
special counsel for the Series for New York tax matters, under existing law:
Under the income tax laws of the State and City of New York, each Trust
is not an association taxable as a corporation and the income of each Trust will
be treated as the income of the Unitholders.
A summary of each opinion of special counsel to the respective State
Trusts for state tax matters is set forth below.
TAXABLE EQUIVALENT YIELDS
The following tables show the approximate taxable estimated current
returns for individuals that are equivalent to tax-exempt estimated current
returns under published 2000 marginal Federal tax rates. The tables incorporate
increased tax rates for higher-income taxpayers that were included in the
Revenue Reconciliation Act of 1993. The tables illustrate what you would have to
earn on taxable investments to equal the tax-exempt estimated current return for
your income tax bracket. A taxpayer's marginal tax rate is affected by both his
taxable income and his adjusted gross income. Locate your adjusted gross income
and your taxable income (which is your adjusted gross income reduced by any
deductions and exemptions), then locate your tax bracket based on joint or
single tax filing. Read across to the equivalent taxable estimated current
return you would need to match the tax-free income.
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2000 TAX YEAR
MARGINAL FEDERAL TAX RATES FOR JOINT TAXPAYERS
WITH FOUR PERSONAL EXEMPTIONS
[Enlarge/Download Table]
TAX-FREE ESTIMATED CURRENT RETURN
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FEDERAL
FEDERAL ADJUSTED
TAXABLE GROSS FEDERAL
INCOME INCOME TAX
(1,000'S) (1,000'S) RATE* 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%
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$ 0- 43.85 $ 0-128.95 15.00% 5.29% 5.59% 5.88% 6.18% 6.47% 6.76% 7.06%
43.85-105.95 0-128.95 28.00% 6.25% 6.60% 6.94% 7.29% 7.64% 7.99% 8.33%
128.95-193.40 29.00% 6.34% 6.69% 7.04% 7.39% 7.75% 8.10% 8.45%
105.95-161.45 0-128.95 31.00% 6.52% 6.88% 7.25% 7.61% 7.97% 8.33% 8.70%
128.95-193.40 32.00% 6.62% 6.99% 7.35% 7.72% 8.09% 8.46% 8.82%
193.40-315.90 34.50% 6.87% 7.25% 7.63% 8.02% 8.40% 8.78% 9.16%
161.45-288.35 128.95-193.40 37.00% 7.14% 7.54% 7.94% 8.33% 8.73% 9.13% 9.52%
193.40-315.90 40.00% 7.56% 7.98% 8.40% 8.82% 9.24% 9.66% 10.08%
Over 315.90 37.00%** 7.14% 7.54% 7.94% 8.33% 8.73% 9.13% 9.52%
Over 288.35 193.40-315.90 44.50% 8.11% 8.56% 9.01% 9.46% 9.91% 10.36% 10.81%
Over 315.90 41.00%*** 7.63% 8.05% 8.47% 8.90% 9.32% 9.75% 10.17%
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2000 TAX YEAR
MARGINAL FEDERAL TAX RATES FOR SINGLE TAXPAYERS
WITH ONE PERSONAL EXEMPTION
TAX-FREE ESTIMATED CURRENT RETURN
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FEDERAL
FEDERAL ADJUSTED
TAXABLE GROSS FEDERAL
INCOME INCOME TAX
(1,000'S) (1,000'S) RATE* 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%
---------------------------------------------------------------------------------------------------------------------------------
$ 0- 26.25 $ 0-128.95 15.00% 5.29% 5.59% 5.88% 6.18% 6.47% 6.76% 7.06%
26.25-63.55 0-128.95 28.00% 6.25% 6.60% 6.94% 7.29% 7.64% 7.99% 8.33%
63.55-132.60 0-128.95 31.00% 6.52% 6.88% 7.25% 7.61% 7.97% 8.33% 8.70%
128.95-251.45 32.50% 6.67% 7.04% 7.41% 7.78% 8.15% 8.52% 8.89%
132.60-288.35 128.95-251.45 38.00% 7.26% 7.66% 8.06% 8.47% 8.87% 9.27% 9.68%
Over 251.45 37.00%** 7.14% 7.54% 7.94% 8.33% 8.73% 9.13% 9.52%
Over 288.35 Over 251.45 41.00%*** 7.63% 8.05% 8.47% 8.90% 9.32% 9.75% 10.17%
--------------------
* The table reflects the effect of the limitations on itemized deductions and
the deduction for personal exemptions. They were designed to phase out
certain benefits of these deductions for higher income taxpayers. These
limitations, in effect, raise the current maximum marginal combined state
and Federal tax rate to approximately 44.21% for taxpayers filing a joint
return and entitled to four personal exemptions and to approximately 40.79%
for taxpayers filing a single return entitled to only one personal
exemption. These limitations are subject to certain maximums, which depend
on the number of exemptions claimed and the total amount of the taxpayer's
itemized deductions. For example, the limitation on itemized deductions
will not cause a taxpayer to lose more than 80% of his allowable itemized
deductions, with certain exceptions.
** Federal tax rate reverts to 36% after the 80% cap on the limitation on
itemized deductions has been met. The above table reflects only the effect
of exemption from Federal income taxes. Unitholders of State Trusts, which
are exempt from both Federal and state taxes, would need a somewhat higher
taxable yield than shown in the table to equal the tax-exempt yield of such
Trusts. There can be no assurance that state tax rates will remain
unchanged.
*** Federal tax rate reverts to 39.6% after the 80% cap on the limitation on
itemized deductions has been met.
A comparison of tax-free and equivalent taxable estimated current
returns with the returns on various taxable investments is one element to
consider in making an investment decision. The Sponsor may from time to time in
its advertising and sales materials compare the then current estimated returns
and taxable equivalent returns on a Trust and returns over specified periods on
other similar Nuveen Trusts with returns on taxable investments such as
corporate or U.S. Government bonds, bank CDs and money market accounts or money
market funds, each of which has investment characteristics that may differ from
those of a Trust. U.S. Government bonds, for example, are backed by the full
faith and credit of the U.S. Government and bank CDs and money market accounts
are insured by an agency of the Federal government. Money market accounts and
money market funds provide stability of principal, but pay interest at rates
that vary with the condition of the short-term debt market. The investment
characteristics of the Trusts are described more fully elsewhere in this
Prospectus.
The Sponsor believes the information summarized below describes some of
the more significant events relating to the various State Trusts. The sources of
such information are official statements of issuers in each state and other
publicly available information, generally as of the date on or before the date
of this Part One Prospectus, unless otherwise indicated. The Sponsor has not
independently verified this information and makes no representation regarding
the accuracy or completeness of the sources of information which have been
available to it, but believes them to be complete and has itself relied upon
them.
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ALABAMA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Alabama is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, mining, oil and gas production and
service industries, supplemented by rural areas with selective commercial
agriculture. Alabama has a low growth rate in civilian labor. Income growth has
also slowed in Alabama and is lower than the U.S. average. The Alabama economy
grows at a slower rate than the national economy.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of Alabama currently maintains a "AA", "Aa3" and "AA" bond
rating from Standard & Poor's, Moody's and Fitch, respectively, on its general
obligation indebtedness.
Further information concerning Alabama risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Alabama Trust, Balch &
Bingham, special counsel to the Fund for Alabama tax matters rendered an opinion
under then existing Alabama income tax law applicable to taxpayers whose income
is subject to Alabama income taxation substantially to the effect that:
Under the income tax laws of Alabama, the Alabama Trust is not taxable
as a corporation or otherwise.
Income of the Alabama Trust, to the extent it is taxable, will be
taxable to the Unitholders, not to the Alabama Trust.
Each Unitholder's distributive share of the Alabama Trusts' net income
will be treated as the income of the Unitholder for Alabama income tax purposes.
Interest on obligations of the State and subdivisions thereof and the
Possessions of the United States held by the Alabama Trust which is exempt from
the Alabama income tax will retain its tax-exempt character when the
distributive share thereof is distributed or deemed distributed to each
Unitholder.
Each Unitholder will, for the purposes of the Alabama income tax, treat
his distributive share of gains realized upon the sale or other disposition of
the Bonds held by the Alabama Trust as though the Bonds were sold or disposed of
directly by the Unitholders.
Gains realized on the sale or redemption of Units by Unitholders who
are subject to the Alabama income tax will be includable in the Alabama income
of such Unitholders.
ARIZONA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Arizona is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has experienced significant revenue
shortfalls.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The economy of the State continues to
be dependent on services, tourism and manufacturing. These sectors tend to be
cyclical. Commercial and residential real estate markets, which experienced
depression and high vacancy rates in the 1980s and early 1990s, have
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recovered and are growing strong. Yet, Arizona has experienced rapid declines in
the real estate markets after reaching peaks. Such declines may occur in the
future.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
Further information concerning Arizona risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. Snell & Wilmer acted as special Arizona counsel to Arizona
Traditional Trust 192 and all prior Arizona Traditional Trusts. Chapman and
Cutler, counsel to the Sponsor, acted as special Arizona counsel to Arizona
Traditional Trust 193 and all subsequent Trusts, including all Arizona Insured
Trusts. At the time of the closing for each Arizona Trust, the respective
counsel to the Trusts for Arizona tax matters rendered an opinion under then
existing Arizona income tax law applicable to taxpayers whose income is subject
to Arizona income taxation substantially to the effect that:
The assets of each Arizona Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Arizona (the "State"), its
political subdivisions and authorities (the "Arizona Bonds") and certain bonds
issued by Puerto Rico authorities (the "Possession Bonds") (collectively the
Arizona Bonds and Possession Bonds shall be referred to herein as the "Bonds"),
provided the interest on such Bonds received by the Trust is exempt from State
income taxes.
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the Trust. However, although no opinion is
expressed herein regarding such matters, it is assumed that: (i) the Bonds were
validly issued, (ii) the interest thereon is excludable from gross income for
federal income tax purposes and (iii) interest on the Bonds, if received
directly by a Unitholder would be exempt from the Arizona income tax (the
"Arizona Income Tax"). We have assumed that at the respective times of issuance
of the Bonds, opinions relating to the validity thereof and to the exemption of
interest thereon from Federal income tax were rendered by bond counsel to the
respective issuing authorities. In addition, with respect to the Arizona Bonds,
bond counsel to the issuing authorities rendered opinions that the interest on
the Bonds is exempt from the Arizona Income Tax. Neither the Sponsor nor its
counsel has made any review for the Arizona Trusts of the proceedings relating
to the issuance of the Bonds or of the bases for the opinions rendered in
connection therewith.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing law:
For Arizona income tax purposes, each Unitholder will be treated as the
owner of a pro rata portion of the Arizona Trust, and the income of the Arizona
Trust therefore will be treated as the income of the Unitholder under State law.
For Arizona income tax purposes, interest on the Bonds which is
excludable from Federal gross income and which is exempt from Arizona income
taxes when received by the Arizona Trust, and which would be excludable from
Federal gross income and exempt from Arizona income taxes if received directly
by a Unitholder, will retain its status as tax-exempt interest when received by
the Arizona Trust and distributed to the Unitholders.
To the extent that interest derived from the Arizona Trust by a
Unitholder with respect to the Arizona Bonds is excludable from Federal gross
income, such interest will not be subject to Arizona income taxes.
Interest on the Possession Bonds which is excludable from gross income
for federal income tax purposes and is exempt from state and local taxation
pursuant to federal law when received by the Arizona Trusts will be exempt from
Arizona income taxation and therefore will not be includable in the income of
the Unitholders for income tax purposes when distributed by the Arizona Trust
and received by the Unitholders.
Each Unitholder will receive taxable gain or loss for Arizona income
tax purposes when Bonds held in the Arizona Trust are sold, exchanged, redeemed
or paid at maturity, or when the Unitholder redeems or sells Units, at a price
that differs from original cost as adjusted for amortization of Bond discount or
premium and other basis adjustments, including any basis reduction that may be
required to reflect a Unitholder's share of interest, if any, accruing on Bonds
during the interval between the Unitholder's settlement date and the date such
Bonds are delivered to the Arizona Trust, if later.
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Amounts paid by the Insurer under an insurance policy or policies
issued to an Arizona Trust, if any, with respect to the Bonds in the Trust which
represent maturing interest on defaulted Bonds held by the Trustee will be
exempt from State income taxes if, and to the same extent as, such interest
would have been so exempt if paid by the issuer of the defaulted Bonds provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the Bonds, rather than the insurer, will pay debt
service on the Bonds.
Arizona law does not permit a deduction for interest paid or incurred
on indebtedness incurred or continued to purchase or carry Units in the Arizona
Trusts, the interest on which is exempt from Arizona income taxes. Special rules
apply to financial institutions, and such institutions should consult their own
tax advisors with respect to deductions of interest.
Neither the Bonds nor the Units will be subject to Arizona property
taxes, sales tax or use tax.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Arizona law. Ownership of the Units may result in
collateral Arizona tax consequences to certain taxpayers. Prospective investors
should consult their tax advisors as to the applicability of any such collateral
consequences.
CALIFORNIA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of California is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, limitations imposed by constitutional amendments, legislative
measures, or voter initiatives on the State and its local governments concerning
taxes, bond indebtedness and other matters may constrain the revenue-generating
capacity of the State and its local governments and, therefore, the ability of
the issuers of the Bonds to satisfy their obligations. The State faces a
structural imbalance in its budget with the largest programs supported by the
General Fund (education, health, welfare and corrections) growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors, such as natural disasters and cutbacks
in federal defense spending. The California economy continues to show weakness
in manufacturing, particularly aerospace, construction, services and trade.
California's population increase has resulted in traffic congestion, school
overcrowding and high housing costs which have caused an increase in demand for
government services and which may impede future economic growth.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations. On December 7,
1994, Orange County, California, together with its pooled investment fund (the
"Pooled Fund") filed for protection under Chapter 9 of the federal Bankruptcy
Code. Many governmental entities kept moneys in the Pooled Fund.
All outstanding general obligation bonds of the State are rated "AA-"
by Standard & Poor's, "Aa3" by Moody's and "AA" by Fitch.
Further information concerning California risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. Jones, Day, Reavis & Pogue acted as special California
counsel to California Traditional Trust 206 and all prior California Traditional
Trusts and to California Insured Trust 77 and all prior California Insured
Trusts. Wyman, Bautzer, Kuchel & Silbert acted as special California counsel to
California Traditional Trust 207 through California Traditional Trust 239 and
California Insured Trust 78 through California Insured Trust 107. Orrick,
Herrington & Sutcliffe, L.L.P. acted as special California counsel to California
Traditional Trust 240 and all subsequent California Traditional Trusts and to
California Insured Trust 108 and to all subsequent California Insured Trusts and
to California Intermediate Insured Trust 1 and all subsequent California
Intermediate Insured Trusts. At the time of the closing for each California
Trust, the respective counsel to the
-25-
Trusts rendered an opinion under then existing California income and property
tax law applicable to individuals who are California residents substantially to
the effect that:
The California Trust is not an association taxable as a corporation and
the income of the California Trust will be treated as the income of the
Unitholders thereof under the income tax laws of California.
Interest on the underlying securities (which may include bonds or other
obligations issued by the governments of Puerto Rico, the Virgin Islands, Guam
or the Northern Mariana Islands) which is exempt from tax under California
personal income tax and property tax laws when received by the California Trust
will, under such laws, retain its status as tax-exempt interest when distributed
to Unitholders. However, interest on the underlying securities attributed to a
Unitholder which is a corporation subject to the California franchise tax laws
may be includable in its gross income for purposes of determining its California
franchise tax.
Under California income tax law, each Unitholder in the California
Trust will have a taxable event when the California Trust disposes of a security
(whether by sale, exchange, redemption or payment at maturity) or when the
Unitholder redeems or sells Units. Because of the requirement that tax cost
basis be reduced to reflect amortization of bond premium, under some
circumstances a Unitholder may realize taxable gain when Units are sold or
redeemed for an amount equal to, or less than, their original cost. The total
tax cost of each Unit to a Unitholder is allocated among each of the bond issues
held in the California Trust (in accordance with the proportion of the
California Trust comprised by each bond issue) in order to determine his per
unit tax cost for each bond issue; and the tax cost reduction requirements
relating to amortization of bond premium will apply separately to the per unit
cost of each bond issue. Unitholders' bases in their Units, and the bases for
their fractional interest in each California Trust asset, may have to be
adjusted for the their pro rata share of accrued interest received, if any, on
securities delivered after the Unitholders' respective settlement dates.
Under the California personal property tax laws, bonds (including the
bonds in the California Trust as well as "regular-way" and "when-issued"
contracts for the purchase of bonds) or any interest therein are exempt from
such tax.
Any proceeds paid under an insurance policy, if any, issued to the
Trustee of the Fund with respect to the bonds in a California Trust as well as
"regular-way" and "when-issued" contracts for the purchase of bonds which
represent maturing interest on defaulted obligations held by the Trustee will be
exempt from California personal income tax if, and to the same extent as, such
interest would have been so exempt if paid by the issuer of the defaulted
obligations.
Under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units of the
Trust is not deductible for the purposes of the California personal income tax.
While there presently is no California authority interpreting this provision,
Section 17280(b)(2) directs the California Franchise Tax Board to prescribe
regulations determining the proper allocation and apportionment of interest
costs for this purpose. The Franchise Tax Board has not yet proposed or
prescribed such regulations. In interpreting the generally similar Federal
provision, the Internal Revenue Service has taken the position that such
indebtedness need not be directly traceable to the purchase or carrying of Units
(although the Service has not contended that a deduction for interest on
indebtedness incurred to purchase or improve a personal residence or to purchase
goods or services for personal consumption will be disallowed). In the absence
of conflicting regulations or other California authority, the California
Franchise Tax Board generally has interpreted California statutory tax
provisions in accord with Internal Revenue Service interpretations of similar
Federal provisions.
COLORADO RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Colorado is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has experienced significant revenue
shortfalls. A recently passed, but somewhat ambiguous Constitutional
-26-
Amendment requires voter approval prior to tax increases, creation of debt, or
until levy or valuation for assessment ratio increases. The Amendment also
limits increases in government spending and property tax revenues to specified
percentages. Colorado has an expenditure limitation which it breached in fiscal
year 1997.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The economy of the State continues to
be dependent on tourism and its position as a transportation hub. These sectors
tend to be cyclical.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
Further information concerning Colorado risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Colorado Trust, Sherman
& Howard L.L.C., special Colorado counsel to the Trusts, rendered an opinion
under then existing law substantially to the effect that:
A Trust will consist of obligations which were issued by the State of
Colorado or its political subdivisions or by the United States or possessions of
the United States including Puerto Rico, the Virgin Islands and Guam ("Colorado
Bonds").
Because Colorado income tax law is based upon the Federal law and in
light of the opinion of Chapman and Cutler, each Trust is not an association
taxable as a corporation for purposes of Colorado income taxation.
With respect to Colorado Unitholders, in view of the relationship
between Federal and Colorado tax computations described above and the opinion of
Chapman and Cutler referred to above:
Each Colorado Unitholder will be treated as owning a share of each
asset of a Trust for Colorado income tax purposes, in the proportion that the
number of Units of such Trust held by him bears to the total number of
outstanding Units of the Trust, and the income of the Trust will therefore be
treated as the income of each Colorado Unitholder under Colorado law in the
proportion described.
Interest on Colorado Bonds that would not be subject to Colorado income
tax or Colorado alternative minimum tax when paid directly to a Colorado
Unitholder will not be subject to Colorado income tax or alternative minimum tax
when received by a Trust and attributed to such Colorado Unitholder and when
distributed to such Colorado Unitholder.
Any proceeds paid under an insurance policy issued to the issuer of the
Colorado Bonds involved, to the Depositor prior to deposit of the Colorado Bonds
in the Trust, or to the Trust, which proceeds represent maturing interest on
defaulted Colorado Bonds and which proceeds would not be subject to Colorado
income tax or alternative minimum tax when paid directly to a Colorado
Unitholder will not be subject to Colorado income and alternative minimum tax
when received by the Trust and attributed to such Colorado Unitholder and when
distributed to such Colorado Unitholder.
Generally, each Colorado Unitholder will realize gain or loss taxable
in Colorado when the Trust disposes of a Colorado Bond (whether by sale,
exchange, redemption or payment at maturity) or when the Colorado Unitholder
redeems or sells Units at a price that differs from original cost as adjusted
for amortization of bond discount or premium and other basis adjustments
(including any basis reduction that may be required to reflect a Colorado
Unitholder's share of interest, if any, accruing on Colorado Bonds during the
interval between the Colorado Unitholder's settlement date and the date such
Colorado Bonds are delivered to a Trust, if later). However, beginning in 2000,
a Colorado Unitholder who is an individual, a trust or an estate may be able to
exclude from Colorado taxable income up to $1,200 per year ($2,400 for a married
couple filing jointly) of gains from a Trust's disposition of Bonds or from the
redemption or sale of the Colorado Unitholder's Units. Under legislation enacted
by Colorado in 1999, interest income, dividend income and net capital gains (as
defined in Section 1222(11) of the Code) otherwise includable in taxable income
qualify for the exclusion. The exclusion will be available only in years during
which state revenues exceed by $220 million (indexed annually to reflect the
rate of growth in Colorado personal income) state spending limits mandated by
the Colorado Constitution, as such revenue and spending limits are described in
the Information Supplement to this Prospectus.
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Tax cost reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Colorado Unitholders realizing
gain taxable in Colorado when their Units are sold or redeemed for an amount
equal to or less than their original cost. Such gain may qualify for the
exclusion from Colorado taxable income described in the preceding paragraph
during years in which the exclusion becomes available.
If interest on indebtedness incurred or continued by a Colorado
Unitholder to purchase Units in a Trust is not deductible for Federal income tax
purposes, it will not be deductible for Colorado income tax purposes.
CONNECTICUT RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Connecticut is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. The State has
a relatively high wage labor market which has resulted in the State's business
sector becoming more vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of Connecticut currently maintains a "AA", "Aa3" and "AA"
bond rating from Standard & Poor's, Moody's and Fitch, respectively, on its
general obligation indebtedness.
Further information concerning Connecticut risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. The assets of each Connecticut Trust consist of obligations
issued by or on behalf of the State of Connecticut or its political subdivisions
or public instrumentalities, State or local authorities, districts, or similar
public entities created under the laws of the State of Connecticut or by or on
behalf of a United States territory or possession the interest on the
obligations of which Federal law would prohibit Connecticut from taxing if
received directly by a Unitholder (the "Bonds"). Certain Bonds in the
Connecticut Trust that were issued by the State of Connecticut or governmental
authorities located in Connecticut may have been issued prior to the enactment
of a Connecticut tax on the interest income of individuals; therefore, bond
counsel to the issuers of such Connecticut Bonds did not opine as to the
exemption of the interest on such Connecticut Bonds from such tax. However, the
Sponsor and special counsel to the Trusts for Connecticut tax matters believe
that such interest will be so exempt. Interest on Connecticut Bonds in the
Connecticut Trusts issued by other issuers, if any, is, in the opinion of bond
counsel to such issuers, exempt from state taxation.
At the time of the closing for each Connecticut Trust, Day, Berry &
Howard, special counsel to the Trusts for Connecticut tax matters, rendered an
opinion, which relied explicitly on the opinion of Chapman and Cutler regarding
Federal income tax matters, under then existing Connecticut law, substantially
to the effect that:
The Connecticut Trust is not subject to any tax on or measured by net
income imposed by the State of Connecticut.
Interest income from Bonds held by the Connecticut Trust is not taxable
under the Connecticut tax on the Connecticut taxable income of individuals,
trusts and estates (the "Connecticut Income Tax"), when such interest is
received by the Connecticut Trust or distributed by it to a Unitholder.
Gains and losses recognized by a Unitholder for Federal income tax
purposes upon the maturity, redemption, sale, or other disposition by the
Connecticut Trust of a Bond held by the Connecticut Trust or upon the
redemption, sale, or other disposition of a Unit of a Connecticut Trust held by
a Unitholder are taken into account
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as gains or losses, respectively, for purposes of the Connecticut Income Tax,
except that, in the case of a Unitholder holding a Unit of the Connecticut Trust
as a capital asset, such gains and losses recognized upon the maturity,
redemption, sale or exchange of a Bond issued by or on behalf of the State of
Connecticut, any political subdivision thereof, or public instrumentality, state
or local authority, district, or similar public entity created under the laws of
the State of Connecticut (a "Connecticut Bond") held by the Connecticut Trust
are excluded from gains and losses taken into account for purposes of such tax,
and no opinion is expressed as to the treatment for purposes of such tax of
gains and losses recognized, to the extent attributable to Connecticut Bonds,
upon the redemption, sale, or other disposition by a Unitholder of a Unit of the
Connecticut Trust held by him.
The portion of any interest income or capital gain of the Connecticut
Trust that is allocable to a Unitholder that is subject to the Connecticut
corporation business tax is includable in the gross income of such Unitholder
for purposes of such tax.
An interest in a Unit of the Connecticut Trust that is owned by or
attributable to a Connecticut resident at the time of his death is includable in
his gross estate for purposes of the Connecticut succession tax and the
Connecticut estate tax.
Generally, a Unitholder recognizes gain or loss for purposes of the
Connecticut Income Tax to the same extent the Unitholder recognizes gain or loss
for Federal income tax purposes. Ordinarily, this would mean that gain or loss
would be recognized by a Unitholder upon the maturity, redemption, sale, or
other disposition by a Connecticut Trust of a Bond held by it, or upon the
redemption, sale, or other disposition of a Unit of a Connecticut Trust held by
the Unitholder. However, gains and losses from the sale or exchange of
Connecticut Bonds held as capital assets are not taken into account for purposes
of the Connecticut Income Tax. Regulations indicate that this rule would apply
to gain or loss recognized by a Unitholder holding a Unit of a Connecticut Trust
as a capital asset upon the maturity, redemption, sale, or other disposition of
a Connecticut Bond held by a Connecticut Trust. However, it is not clear whether
this rule would also apply, to the extent attributable to Connecticut Bonds held
by a Connecticut Trust, to gain or loss recognized by a Unitholder upon the
redemption, sale, or other disposition of a Unit of a Connecticut Trust held by
the Unitholder. Unitholders are urged to consult their own tax advisors
concerning these matters.
FLORIDA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Florida is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. The State Constitution and statutes mandate that the State budget,
as a whole, and each separate fund within the State budget, be kept in balance
from currently available revenues each fiscal year. Additionally, the State
Constitution prohibits issuance of State obligations to fund State operations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State continues to be dependent on
the construction and construction related manufacturing industries. These
industries tend to be highly cyclical and there is no assurance that Florida's
rapid population growth, which drove these industries in the past, will
continue. Tourism is also one of the State's most important industries. Because
many international travelers visit Florida, an increase in the value of the U.S.
dollar adversely affects this industry. Moreover, Florida could be impacted by
problems in the agricultural sector, including crop failures, severe weather
conditions or other agricultural-related problems, particularly with regard to
the citrus and sugar industries.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State maintains a bond rating of Aa2, AA+ and AA from Moody's,
Standard & Poor's and Fitch, respectively, on the majority of its general
obligation bonds, although the rating of a particular series of revenue
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bonds relates primarily to the project, facility, or other revenue resource from
which such series derives funds for repayment.
Further information concerning Florida risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. The assets of each Florida Trust will consist solely of
interest-bearing obligations issued by or on behalf of the State of Florida, its
political subdivisions and authorities or by the Commonwealth of Puerto Rico,
Guam, the Virgin Islands, American Samoa, or the Northern Mariana Islands (the
"Florida Bonds").
At the time of the closing for each Florida Trust, Carlton, Fields,
Ward, Emmanuel, Smith & Cutler, P.A., special counsel to the Trusts for Florida
tax matters, rendered an opinion under then existing law substantially to the
effect that:
For Florida State income tax purposes, the Florida Trusts will not be
subject to the Florida income tax imposed by the Florida Code so long as the
Trusts have no income subject to federal taxation. In addition, political
subdivisions of Florida do not impose any income taxes.
Because Florida does not impose an income tax on individuals,
non-corporate Unitholders will not be subject to any Florida income tax on
income realized by the Trust. Each corporate Unitholder will be subject to
Florida income taxation on its share of the income realized by the Trusts
notwithstanding the tax exempt status of the interest received from any bonds
under Section 103(a) of the Internal Revenue Code of 1986 or any other federal
law, unless the interest income constitutes nonbusiness income. Nevertheless,
any corporate Unitholder that has its commercial domicile in Florida will be
taxable under the Florida Code on its share of the Florida Trust income which
constitutes nonbusiness income.
Florida Trust Units will be subject to Florida estate tax only if owned
by Florida residents, certain natural persons not domiciled in Florida, or
certain natural persons not residents of the United States. However, the Florida
estate tax is limited to the amount of the credit allowable under the applicable
Federal Revenue Act (currently Section 2011 [and in some cases Section 2102] of
the Internal Revenue Code of 1986, as amended) for death taxes actually paid to
the several states.
Neither the Bonds nor the Units will be subject to the Florida ad
valorem property tax or Florida sales or use tax.
Because Bonds issued by the State of Florida or its political
subdivisions or by the Commonwealth of Puerto Rico, Guam, the Virgin Islands,
American Samoa and the Northern Mariana Islands are exempt from Florida
intangible personal property taxation under Chapter 199, Florida Statutes, as
amended, the Florida Trust will not be subject to Florida intangible personal
property tax. In addition, the Unitholders will not be subject to Florida
intangible personal property tax on the Units.
GEORGIA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Georgia is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has experienced significant revenue
shortfalls.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. Weather conditions may have a
significant impact on Georgia's agricultural sector. Recent widespread flooding
in central and southern Georgia has caused extensive damage and destruction of
farmland, private residences, businesses and local and state government
facilities.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
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All outstanding general obligation bonds of the State are rated "AAA"
by Standard & Poor's, "Aaa" by Moody's and "AAA" by Fitch.
Further information concerning Georgia risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. Smith, Gambrell & Russell acted as special Georgia counsel
to Georgia Trust 188 and all prior Georgia Trusts. Chapman and Cutler, Counsel
for the Sponsor, acted as special Georgia Counsel to Georgia Trust 189 and all
subsequent Georgia Trusts, including all Georgia Insured Trusts. At the time of
the closing for each Georgia Trust, the respective counsel to the Trusts
rendered an opinion under then existing law substantially to the effect that:
The assets of the Trusts will consist of interest-bearing obligations
issued by or on behalf of the State of Georgia or counties, municipalities,
authorities or political subdivisions thereof (the "Georgia Bonds") and certain
bonds issued by Puerto Rico authorities (the "Possession Bonds," and
collectively with the Georgia Bonds, the "Bonds").
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the Trust. However, although no opinion is
expressed herein regarding such matters, it is assumed that: (i) the Bonds were
validly issued, (ii) the interest thereon is excludable from gross income for
federal income tax purposes and (iii) interest on the Bonds, if received
directly by a Unitholder would be exempt from the Georgia income tax (the
"Georgia Income Tax"). We have assumed that, at the respective times of issuance
of the Bonds, opinions relating to the validity thereof and to the exemption of
interest thereon from Federal income tax were rendered by bond counsel to the
respective issuing authorities. In addition, we have assumed that, with respect
to the Georgia Bonds, bond counsel to the issuing authorities rendered opinions
that interest on the Georgia Bonds is exempt from the Georgia Income Tax and,
with respect to the Possession Bonds, bond counsel to the issuing authorities
rendered opinions that the Possession Bonds and the interest thereon is exempt
from all state and local income taxation. Neither the Sponsor nor its counsel
has made any review for the Trust of the proceedings relating to the issuance of
the Bonds or of the bases for the opinions rendered in connection therewith.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing Georgia law:
(1) For Georgia income tax purposes, each Georgia Trust is
not an association taxable as a corporation, and the income of the
Georgia Trust will be treated as the income of the Unitholders.
Interest on the Georgia Bonds which is exempt from Georgia income tax
when received by the Georgia Trust, and which would be exempt from
Georgia income tax if received directly by a Unitholder, will retain
its status as tax-exempt interest when distributed by the Georgia Trust
and received by the Unitholders. Interest on the Possession Bonds which
is excludable from gross income for federal income tax purposes and is
exempt from state and local taxation pursuant to federal law when
received by the Georgia Trust will be exempt from Georgia income
taxation and therefore will not be includable in the income of the
Unitholder for Georgia income tax purposes when distributed by the
Georgia Trust and received by the Unitholders.
(2) If the Trustee disposes of a Bond (whether by sale,
exchange, payment on maturity, retirement or otherwise) or if a
Unitholder redeems or sells his Unit, the Unitholder will recognize
gain or loss for Georgia income tax purposes to the same extent that
gain or loss would be recognized for federal income tax purposes
(except in the case of Bonds issued before March 11, 1987 issued with
original issue discount owned by the Georgia Trust in which case gain
or loss for Georgia income tax purposes may differ from the amount
recognized for federal income tax purposes because original issue
discount on such Georgia Bonds may be determined by accruing said
original issue discount on a ratable basis). Due to the amortization of
bond premium and other basis adjustments required by the Internal
Revenue Code, a Unitholder, under some circumstances, may realize
taxable gain when his or her Units are sold or redeemed for an amount
less than or equal to their original cost.
(3) Amounts paid by the Insurer under an insurance policy or
policies issued to the Georgia Trust, if any, with respect to the Bonds
in the Georgia Trust which represent maturing interest on defaulted
obligations held by the Trustee will be exempt from State income taxes
if, and to the extent as, such interest would have been so exempt if
paid by the issuer of the defaulted obligations provided that, at the
time such policies are purchased, the amounts paid for such policies
are reasonable, customary and
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consistent with the reasonable expectation that the issuer of the
obligations, rather than the insurer, will pay debt service on the
obligations.
(4) Neither the Bonds nor the Units will be subject to
Georgia sales or use tax.
Chapman and Cutler has expressed no opinion with respect to taxation under any
other provision of Georgia law. Ownership of the Units may result in collateral
Georgia tax consequences to certain taxpayers. Prospective investors should
consult their tax advisors as to the applicability of any such collateral
consequences.
MARYLAND RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Maryland is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. The State has
a relatively high wage labor market which has resulted in the State's business
sector becoming more vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of Maryland currently maintains a "AAA" bond rating from
Standard & Poor's, Moody's and Fitch on its general obligation indebtedness.
Further information concerning Maryland risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. The assets of each Maryland Trust will consist of
interest-bearing obligations issued by or on behalf of the State of Maryland,
its political subdivisions and authorities and, provided the interest thereon is
exempt from State income taxes by the laws or treaties of the United States,
obligations issued by or on behalf of the United States' territories or
possessions, including Puerto Rico, Guam and the Virgin Islands, their political
subdivisions and authorities (the "Maryland Bonds").
At the time of the closing for each Maryland Trust, Venable, Baetjer
and Howard, special counsel for the Trusts previous to Trust 319 for Maryland
tax matters. Ober, Kaler, Grimes & Shriver, P.C., acted as special counsel for
Trust 319 through Trust 345, for Maryland tax matters. Blank Rome Comisky and
McCauley L.L.P. acted as special counsel for Trust 346 and subsequent series for
Maryland tax matters, rendered an opinion under then existing law substantially
to the effect that:
For Maryland State and local income tax purposes, each Maryland Trust
will not be taxable as an association, and the income of the Maryland Trust will
be treated as the income of the Unitholders.
For Maryland State and local tax purposes, interest on the Maryland
Bonds which is exempt from Maryland State and local income tax when received by
the Maryland Trust, and which would be exempt from Maryland State and local
income tax if received directly by a Unitholder, will retain its status as
tax-exempt interest when received by the Maryland Trust and distributed to the
Unitholders.
Interest derived from the Maryland Trust by a Unitholder with respect
to the Maryland Bonds will not be subject to Maryland State or local income
taxes; provided that interest or profit derived from the Maryland Trust by a
financial institution, as defined in Section 8-101(c) of the Tax-General Article
of the Annotated Code of Maryland, will be subject to the Maryland state
franchise tax on financial institutions, except to the extent such interest is
expressly exempt from the Maryland state franchise tax by the statutes which
authorize the issuance of such Maryland Bonds (see Section 8-204 of the
Tax-General Article of the Annotated Code of Maryland).
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A Unitholder will not be subject to Maryland state or local income tax
with respect to gain realized when Maryland Bonds held in the Maryland Trust are
sold, redeemed or paid at maturity, except with respect to gain realized upon a
sale, redemption or payment at maturity of such Maryland Bonds as are issued by
or on behalf of United States territories or possessions, their political
subdivisions and authorities; such gain will equal the proceeds of sale,
redemption or payment, less the tax basis of the Maryland Bonds (adjusted to
reflect (a) the amortization of Bond premium or discount, and (b) the deposit in
the Maryland Trust after the Unitholder's settlement date of Maryland Bonds with
accrued interest).
Although the matter is not free from doubt, gain realized by a
Unitholder from the redemption, sale or other disposition of a Maryland Trust
Unit (i) will be subject to Maryland state income tax except in the case of
individual Unitholders who are not Maryland residents, and (ii) will be subject
to Maryland local income tax in the case of individual Unitholders who are
Maryland residents.
If interest on indebtedness incurred or continued by a Unitholder to
purchase Units in the Maryland Trust is not deductible for Federal income tax
purposes, it will also be nondeductible for Maryland state income tax purposes
and, if applicable, local income tax purposes.
Maryland Trust Units will be subject to Maryland inheritance and estate
tax only if held by Maryland residents. Neither the Maryland Bonds nor the
Maryland Trust Units will be subject to Maryland personal property tax, sales
tax or use tax.
MASSACHUSETTS RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the Commonwealth of
Massachusetts is affected by various national and local, economic, social and
environmental policies and conditions and may have an effect on the value of the
Units. Additionally, limitations imposed by statute and voter initiative upon
the Commonwealth and its local governments concerning taxes, bond indebtedness
and other matters may constrain the revenue-generating capacity of the
Commonwealth and its local governments and, therefore, the ability of the
issuers of the Bonds to satisfy their obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The employment in the Commonwealth has
been and continues to be significantly and adversely affected by reductions in
federal government spending on defense-related industries. The Commonwealth has
many material future liabilities, including an underfunded retirement system and
Medicaid expenditures.
The Commonwealth is a party to numerous lawsuits in which an adverse
final decision could materially affect the Commonwealth's governmental
operations and consequently, its ability to pay debt service on its obligations.
In recent years, the Commonwealth of Massachusetts and certain of its
public bodies and municipalities, particularly the City of Boston, have faced
serious financial difficulties which have affected the credit standing and
borrowing abilities of Massachusetts and its respective entities and may have
contributed to higher interest rates on debt obligations. The Commonwealth's
general obligation bonds are rated AA- by Standard & Poor's, Aa2 by Moody's and
AA- by Fitch.
Further information concerning Massachusetts risk factors may be found
in the Information Supplement to this Prospectus.
Tax Status. Peabody & Arnold acted as special Massachusetts counsel to
Massachusetts Traditional Trust 182 and all prior Massachusetts Traditional
Trusts and to Massachusetts Insured Trust 44 and all prior Massachusetts Insured
Trusts. Edwards & Angell acted as special Massachusetts counsel to Massachusetts
Traditional Trust 183 and all subsequent Massachusetts Traditional Trusts and to
Massachusetts Insured Trust 45 and all subsequent Massachusetts Insured Trusts.
At the time of the closing for each Massachusetts Trust, the respective counsel
to the Trusts rendered an opinion, based on rulings by the Commissioner of
Revenue and under then existing law, substantially to the effect that:
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For Massachusetts income tax purposes, each Trust will be treated as a
corporate trust under Section 8 of Chapter 62 of the Massachusetts General Laws
("M.G.L.") and not as a grantor trust under Section 10(e) of M.G.L. Chapter 62.
The Trust will not be held to be engaging in business in Massachusetts
within the meaning of said Section 8 and will, therefore, not be subject to
Massachusetts income tax.
Unitholders who are subject to Massachusetts income taxation under
M.G.L. Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross income
to the extent that such earnings or distributions represent tax-exempt interest
excludable from gross income for Federal income tax purposes received by a
Massachusetts Trust on obligations issued by Massachusetts, its counties,
municipalities, authorities, political subdivisions or instrumentalities or by
Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands or other
possessions of the Untied States within the meaning of Section 103(c) of the
Internal Revenue Code of 1986, as amended ("Massachusetts Obligations").
Unitholders who are subject to Massachusetts income taxation under
M.G.L. Chapter 62 will not be required to include their respective shares of the
earnings of or distributions from the Trust in their Massachusetts gross income
to the extent that such earnings or distributions are derived from the proceeds
of insurance obtained by the Sponsor of the Trust or by the issuer or
underwriter of an obligation held by the Trust that represent maturing interest
on defaulted obligations held by the Trustee, if and to the same extent that
such earnings or distributions would have been excludable from the gross income
of such Unitholders if derived from interest paid by the issuer of the defaulted
obligation.
Unitholders which are corporations subject to taxation under M.G.L.
Chapter 63 will be required to include their respective shares of the earnings
of or distributions from the Trust in their Massachusetts gross income to the
extent that such earnings or distributions represent interest from bonds, notes
or indebtedness of any state, including Massachusetts, except for interest which
is specifically exempted from such tax by the acts authorizing issuance of said
Massachusetts Obligations.
Each Trust's capital gains and/or capital losses which are includable
in the Federal gross income of Unitholders who are subject to Massachusetts
income taxation under M.G.L. Chapter 62, or Unitholders which are corporations
subject to Massachusetts taxation under M.G.L. Chapter 63 will be included as
capital gains and/or losses in the Unitholders' Massachusetts gross income,
except for capital gain which is specifically exempted from taxation under such
Chapters by the acts authorizing issuance of said Massachusetts Obligations.
Unitholders which are corporations subject to tax under M.G.L. Chapter
63 and which are tangible property corporations will not be required to include
the Units when determining the value of their tangible property. Unitholders
which are intangible property corporations will be required to include the Units
when determining their net worth.
Gains or losses realized on sales or redemptions of Units by
Unitholders who are subject to Massachusetts income taxation under M.G.L.
Chapter 62, or Unitholders which are corporations subject to Massachusetts
income taxation under M.G.L. Chapter 63, will be includable in their
Massachusetts gross income. In determining such gain or loss Unitholders will,
to the same extent required for Federal tax purposes, have to adjust their tax
bases for their Units for accrued interest received, if any, on Massachusetts
Obligations delivered to the Trustee after the Unitholders pay for their Units,
for amortization of premiums, if any, on Massachusetts Obligations held by the
Trust, and for accrued original issue discount with respect to each
Massachusetts Obligation which, at the time the Massachusetts Obligation was
issued, had original issue discount.
The Units of a Trust are not subject to any property tax levied by
Massachusetts or any political subdivision thereof, nor to any income tax levied
by any such political subdivision. They are includable in the gross estate of a
deceased holder who is a resident of Massachusetts for purposes of the
Massachusetts Estate Tax.
MICHIGAN RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Michigan is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
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Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. The State's Constitution limits the amount of total State revenues
that may be raised from taxes and other sources. State revenues (excluding
federal aid and revenues used for payment of principal of and interest on
general obligation bonds) in any fiscal year are limited to a specified
percentage of State personal income in the prior calendar year or the average
thereof in the prior three calendar years, whichever is greater. The State may
raise taxes in excess of the limit in emergency situations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The economy of the State continues to
be dependent on manufacturing, tourism and agriculture. These sectors tend to be
cyclical and are facing increasing competition from foreign producers.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds of the state are rated "AA+"
by Standard & Poor's, "Aa1" by Moody's, and "AA+" by Fitch.
Further information concerning Michigan risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Michigan Trust,
Dickinson, Wright, Moon, Van Dusen & Freeman, special Michigan counsel to the
Trusts, rendered an opinion under then-existing law substantially to the effect
that:
The assets of a Michigan Trust will consist of interest-bearing
obligations issued by or on behalf of the State of Michigan, and counties,
municipalities, authorities and political subdivisions thereof, and, in limited
instances, bonds issued by Puerto Rico, the Virgin Islands, Guam, the Northern
Mariana Islands or possessions of the United States (the "Michigan Bonds").
Under the Michigan income tax act, the Michigan single business tax
act, the Michigan city income tax act (which authorizes the only income tax
ordinance that may be adopted by cities in Michigan), and under the law which
authorizes a "first class" school district to levy an excise tax upon income,
the Michigan Trust is not subject to tax. The income of the Michigan Trust will
be treated as the income of the Unitholders and be deemed to have been received
by them when received by the Michigan Trust.
Interest on the Michigan Bonds in the Michigan Trust which is exempt
from Federal income tax is exempt from Michigan state and local income taxes and
from the Michigan single business tax. Further, any amounts paid under the
insurance representing maturing interest on defaulted obligations held by the
Trustee will be excludable from Michigan state and local income taxes and from
the Michigan single business tax if, and to the same extent as, such interest
would have been excludable if paid by the respective issuer.
For purposes of the foregoing Michigan tax laws (corporations and
financial institutions are not subject to the Michigan income tax), each
Unitholder will be considered to have received his pro rata share of Michigan
Bond interest when it is received by the Michigan Trust, and each Unitholder
will have a taxable event when the Michigan Trust disposes of a Michigan Bond
(whether by sale, exchange, redemption or payment at maturity) or when the
Unitholder redeems or sells Units. Due to the requirement that tax cost be
reduced to reflect amortization of bond premium, under some circumstances a
Unitholder may realize taxable gain when Units are sold or redeemed for an
amount equal to, or less than, their original cost. The tax cost of each Unit to
a Unitholder will be allocated for purposes of these Michigan tax laws in the
same manner as the cost is allocated for Federal income tax purposes.
If a Unitholder is subject to the Michigan single business tax (i.e.,
is engaged in a "business activity" as defined in the Michigan single business
tax act), and has a taxable event for Federal income tax purposes when the
Michigan Trust sells or exchanges Michigan Bonds or the Unitholder sells or
exchanges Units, such event may impact the adjusted tax base upon which the
single business tax is computed. Any capital gain or loss realized from such
taxable event which was included in the computation of the Unitholder's Federal
taxable income, plus
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the portion, if any, of such capital gain excluded in such computation and minus
the portion, if any, of such capital loss not deducted in such computation for
the year the loss occurred, will be included in the adjusted tax base. The
adjusted tax base of any person other than a corporation is affected by any gain
or loss realized from the taxable event only to the extent that the resulting
Federal taxable income is derived from "business activity."
MINNESOTA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Minnesota is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. Minnesota relies heavily on a
progressive individual income tax and a retail sales tax for revenue which
results in a fiscal system unusually sensitive to economic conditions. The
State's economic base is diversified, consisting of manufacturing, construction,
service industries and technology industries, supplemented by rural areas with
selective commercial agriculture. The State has a relatively high wage labor
market which has resulted in the State's business sector becoming more
vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of Minnesota currently maintains a "AAA" bond rating from
Standard & Poor's, Moody's and Fitch, respectively, on its general obligation
indebtedness.
Further information concerning Minnesota risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Minnesota Trust, Dorsey
& Whitney, special Minnesota counsel for the Trusts, rendered an opinion under
then-existing Minnesota income tax law applicable to taxpayers whose income is
subject to Minnesota income taxation substantially to the effect that:
Counsel understands that the Minnesota Trust will have no income other
than (i) interest income on bonds issued by the State of Minnesota and its
political and governmental subdivisions, municipalities and governmental
agencies and instrumentalities and on bonds issued by Puerto Rico, the Virgin
Islands, the Northern Mariana Islands or Guam which would be exempt from Federal
and Minnesota income taxation when paid directly to an individual, trust or
estate (and the term "Bonds" as used herein refers only to such bonds), (ii)
gain on the disposition of such Bonds, and (iii) proceeds paid under certain
insurance policies issued to the Trustee or to the issuers of the Bonds which
represent maturing interest or principal payments on defaulted Bonds held by the
Trustee.
"Taxable income" for Minnesota income tax purposes is the same as
"taxable income" for Federal income tax purposes with certain modifications that
(with one exception) do not apply to the present circumstances. The exception is
that corporations must add to Federal taxable income the amount of any interest
received on the obligations of states and their agencies and instrumentalities,
political and governmental subdivisions, and municipalities. The terms "trust"
and "corporation" have the same meanings for Minnesota income tax purposes, as
relevant to the Minnesota tax status of the Minnesota Trust, as for Federal
income tax purposes.
In view of the relationship between Federal and Minnesota law described
in the preceding paragraph and the opinion of Chapman and Cutler with respect to
the Federal tax treatment of the Minnesota Trust and its Unitholders, (1) the
Minnesota Trust will be treated as a trust rather than a corporation for
Minnesota income tax purposes and will not be deemed the recipient of any
Minnesota taxable income; (2) each Unitholder of the Minnesota Trust will be
treated as the owner of a pro rata portion of the Minnesota Trust for Minnesota
income tax purposes and the income of the Minnesota Trust will therefore be
treated as the income of the Unitholders under Minnesota law; (3) interest on
the Bonds will be exempt from Minnesota income taxation of Unitholders who are
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individuals, trusts and estates, when received by the Minnesota Trust and
attributed to such Unitholders and when distributed to such Unitholders (except
as hereinafter provided with respect to "industrial development bonds" and
"private activity bonds" held by "substantial users"); (4) interest on the Bonds
will be includable in the Minnesota taxable income (subject to allocation and
apportionment) of Unitholders that are corporations; (5) each Unitholder will
realize taxable gain or loss when the Minnesota Trust disposes of a Bond
(whether by sale, exchange, redemption or payment at maturity) or when the
Unitholder redeems or sells Units at a price which differs from original cost as
adjusted for amortization of bond discount or premium and other basis
adjustments (including any basis reduction that may be required to reflect a
Unitholder's share of interest, if any, accruing on Bonds during the interval
between the Unitholder's settlement date and the date such Bonds are delivered
to the Minnesota Trust, if later); (6) tax cost reduction requirements relating
to amortization of bond premium may, under some circumstances, result in
Unitholders' realizing taxable gain when their Units are sold or redeemed for an
amount equal to or less than their original cost; (7) any proceeds paid under an
insurance policy issued to the Trustee with respect to the Bonds which represent
maturing interest on defaulted obligations held by the Trustee will be
excludable from Minnesota gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the defaulted
obligation; (8) any proceeds paid under individual insurance policies obtained
by issuers of Bonds which represent maturing interest on defaulted obligations
held by the Trustee will be excludable from Minnesota gross income if, and to
the same extent as, such interest would have been so excludable if paid in the
normal course by the issuer of the defaulted obligations; (9) net capital gains
of Unitholder attributable to the Bonds will be fully includable in the
Minnesota taxable income of Unitholders (subject to allocation and apportionment
in the case of corporate Unitholders); and (10) interest on bonds includable in
the computation of "alternative minimum taxable income" for Federal income tax
purposes will also be includable in the computation of "alternative minimum
taxable income" for Minnesota income tax purposes.
Interest income attributable to Bonds that are "industrial development
bonds" or "private activity bonds" as those terms are defined in the Internal
Revenue Code, will be taxable under Minnesota law to a Unitholder who is a
"substantial user" of the facilities financed by the proceeds of such Bonds (or
a "related person" to such a "substantial user") to the same extent as if such
Bonds were held directly by such Unitholder.
MISSOURI RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Missouri is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the state and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, agriculture and service industries.
The State's financial situation may be affected by increased costs in
court-ordered desegregation payments in St. Louis.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds to the State are rated "AAA"
by Standard & Poor's, "Aaa" by Moody's and "AAA" by Fitch.
Further information concerning Missouri risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Missouri Trust, Watson
& Marshall, special counsel to the Trusts for Missouri tax matters, rendered an
opinion under then existing Missouri income tax law (not including any Missouri
law imposing a franchise tax) applicable to corporations with Missouri taxable
income and to individuals who are Missouri residents for Missouri income tax
purposes substantially to the effect that:
The Missouri Trust will not be an association taxable as a corporation
for purposes of Missouri income taxation.
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Each Missouri Unitholder will be treated as owning a pro rata share of
each asset of the Missouri Trust for Missouri income tax purposes in the
proportion that the number of Units of such Trust held by the Unitholder bears
to the total number of outstanding Units of the Missouri Trust, and the income
of the Missouri Trust will therefore be treated as the income of each Missouri
Unitholder under Missouri law in the proportion described.
Interest on Bonds that would not be includable in Missouri adjusted
gross income when paid directly to a Missouri Unitholder will not be includable
in Missouri adjusted gross income when received by the Missouri Trust and
attributed to such Missouri Unitholder or when distributed to such Missouri
Unitholder.
Each Missouri Unitholder will realize taxable gain or loss when the
Missouri Trust disposes of a Bond (whether by sale, exchange, redemption, or
payment at maturity) at a gain or loss or when the Missouri Unitholder redeems
or sells Units at a price that differs from the adjusted basis. Gain or loss and
the adjusted basis will be computed in the same manner as for Federal income tax
treatment. Due to the amortization of bond premium and other basis adjustments
required by the Internal Revenue Code, a Missouri Unitholder, under some
circumstances, may realize taxable gain when his or her Units are sold or
redeemed for an amount equal to or less than their original cost.
If interest on indebtedness incurred or continued by a Missouri
Unitholder to purchase Units in the Missouri Trust is not deductible for Federal
income tax purposes, it also will be nondeductible for Missouri income tax
purposes.
Obligations issued by United States Possessions will not be subject to
a Missouri intangibles tax or a personal property tax.
NEW JERSEY RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of New Jersey is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. The State has
a relatively high wage labor market which has resulted in the State's business
sector becoming more vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds to the State are rated "AA+"
by Standard & Poor's, "Aa1" by Moody's and "AA+" by Fitch.
Further information concerning New Jersey risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. The assets for each New Jersey Trust will consist of
interest-bearing obligations issued by or on behalf of the State of New Jersey
and counties, municipalities, authorities and other political subdivisions
thereof, and certain territories of the United States, including Puerto Rico,
Guam, the Virgin Islands and the Northern Mariana Islands (the "New Jersey
Bonds").
At the time of the closing for each New Jersey Trust, Pitney, Hardin,
Kipp & Szuch, special counsel to the Trusts for New Jersey tax matters, rendered
an opinion under then-existing law substantially to the effect that:
Each New Jersey Trust will be recognized as a Trust and not an
association taxable as a corporation. Each New Jersey Trust will not be subject
to the New Jersey Corporation Business Tax or the New Jersey Corporation Income
Tax.
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With respect to the non-corporate Unitholders who are residents of New
Jersey, the income of each New Jersey Trust will be treated as the income of
such Unitholders under the New Jersey Gross Income Tax. Interest on the
underlying New Jersey Bonds which is exempt from tax under the New Jersey Gross
Income Tax Law when received by a New Jersey Trust will retain its status as
tax-exempt interest when distributed to the Unitholders.
A non-corporate Unitholder will not be subject to the New Jersey Gross
Income Tax on any gain realized either when a New Jersey Trust disposes of a New
Jersey Bond (whether by sale, exchange, redemption, or payment at maturity) or
when the Unitholder redeems or sells his Units. Any loss realized on such
disposition may not be utilized to offset gains realized by such Unitholder on
the disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax.
Units of a New Jersey Trust may be taxable on the death of a Unitholder
under the New Jersey Transfer Inheritance Tax Law or the New Jersey Estate Tax
Law.
If a Unitholder is a corporation subject to the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax, interest from the Bonds in
the New Jersey Trust which is allocable to such corporation will be includable
in its entire net income for purposes of the New Jersey Corporation Business Tax
or New Jersey Corporation Income Tax, less any interest expense incurred to
carry such investment to the extent such interest expense has not been deducted
in computing Federal taxable income. Net gains derived by such corporation on
the disposition of the New Jersey Bonds by the New Jersey Trust or on the
disposition of its Units will be included in its entire net income for purposes
of the New Jersey Corporation Business Tax or New Jersey Corporation Income Tax.
NEW YORK RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of New York is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has been one of the wealthiest states in
the nation; however, for decades the State economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The economy of the State continues to
be influenced by the financial health of the City of New York, which faces
greater competition as other major cities develop financial and business
capabilities. The State has for many years had a very high state and local tax
burden relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
The State is party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations. On January 21,
1994, the State entered into a settlement with Delaware with respect to State of
Delaware v. State of New York. The State made an immediate $35 million payment
and agreed to make a $33 million annual payment in each of the next five fiscal
years. The State has not settled with other parties to the litigation and will
continue to incur litigation expenses as to those claims.
All outstanding general obligation bonds of the State are rated "A+" by
Standard & Poor's, "A2" by Moody's and "A+" by Fitch.
Further information concerning New York risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each New York Trust, Edwards
& Angell, special counsel to the New York Trusts for New York tax matters
rendered an opinion under then existing New York income tax law applicable to
taxpayers whose income is subject to New York income taxation substantially to
the effect that:
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Interest on obligations issued by New York State, a political
subdivision thereof, Puerto Rico, the Virgin Islands, Guam, the Northern Mariana
Islands, or other possessions of the United States within the meaning of Section
103(c) of the Internal Revenue Code of 1986, as amended ("New York
Obligations"), which would be exempt from New York State or New York City
personal income tax if directly received by a Unitholder, will retain its status
as tax-exempt interest when received by the New York Trust (the "Trust") and
distributed to such Unitholder. Thus, interest on bonds received by Unitholders
which is not subject to New York State tax is also exempt from New York City
personal income tax.
Interest (less amortizable premium, if any) derived from the Trust by a
resident of New York State (or New York City) in respect of obligations issued
by states other than New York (or their political subdivisions) will be subject
to New York State (or New York City) personal income tax.
A Unitholder who is a resident of New York State (or New York City)
will be subject to New York State (or New York City) personal income tax with
respect to gains realized when New York Obligations held in the New York Trust
are sold, redeemed or paid at maturity or when the Unitholder's Units are sold
or redeemed; such gain will equal the proceeds of sale, redemption or payment
less the tax basis of the New York Obligation or Unit (adjusted to reflect (a)
the amortization of premium or discount, if any, on New York Obligations held by
the Trust, (b) accrued original issue discount, with respect to each New York
Obligation which, at the time the New York Obligation was issued, had original
issue discount, and (c) the deposit of New York Obligations with accrued
interest in the Trust after the Unitholder's settlement date).
Interest or gain from the Trust derived by a Unitholder who is not a
resident of New York State (or New York City) will not be subject to New York
State (or New York City) personal income tax, unless the Units are property
employed in a business, trade, profession or occupation carried on in New York
State (or New York City).
In the case of the Trust, amounts paid under the insurance policies
representing maturing interest on defaulted New York Obligations held by the
Trustee in the Trust will be excludable from New York State and New York City
income if, and to the same extent as, such interest would have been excludable
if paid by the respective issuer.
For purposes of the New York State and New York City franchise tax on
corporations, Unitholders which are subject to such tax will be required to
include in their entire net income any interest or gains distributed to them
even though distributed in respect of obligations of any state or subdivision
thereof including New York.
If borrowed funds are used to purchase Units in the Trust, all (or
part) of the interest on such indebtedness will not be deductible for New York
State and New York City tax purposes. The purchase of Units may be considered to
have been made with borrowed funds even though such funds are not directly
traceable to the purchase of Units in any New York Trust.
NORTH CAROLINA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of North Carolina is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial agriculture. The State has
a relatively high wage labor market which has resulted in the State's business
sector becoming more vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of North Carolina currently maintains a "AAA" bond rating
from Standard & Poor's, Moody's and Fitch on its general obligation
indebtedness.
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Further information concerning North Carolina risk factors may be found
in the Information Supplement to this Prospectus.
Tax Status. The assets of each North Carolina Trust will consist of
interest-bearing obligations issued by or on behalf of the State of North
Carolina, its political subdivisions and authorities and, provided the interest
thereon is exempt from North Carolina income taxes by the laws or treaties of
the United States, by or on behalf of the United States territories or
possessions (including Puerto Rico, the Virgin Islands, Guam and the Northern
Mariana Islands), their political subdivisions and authorities (the "North
Carolina Bonds").
At the time of the closing for each North Carolina Trust, Moore & Van
Allen, special North Carolina counsel to the Trusts, rendered an opinion under
then existing law substantially to the effect that:
The North Carolina Trust is not an association taxable as a corporation
for North Carolina income tax purposes. Interest on the North Carolina Bonds
which is exempt from North Carolina income tax when received by the North
Carolina Trust will retain its status as tax-exempt interest when distributed to
Unitholders.
For North Carolina income tax purposes, each Unitholder will have a
taxable event when, upon redemption or sale of his Units, he receives cash or
other property. Gain or loss will be determined by computing the difference
between the proceeds of such a redemption or sale and the Unitholder's adjusted
basis for the Units.
For North Carolina income tax purposes, each Unitholder will have a
taxable event when the North Carolina Trust disposes of one of the North
Carolina Bonds (whether by sale, payment at maturity, retirement or otherwise);
provided that when any of the North Carolina Bonds held by the North Carolina
Trust have been issued under an act of the General Assembly of North Carolina
that provides that all income from such North Carolina Bond, including a profit
made from the sale thereof, shall be free from all taxation by the State of
North Carolina, any such profit received by the North Carolina Trust will retain
its tax-exempt status in the hands of each Unitholder.
Interest on indebtedness paid or accrued by a Unitholder in connection
with ownership of Units in the North Carolina Trust will not be deductible by
the Unitholder for North Carolina state income tax purposes.
Amortization of North Carolina Bond premiums is mandatory for North
Carolina state income tax purposes for all North Carolina resident Unitholders.
Amortization for the taxable year is accomplished by lowering the basis or
adjusted basis of the Units, with no deduction against gross income for the
year.
Trust Units will be subject to North Carolina inheritance and estate
tax if owned by a North Carolina resident on the date of his death. Neither the
North Carolina Bonds nor the Units will be subject to the North Carolina sales
tax or use tax.
OHIO RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Ohio is affected
by various national and local, economic, social and environmental policies and
conditions and may have an effect on the value of the Units. Additionally,
Constitutional and statutory limitations imposed on the State and its local
governments concerning taxes, bond indebtedness and other matters may constrain
the revenue-generating capacity of the State and its local governments and,
therefore, the ability of the issuers of the Bonds to satisfy their obligations.
The State operates on the basis of a fiscal biennium for its appropriations and
expenditures, and is precluded by law from ending its fiscal year or fiscal
biennium in a deficit position.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. While diversifying more into the
service and other non-manufacturing areas, the Ohio economy continues to rely in
part on durable goods manufacturing, largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. Yet, the Ohio
economy has become more diversified with expansion into the service and other
non-manufacturing sectors. As a result, general economic activity, as in many
other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important segment
of the economy, with over half the State's area devoted to farming and
approximately 16% of total employment in agribusiness.
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The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State governmental operations and
consequently its ability to pay debt service on its obligations.
The State maintains a bond rating of Aa1, AA+ and AA+ from Moody's,
Standard & Poor's and Fitch, respectively, on its general obligations
indebtedness.
Further information concerning Ohio risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. Each Ohio Trust is comprised primarily of interest-bearing
obligations issued by or on behalf of the State of Ohio, political subdivisions
thereof, or agencies or instrumentalities thereof (the "Ohio Obligations"), or
by the governments of Puerto Rico, the Virgin Islands, the Northern Mariana
Islands or Guam ("Territorial Obligations") (collectively, "Obligations").
At the time of the closing for each Ohio Trust, Squire, Sanders &
Dempsey, special Ohio counsel to the Trusts, rendered an opinion under then
existing law substantially to the effect that, provided that at all times at
least 50% of the value of the total assets of the Ohio Trust consist of Ohio
Obligations, or similar obligations of other states or their subdivisions, under
existing Ohio law:
The Ohio Trust is not taxable as a corporation or otherwise for
purposes of the Ohio personal income tax, Ohio school district income taxes, the
Ohio corporation franchise tax, or the Ohio dealers in intangibles tax.
Income of the Ohio Trust will be treated as the income of the
Unitholders for purposes of the Ohio personal income tax and municipal and
school district income taxes in Ohio and the Ohio corporation franchise tax in
proportion to the respective interest therein of each Unitholder.
Interest on Obligations held by the Ohio Trust is exempt from the Ohio
personal income tax and municipal and school district income taxes in Ohio, and
is excluded from the net income base of the Ohio corporation franchise tax when
distributed or deemed distributed to Unitholders.
Interest on the Territorial Obligations held by the Trust the interest
on which is exempt from state income taxes under the laws of the United States
is exempt from Ohio personal income taxes, and municipal and school district
income taxes in Ohio and, provided such interest is excluded from gross income
for federal income tax purposes, is excluded from the net income base of the
Ohio corporation franchise tax when distributed or deemed distributed to
Unitholders.
Proceeds paid under insurance policies, if any, to the Trustee of the
Ohio Trust, representing maturing interest on defaulted obligations held by the
Ohio Trust that is excluded from gross income for federal income tax purposes
will be exempt from the Ohio personal income tax, and municipal and school
district income taxes in Ohio and the net income base of the Ohio corporation
franchise tax.
Gains and losses realized on the sale, exchange or other disposition by
the Ohio Trust of Ohio Obligations are excluded in determining adjusted gross
and taxable income for purposes of the Ohio personal income tax, and municipal
and school district income taxes in Ohio, and are excluded from the net income
base of the Ohio corporation franchise tax when distributed or deemed
distributed to Unitholders.
OREGON RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Oregon is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, durable manufacturing, lumber and wood
products, transportation, communication, and utilities and finance, insurance
and real estate sectors. The Oregon economy continues to grow at a slower rate
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than that of the national economy. Moreover, Oregon could be impacted by
problems in its timber industry such as severe weather conditions.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State maintains a bond rating of Aa, Aa and AA from Moody's,
Standard & Poor's and Fitch, respectively, on its general obligation
indebtedness.
Further information concerning Oregon risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Oregon Trust, Schwabe,
Williamson, Wyatt, Moore & Roberts, special counsel to the Trusts for Oregon tax
matters, who relied on the opinion of Chapman and Cutler, rendered at such time,
an opinion under then existing Oregon law applicable to individuals who are
Oregon residents for Oregon tax purposes substantially to the effect that:
The Oregon Trust is not an association taxable as a corporation for
Oregon income tax or corporate excise tax purposes.
Each Unitholder of the Oregon Trust will be considered the owner of a
fractional portion of the Oregon Trust for purposes of Oregon personal income
taxes.
An item of Oregon Trust income which would be exempt from income tax
under Oregon law if directly received by a Unitholder and which is exempt from
income tax under Oregon law when received by the Oregon Trust will retain its
status as tax-exempt when distributed by such Oregon Trust and received by the
Unitholders.
A Unitholder of the Oregon Trust will have a taxable event when the
Oregon Trust disposes of a trust asset (whether by sale, payment on maturity,
retirement or otherwise) or when the Unitholder redeems or sells his Units.
Because of the requirement that tax cost basis be reduced to reflect
amortization of bond premiums, if any, on obligations held by the Oregon Trust,
a Unitholder may realize taxable gains when his Units are sold or redeemed for
an amount equal to or less than his original cost.
To the extent that the assets of the Oregon Trust consist of intangible
personal property, such assets and any interest thereon are exempt from property
tax under Oregon law.
PENNSYLVANIA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the Commonwealth of
Pennsylvania is affected by various national and local, economic, social and
environmental policies and conditions and may have an effect on the value of the
Units. Additionally, Constitutional and statutory limitations imposed on the
State and its local governments concerning taxes, bond indebtedness and other
matters may constrain the revenue-generating capacity of the Commonwealth and
its local governments and, therefore, the ability of the issuers of the Bonds to
satisfy their obligations. Historically, the Commonwealth has experienced
significant revenue shortfalls.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. Historically, the economy of the
Commonwealth has been dependent on heavy industry and manufacturing. Growth in
the Commonwealth economy has more recently been in the service sector, including
trade, health services and educational and financial institutions. Growth in
these sectors may be affected by federal funding and state legislation.
The Commonwealth is a party to numerous lawsuits in which an adverse
final decision could materially affect the Commonwealth's governmental
operations and consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds of the Commonwealth are rated
AA by Standard & Poor's, Aa3 by Moody's and AA by Fitch.
Further information concerning Pennsylvania risk factors may be found
in the Information Supplement to this Prospectus.
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Tax Status. At the time of the closing for each Pennsylvania Trust,
Dechert Price & Rhoads, special Pennsylvania counsel to the Trusts, rendered an
opinion under then existing law substantially to the effect that:
Units evidencing fractional undivided interests in the Trusts are not
subject to any of the personal property taxes presently in effect in
Pennsylvania to the extent of that proportion of the Trust represented by Bonds
issued by the Commonwealth of Pennsylvania, its agencies and instrumentalities,
or by any county, city, borough, town, township, school district, municipality
and local housing or parking authority in the Commonwealth of Pennsylvania or
issued by Puerto Rico, the Virgin Islands, Guam or the Northern Mariana Islands
("Pennsylvania Bonds"). The taxes referred to above include the County Personal
Property Tax, the additional personal property taxes imposed on Pittsburgh
residents by the School District of Pittsburgh and by the City of Pittsburgh.
The City of Pittsburgh, the School District of Pittsburgh and Allegheny County
cannot impose personal property taxes as of January 1, 1995. Trust Units may be
taxable under the Pennsylvania inheritance and estate taxes.
The proportion of interest income representing interest income from
Pennsylvania Bonds distributed to Unitholders of the Trust is not taxable under
the Pennsylvania Personal Income Tax or under the Corporate Net Income Tax
imposed on corporations by Article IV of the Tax Reform Code. Nor will such
interest be taxable under the Philadelphia School District Investment Income Tax
imposed on Philadelphia resident individuals.
The disposition by the Trusts of a Pennsylvania Bond (whether by sale,
exchange, redemption or payment at maturity) will not constitute a taxable event
to a Unitholder under the Pennsylvania Personal Income Tax if the Pennsylvania
Bond was issued prior to February 1, 1994. Further, although there is no
published authority on the subject, counsel is of the opinion that (i) a
Unitholder of the Trusts will not have a taxable event under the Pennsylvania
state and local income taxes referred to in the preceding paragraph (other than
the Corporate Net Income Tax) upon the redemption or sale of his Unit to the
extent that the Trusts are then comprised of Pennsylvania Bonds issued prior to
February 1, 1994 and (ii) the dispositions by the Trusts of a Pennsylvania Bond
(whether by sale, exchange, redemption or payment at maturity) will not
constitute a taxable event to a Unitholder under the Corporate Net Income Tax or
the Philadelphia School District Investment Income Tax if the Pennsylvania Bond
was issued prior to February 1, 1994. (The School District tax has no
application to gain on the disposition of property held by the taxpayer for more
than six months.)
Gains on the sale, exchange, redemption, or payment at maturity of a
Pennsylvania Bond issued on or after February 1, 1994, will be taxable under all
of these taxes, as will gains on the redemption or sale of a unit to the extent
that each Trust is comprised of Pennsylvania Bonds issued on or after February
1, 1994.
TENNESSEE RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Tennessee is
affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The State's economic base is
diversified, consisting of manufacturing, construction, trade and service
industries, supplemented by a diverse agricultural sector. These sectors tend to
be more cyclical than other sectors.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State of Tennessee currently maintains a "AAA", "Aaa" and "AAA"
bond rating from Standard & Poor's, Moody's and Fitch, respectively, on its
general obligation indebtedness.
Further information concerning Tennessee risk factors may be found in
the Information Supplement to this Prospectus.
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Tax Status. At the time of the closing for each Tennessee Trust,
Special Counsel to the Fund for Tennessee tax matters rendered an opinion under
then existing Tennessee income tax law applicable to taxpayers whose income is
subject to Tennessee income taxation substantially to the effect that:
The assets of the Tennessee Trust will consist of bonds issued by the
State of Tennessee (the "State") or any county or any municipality or political
subdivision thereof, including any agency, board, authority or commission, the
interest on which is exempt from the Hall Income Tax imposed by the State of
Tennessee ("Tennessee Bonds") or by the Commonwealth of Puerto Rico (the "Puerto
Rico Bonds") (collectively, the "Bonds").
Under Tennessee law, a unit investment trust taxable as a grantor trust
for federal income tax purposes is entitled to special Tennessee State tax
treatment (as more fully described below) with respect to its proportionate
share of interest income received or accrued with respect to the Tennessee
Bonds. Tennessee law also provides an exemption for distributions made by a unit
investment trust or mutual fund that are attributable to "bonds or securities of
the United States government or any agency or instrumentality thereof" ("U.S.
Government, Agency or Instrumentality Bonds"). If it were determined that the
Trust held assets other than Tennessee Bonds or U.S. Government, Agency or
Instrumentality Bonds, a proportionate share of distributions from the Trust
would be taxable to Unitholders for Tennessee Income Tax purposes.
Further, this provision appears only to provide an exemption for
distributions that relate to interest income, distributions by the Trust that
relate to capital gains realized from the sale or redemption of Tennessee Bonds
or U.S. Government, Agency or Instrumentality Bonds are likely to be treated as
taxable dividends for purposes of the Hall Income Tax. However, capital gains
realized directly by a Unitholder when the Unitholder sells or redeems his Unit
will not be subject to the Hall Income Tax. The opinion set forth below assumes
that the interest on the Tennessee Bonds, if received directly by a Unitholder,
would be exempt from the Hall Income Tax under Tennessee State law. This opinion
does not address the taxation of persons other than full-time residents of the
State of Tennessee.
Because this provision only provides an exemption for distributions
attributable to interest on Tennessee Bonds or U.S. Government, Agency or
Instrumentality Bonds, it must be determined whether bonds issued by the
Government of Puerto Rico qualify as U.S. Government, Agency or Instrumentality
Bonds. For Hall Income Tax purposes, there is currently no published
administrative interpretation or opinion of the Attorney General of Tennessee
dealing with the status of distributions made by unit investment trusts such as
the Tennessee Trust that are attributable to interest paid on bonds issued by
the Government of Puerto Rico. However, in a letter dated August 14, 1992 (the
"Commissioner's Letter"), the Commissioner of the State of Tennessee Department
of Revenue advised that Puerto Rico would be an "instrumentality" of the U.S.
Government and treated bonds issued by the Government of Puerto Rico as U.S.
Government, Agency or Instrumentality Bonds. Based on this conclusion, the
Commissioner advised that distributions from a mutual fund attributable to
investments in Puerto Rico Bonds are exempt from the Hall Income Tax. Both the
Sponsor and Chapman and Cutler, for purposes of its opinion (as set forth
below), have assumed, based on the Commissioner's Letter, that bonds issued by
the Government of Puerto Rico are U.S. Government, Agency or Instrumentality
Bonds. However, it should be noted that the position of the Commissioner is not
binding, and is subject to change, even on a retroactive basis.
The Sponsor cannot predict whether new legislation will be enacted into
law affecting the tax status of Tennessee Trusts. The occurrence of such an
event could cause distributions of interest income from the Trust to be subject
to the Hall Income Tax. Investors should consult their own tax advisors in this
regard. It is assumed for purposes of the discussion and opinion below that the
Bonds constitute debt for federal income tax purposes.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under
existing Tennessee State law as of the date of this prospectus:
For purposes of the Hall Income Tax, the Tennessee Excise Tax imposed
by Section 67-4-806 (the "State Corporate Income Tax"), and the Tennessee
Franchise Tax imposed by Section 67-4-903, the Tennessee Trust will not be
subject to such taxes.
For Hall Income Tax purposes, a proportionate share of such
distributions from the Tennessee Trust to Unitholders, to the extent
attributable to interest on the Tennessee Bonds (based on the relative
proportion of interest received or accrued attributable to Tennessee Bonds) will
be exempt from the Hall Income Tax when
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distributed to such Unitholders. Based on the Commissioner's Letter,
distributions from the Trust to Unitholders, to the extent attributable to
interest on the Puerto Rico Bonds (based on the relative proportion of interest
received or accrued attributable to the Puerto Rico Bonds) will be exempt from
the Hall Income Tax when distributed to such Unitholders. A proportionate share
of distributions from the Tennessee Trust attributable to assets other than the
Bonds would not, under current law, be exempt from the Hall Income Tax when
distributed to Unitholders.
For State Corporate Income Tax Purposes, Tennessee law does not provide
an exemption for interest on Tennessee Bonds and requires that all interest
excludable from Federal gross income must be included in calculating "net
earnings" subject to the State Corporate Income Tax. No opinion is expressed
regarding whether such tax would be imposed on the earnings or distributions of
the Tennessee Trust (including interest on the Bonds or gain realized upon the
disposition of the Bonds by the Tennessee Trust) attributable to Unitholders
subject to the State Corporate Income Tax. However, based upon prior written
advice from the Tennessee Department of Revenue, earnings and distributions from
the Tennessee Trust (including interest on the Tennessee Bonds or gain realized
upon the disposition of the Tennessee Bonds by the Tennessee Trust) attributable
to the Unitholders should be exempt from the State Corporate Income Tax. The
position of the Tennessee Department of Revenue is not binding, and is subject
to change, even on a retroactive basis.
Each Unitholder will realize taxable gain or loss for State Corporate
Income Tax purposes when the Unitholder redeems or sells his Units, at a price
that differs from original cost as adjusted for accretion or any discount or
amortization of any premium and other basis adjustments, including any basis
reduction that my be required to reflect a Unitholder's share of interest, if
any, accruing on Bonds during the interval between the Unitholder's settlement
date and the date such Bonds are delivered to the Tennessee Trust, if later. Tax
basis reduction requirements relating to amortization of bond premium may, under
some circumstances, result in Unitholders realizing taxable gain when the Units
are sold or redeemed for an amount equal to or less than their original cost.
For purposes of the Tennessee Property Tax, the Tennessee Trust will be
exempt from taxation with respect to the Bonds it holds. As for the taxation of
the Units held by the Unitholders, although intangible personal property is not
presently subject to Tennessee taxation, no opinion is expressed with regard to
potential property taxation of the Unitholders with respect to the Units because
the determination of whether property is exempt from such tax is made on a
county by county basis.
No opinion is expressed herein regarding whether insurance proceeds
paid in lieu of interest on the Bonds held by the Tennessee Trust (including the
Tennessee Bonds) are exempt from the Hall Income Tax. Distributions of such
proceeds to Unitholders may be subject to the Hall Income Tax.
The Bonds and the Units held by the Unitholder will not be subject to
Tennessee sales and use taxes.
We have not examined any of the Bonds to be deposited and held in the
Tennessee Trust or the proceedings for the issuance thereof or the opinions of
bond counsel with respect thereto, and therefore express no opinion as to the
exemption from State income taxes of interest on the Bonds if received directly
by a Unitholder. We have assumed that at the respective times of issuance of the
Bonds, opinions relating to the validity thereof and to the exemption of
interest thereon from Federal income tax were rendered by bond counsel to the
respective issuing authorities. In addition, we have assumed that, with respect
to the Tennessee Bonds, bond counsel to the issuing authorities rendered
opinions as the exemption of interest from the Income taxes imposed and, with
respect to the Possession Bonds, bond counsel to the issuing authorities
rendered opinions as the exemption from all state and local income taxation of
the Possession Bonds and the interest thereon. Neither the Sponsor nor its
counsel has made any review for the Tennessee Trust of the proceedings relating
to the issuance of the Bonds or the bases for the opinions rendered in
connection therewith.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Tennessee law. Ownership of the Units may result in
collateral Tennessee tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any such
collateral consequences.
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TEXAS RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the State of Texas is affected
by various national and local, economic, social and environmental policies and
conditions and may have an effect on the value of the Units. Additionally,
Constitutional and statutory limitations imposed on the State and its local
governments concerning taxes, bond indebtedness and other matters may constrain
the revenue-generating capacity of the State and its local governments and,
therefore, the ability of the issuers of the Bonds to satisfy their obligations.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The state's economic base is
diversified, consisting of construction, manufacturing, mining, business
servicer, retail trade and technology industries. These industries tend to be
highly cyclical.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
The State maintains a bond rating of Aa1 and AA+ from Moody's and
Fitch, respectively, on its general obligation indebtedness.
Further information concerning Texas risk factors may be found in the
Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Texas Trust, Special
Counsel to the Fund for Texas tax matters rendered an opinion under then
existing Texas income taw law applicable to taxpayers whose income is subject to
Texas income taxation substantially to the effect that:
The State of Texas currently imposes no income tax. However, several
proposals have been introduced in the Texas Legislature that would, among other
things, impose a Texas income tax on individuals, trusts and businesses. It is
impossible to predict whether any such proposals will be enacted, and whether,
if enacted, any such law would exempt interest on Texas Bonds (or out of state
Bonds) from the Texas income tax, or if so whether income distributed by a Texas
Trust would retain its tax-exempt status when received by Unitholders. While no
opinion is rendered as to whether income distributions from any Texas Trust will
be exempt from any income tax that may be imposed on residents of Texas in the
future, at the time of the closing for each Texas Trust, Johnson & Gibbs, P.C.,
special Texas counsel to the Texas Trusts, rendered an opinion pursuant to then
existing Texas law applicable to individuals who are residents of Texas for
Texas tax purposes substantially to the effect that:
Neither the State nor any political subdivision of the State currently
imposes an income tax. Therefore, no portion of any distribution received by a
Unitholder of a Texas Trust in respect of his Units is subject to income
taxation by the State or any political subdivision of the State.
Except in the case of certain transportation businesses, savings and
loan associations and insurance companies, no Unit of the Fund is taxable under
any property tax levied in the State;
The "inheritance tax" of the State, imposed upon certain transfers of
property of a deceased resident individual Unitholder, may be measured in part
upon the value of Units of a Texas Trust included in the estate of such
Unitholder; and
With respect to any Unitholder which is subject to the State corporate
franchise tax, Units in a Texas Trust held by such Unitholder, and distributions
received thereon, will be taken into account in computing the taxable capital of
the Unitholder allocated.
VIRGINIA RISK FACTORS AND TAX STATUS
Risk Factors. The financial condition of the Commonwealth of Virginia
is affected by various national and local, economic, social and environmental
policies and conditions and may have an effect on the value of the Units. The
Virginia Constitution requires a balanced biennial budget and contains limits on
the amount of general obligation bonds which the Commonwealth can issue.
Additionally, Constitutional and statutory limitations concerning taxes, bond
indebtedness and other matters may constrain the revenue-generating capacity of
the
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Commonwealth and its local governments and, therefore, the ability of the
issuers of the Bonds to satisfy their obligations.
The economic vitality of the Commonwealth and its various regions and,
therefore, the ability of the Commonwealth and its local governments to satisfy
the Bonds, are affected by numerous factors. The employment in the Commonwealth
has been and continues to be significantly and adversely affected by the
cutbacks in federal government spending, particularly defense, and the reduction
of jobs in the mining industry.
The Commonwealth is a party to numerous lawsuits in which an adverse
final decision could materially affect the Commonwealth's governmental
operations and consequently, its ability to pay debt service on its obligations.
The Commonwealth of Virginia currently maintains a "AAA" bond rating
from Standard & Poor's and Moody's.
Further information concerning Virginia risk factors may be found in
the Information Supplement to this Prospectus.
Tax Status. At the time of the closing for each Virginia Trust,
Christian & Barton, L.L.P., special counsel to each Virginia Trust for Virginia
tax matters rendered an opinion under then existing Virginia income tax law
applicable to taxpayers whose income is subject to Virginia income taxation
substantially to the effect that:
The assets of the Trust will consist of interest-bearing obligations
issued by or on behalf of the Commonwealth of Virginia, its counties,
municipalities, authorities or political subdivisions and, provided the interest
thereon is exempt from Virginia income taxes by the laws or treaties of the
United States, by or on behalf of the United States' territories or possessions,
including Puerto Rico, Guam, the Virgin Islands and the Northern Mariana
Islands, and their political subdivisions and authorities (the "Virginia
Bonds").
The Trust will be treated as a trust for Virginia income tax purposes
and not as an association taxable as a corporation. As a result, income of the
Trust will be treated as the income of the Unitholders.
Amounts representing tax-exempt interest for Federal income tax
purposes received or accrued by the Trust with respect to the Virginia Bonds,
will not be taxed to the Trust or to the Unitholders for Virginia income tax
purposes. To the extent that interest on obligations of the Commonwealth or any
political subdivision or instrumentality thereof is included in federal adjusted
gross income, that income shall be subtracted in arriving at Virginia taxable
income.
Where an independent Virginia income tax exemption is provided for
interest on certain obligations, including those issued by industrial
development authorities pursuant to the Virginia Industrial Development and
Revenue Bond Act, by the Virginia Housing Development Authority, by the Virginia
Resources Authority and by the Virginia Education Loan Authority, interest on
such obligations is exempt from Virginia income taxation without regard to any
exemption from Federal income taxes.
Gain which is subject to Federal income taxation as a result of the
sale of a Unit by the Unitholder will be included in the Unitholder's Virginia
taxable income.
No income tax is imposed by any political subdivision of the
Commonwealth of Virginia. The Commonwealth of Virginia does not impose a gift
tax and the Virginia estate tax on a resident's Federal taxable estate and a
non-resident's Federal taxable estate located in the Commonwealth is equal to
the maximum state death tax credit allowable against the Federal estate tax
payable by the estate.
OPERATING EXPENSES
No annual advisory fee is charged to the Trusts by the Sponsor. The
Sponsor does, however, receive a fee of $0.17 per annum per $1,000 principal
amount of the underlying Bonds in each Trust for regularly evaluating the Bonds
and for maintaining surveillance over the portfolio (the "Sponsor's Evaluation
Fee").
The Trustee receives for ordinary recurring services an annual fee for
each plan of distribution for each Trust as set forth in "Essential Information
Regarding the Trusts" in Part Two of the Prospectus. Each annual fee
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is per $1,000 principal amount of the underlying Bonds in a Trust for that
portion of the Trust that represents a particular plan of distribution. The
Trustee's compensation with respect to each Trust is computed on the basis of
the largest principal amount of Bonds in a Trust at any time during the period
with respect to which such compensation is being computed. The Trustee's fee may
be periodically adjusted in response to fluctuations in short-term interest
rates (reflecting the cost to the Trustee of advancing funds to a Trust to meet
scheduled distributions). In addition, the Sponsor's Evaluation Fee and the
Trustee's Fee may be further adjusted in accordance with the cumulative
percentage increase of the United States Department of Labor's Consumer Price
Index entitled "All Services Less Rent of Shelter" since the establishment of
the Trusts, or if such index no longer exists, a comparable index. The Trustee
has the use of funds, if any, being held in the Interest and Principal Accounts
of each Trust for future distributions, payment of expenses and redemptions.
These Accounts are non-interest bearing to Unitholders. Pursuant to normal
banking procedures, the Trustee benefits from the use of funds held therein.
Part of the Trustee's compensation for its services to the Fund is expected to
result from such use of these funds.
Premiums for the policies of insurance obtained by the Sponsor or by
the Bond issuers with respect to Bonds in Insured Trusts and with respect to
insured Bonds in Traditional Trusts have been paid in full prior to the deposit
of the Bonds in the Trusts, and the value of such insurance has been included in
the evaluation of the Bonds in each Trust and accordingly in the Public Offering
Price of Units of each Trust. There are no annual or continuing premiums for
such insurance.
Commencing with Series 1011 and continuing through Series 1100, the
Trusts (and therefore Unitholders) will bear as an operating expense all or a
portion of their offering and/or organization costs, including costs of
registering Units with the Securities and Exchange Commission and states, and
legal fees, but not including expenses incurred in the printing of preliminary
and final prospectuses, and expenses incurred in the preparation and printing of
brochures and other advertising materials and any other selling expenses as is
common for mutual funds. Total offering costs will generally be amortized over
the first five years of such Trusts. For Series 814 through Series 1010, all or
a portion of the expenses incurred in establishing the Trusts, including costs
of preparing the registration statements, the trust indentures and other closing
documents, registering Units with the Securities and Exchange Commission and
states, the initial audit of each Trust portfolio, the initial evaluation, legal
fees, the initial fees and expenses of the Trustee and any other non-material
out-of-pocket expenses, were paid by the Trusts and amortized over the first
five years of such Trusts. For Series prior to Series 814, the Sponsor has borne
all costs of creating and establishing such Trusts. The following are additional
expenses of the Trusts and, when paid by or owed to the Trustee, are secured by
a lien on the assets of the Trust or Trusts to which such expenses are
allocable: (1) the expenses and costs of any action undertaken by the Trustee to
protect the Trusts and the rights and interests of the Unitholders; (2) all
taxes and other governmental charges upon the Bonds or any part of the Trusts
(no such taxes or charges are being levied or made or, to the knowledge of the
Sponsor, contemplated); (3) amounts payable to the Trustee as fees for ordinary
recurring services and for extraordinary non-recurring services rendered
pursuant to the Indenture, all disbursements and expenses including counsel fees
(including fees of bond counsel which the Trustee may retain) sustained or
incurred by the Trustee in connection therewith; and (4) any losses or
liabilities accruing to the Trustee without negligence, bad faith or willful
misconduct on its part. The Trustee is empowered to sell Bonds in order to pay
these amounts if funds are not otherwise available in the Interest and Principal
Accounts of the appropriate Trust.
Except as provided in the Indenture, the Indenture for certain Series
generally requires the Trusts to be audited on an annual basis at the expense of
the Trust by independent public accountants selected by the Sponsor. The Trustee
shall not be required, however, to cause such an audit to be performed if its
cost to a Trust shall exceed $.05 per Unit on an annual basis. Unitholders of a
Trust covered by an audit may obtain a copy of the audited financial statements
upon request.
DISTRIBUTIONS TO UNITHOLDERS
Interest received by the Trustee on the Bonds in each Trust, including
that part of the proceeds of any disposition of Bonds which represents accrued
interest and including any insurance proceeds representing interest due on
defaulted Bonds, shall be credited to the "Interest Account" of the appropriate
Trust and all other moneys received by the Trustee shall be credited to the
"Principal Account" of the appropriate Trust.
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NATIONAL TRADITIONAL TRUSTS 4 THROUGH 39 - SEMI-ANNUAL DISTRIBUTIONS
The pro rata share of the Interest Account and the pro rata share of
the cash in the Principal Account for each Trust will be computed by the Trustee
semi-annually each year on the Record Dates (stated in Part Two of this
Prospectus). Shortly after such computations, distributions will be made to the
Unitholders as of the Record Date. Proceeds received from the disposition of any
of the Bonds after a Record Date and prior to the following Distribution Date
will be held in the Principal Account and either used to pay for Units redeemed
or distributed on the Distribution Date following the next Record Date. The
Trustee is not required to make a distribution from the Principal Account unless
the amount available for distribution shall equal at least $0.10 per Unit.
Persons who purchase Units after a Record Date and prior to the following
Distribution Date will receive their first distribution on the second
Distribution Date after their purchase of Units.
As of each Record Date, the Trustee will deduct from the Interest
Account or, to the extent funds are not sufficient therein, from the Principal
Account, amounts needed for payment of expenses of the Trusts. The Trustee also
may withdraw from said accounts such amount, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of the Trusts.
Amounts so withdrawn shall not be considered a part of a Trust's assets until
such time as the Trustee shall return all or part of such amount to the
appropriate account.
NATIONAL TRADITIONAL TRUST 40 AND SUBSEQUENT NATIONAL TRADITIONAL TRUSTS; ALL
OTHER TRUSTS - OPTIONAL DISTRIBUTIONS
The pro rata share of cash in the Principal Account in each Trust will
be computed as of each semi-annual Record Date and distributions to the
Unitholders as of such Record Date will be made on or shortly after the
fifteenth day of the month. Proceeds received from the disposition, including
sale, call or maturity, of any of the Bonds and all amounts paid with respect to
zero coupon bonds and Stripped Obligations will be held in the Principal Account
and either used to pay for Units redeemed or distributed on the Distribution
Date following the next semi-annual Record Date. The Trustee is not required to
make a distribution from the Principal Account of any Trust unless the amount
available for distribution in such account equals at least $0.10 per Unit.
The pro rata share of the Interest Account in each Trust will be
computed by the Trustee each month as of the Record Date. For National
Traditional Trusts 40 through 51, distributions will be made on or shortly after
the fifteenth day of each month to Unitholders as of the Record Date. For
National Traditional Trust 52 and subsequent National Traditional Trusts, State
Traditional Trusts and subsequent State Traditional Trusts and all other Trusts,
Unitholders have the option of receiving distributions monthly, quarterly or
semi-annually. Record Dates are the first day of each month for Unitholders
under the monthly plan of distribution, the first day of March, June, September
and December for quarterly distributions, and the first day of June and December
for semi-annual distributions (for National Traditional Trust 140 and subsequent
National Traditional Trusts and all other Trusts, quarterly Record Dates are the
first day of February, May, August and November and for semi-annual
distributions the Record Dates are the first day of May and November).
Distributions will be made on or shortly after the fifteenth day of the month to
Unitholders of such Trust as of the Record Date who are entitled to
distributions at that time under the plan of distribution in effect. Persons who
purchase Units between a Record Date and a Distribution Date will receive their
first distribution on the Distribution Date following the next Record Date under
the applicable plan of distribution.
The plan of distribution selected by a Unitholder will remain in effect
until changed. Unitholders purchasing Units of a Trust in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. Unitholders of Trusts having more than one available plan of
distribution who desire to change their plan of distribution may do so by
sending a written notice requesting the change, together with any
Certificate(s), to the Trustee. The notice and any Certificate(s) must be
received by the Trustee not later than the semi-annual Record Date to be
effective as of the semi-annual distribution following the subsequent
semi-annual Record Date. Unitholders are requested to make any such changes
within 45 days prior to the applicable Record Date. Certificates should only be
sent by registered or certified mail, return receipt requested, to minimize the
possibility of their being lost or stolen.
As of the first day of each month, the Trustee will deduct from the
Interest Account of a Trust or, to the extent funds are not sufficient therein,
from the Principal Account of a Trust, amounts needed for payment of
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expenses of such Trust. The Trustee also may withdraw from said accounts such
amount, if any, as it deems necessary to establish a reserve for any
governmental charges payable out of such Trust. Amounts so withdrawn shall not
be considered a part of a Trust's assets until such time as the Trustee shall
return all or any part of such amounts to the appropriate account.
The amount of the regular distributions will generally change when
Bonds are redeemed, mature or are sold or when fees and expenses increase or
decrease. For the purpose of minimizing fluctuations in the distributions from
the Interest Account of a Trust, the Trustee is authorized to advance such
amounts as may be necessary to provide for interest distributions of
approximately equal amounts. The Trustee shall be reimbursed, without interest,
for any such advances from funds in the Interest Account of such Trust. The
Trustee's fee takes into account the costs attributable to the outlay of capital
needed to make such advances.
The Trustee shall withdraw from the Interest Account and the Principal
Account of a Trust such amounts as may be necessary to cover redemptions of
Units of such Trust by the Trustee. (See "How Units May Be Redeemed Without
Charge.")
Funds which are available for future distributions, redemptions and
payments of expenses are held in accounts which are non-interest bearing to
Unitholders and are available for use by the Trustee pursuant to normal banking
procedures.
ACCUMULATION PLAN
The Sponsor, John Nuveen & Co. Incorporated, is also the principal
underwriter of several open-end mutual funds (the "Accumulation Funds") into
which Unitholders may choose to reinvest Trust distributions automatically,
without any sales charge. Unitholders may reinvest both interest and principal
distributions or principal distributions only. Each Accumulation Fund has
investment objectives which differ in certain respects from those of the Trusts
and may invest in securities which would not be eligible for deposit in the
Trusts. Further information concerning the Accumulation Plan and a list of
Accumulation Funds is set forth in the Information Supplement to this
Prospectus, which may be obtained by contacting the Trustee at the phone number
listed on the back cover of this Prospectus.
Participants may at any time, by so notifying the Trustee in writing,
elect to change the Accumulation Fund into which their distributions are being
reinvested, to change from principal only reinvestment to reinvestment of both
principal and interest or vice versa, or to terminate their participation in the
Accumulation Plan altogether and receive future distributions on their Units in
cash. There will be no charge or other penalty for such change of election or
termination. The character of Trust distributions for income tax purposes will
remain unchanged even if they are reinvested in an Accumulation Fund.
DETAILED REPORTS TO UNITHOLDERS
The Trustee shall furnish Unitholders of a Trust in connection with
each distribution, a statement of the amount of interest, if any, and the amount
of other receipts (received since the preceding distribution) being distributed,
expressed in each case as a dollar amount representing the pro rata share of
each Unit of a Trust outstanding and a year-to-date summary of all distributions
paid on said Units. Within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each person, who at any time during
the calendar year was a registered Unitholder of a Trust, a statement with
respect to such Trust (i) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Bonds), and, the percentage of such interest with respect to Trust's other than
State Trusts by states in which the issuers of the Bonds are located, deductions
for fees and expenses of such Trust, redemption of Units and the balance
remaining after such distributions and deductions, expressed in each case both
as a total dollar amount and as a dollar amount representing the pro rata share
of each Unit outstanding on the last business day of such calendar year; (ii) as
to the Principal Account: the dates of disposition of any Bonds and the net
proceeds received therefrom (excluding any portion representing accrued
interest), the amount paid for purchase of Replacement Bonds, the amount paid
upon redemption of Units, deductions for payment of applicable taxes and fees
and expenses of the Trustee, and the balance remaining after such distributions
and deductions expressed both as a total dollar amount and as a dollar
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amount representing the pro rata share of each Unit outstanding on the last
business day of such calendar year; (iii) a list of the Bonds held and the
number of Units outstanding on the last business day of such calendar year; (iv)
the Unit Value based upon the last computation thereof made during such calendar
year; and (v) amounts actually distributed during such calendar year from the
Interest Account and from the Principal Account, separately stated, expressed
both as total dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding. Each annual statement will reflect pertinent
information in respect of all plans of distribution so that Unitholders may be
informed regarding the results of other plans of distribution.
UNIT VALUE AND EVALUATION
The value of each Trust is determined by the Sponsor on the basis of
(1) the cash on hand in the Trust or moneys in the process of being collected,
(2) the value of the Bonds in the Trust based on the bid prices of the Bonds and
(3) interest accrued thereon not subject to collection, less (1) amounts
representing taxes or governmental charges payable out of the Trust (2) amounts
representing unpaid organization costs, if applicable, and (3) the accrued
expenses of the Trust. The result of such computation is divided by the number
of Units of such Trust outstanding as of the date thereof to determine the per
Unit value ("Unit Value") of such Trust. The Sponsor may determine the value of
the Bonds in each Trust (1) on the basis of current bid prices of the Bonds
obtained from dealers or brokers who customarily deal in bonds comparable to
those held by the Trust, (2) if bid prices are not available for any of the
Bonds, on the basis of bid prices for comparable bonds, (3) by causing the value
of the Bonds to be determined by others engaged in the practice of evaluating,
quoting or appraising comparable bonds or (4) by any combination of the above.
Although the Unit Value of each Trust is based on the bid prices of the Bonds,
the Units are sold initially to the public in the primary market at the Public
Offering Price based on the offering prices of the Bonds.
Because the insurance obtained by the Sponsor or by the issuers of
Bonds with respect to the Bonds in the Insured Trusts and with respect to
insured Bonds in Traditional Trusts is effective so long as such Bonds are
outstanding, such insurance will be taken into account in determining the bid
and offering prices of such Bonds and therefore some value attributable to such
insurance will be included in the value of Units of Trusts that include such
Bonds.
DISTRIBUTION OF UNITS TO THE PUBLIC
The Sponsor currently intends to maintain a secondary market for Units
of certain Trusts. (See "Market for Units" above.) The amount of the dealer
concession on secondary market purchases of Trust Units through the Sponsor will
be computed based upon the value of the Bonds in the Trust portfolio, including
the sales charge computed as described in "Public Offering Price," and adjusted
to reflect the cash position of the Trust principal account, and will vary with
the size of the purchase as shown in the following table:
AMOUNT OF PURCHASE*
[Enlarge/Download Table]
$50,000 $100,000 $250,000 $500,000 $1,000,000 $2,500,000
UNDER TO TO TO TO TO OR
YEARS TO MATURITY $50,000 $99,999 $249,999 $499,999 $999,999 $2,499,999 MORE
Less than 1 0 0 0 0 0 0 0
1 but less than 2 1.00% .90% .85% .80% .70% .55% .467%
2 but less than 3 1.30% 1.20% 1.10% 1.00% .90% .73% .634%
3 but less than 4 1.60% 1.45% 1.35% 1.25% 1.10% .90% .781%
4 but less than 5 2.00% 1.85% 1.75% 1.55% 1.40% 1.25% 1.082%
5 but less than 7 2.30% 2.15% 1.95% 1.80% 1.65% 1.50% 1.320%
7 but less than 10 2.60% 2.45% 2.25% 2.10% 1.95% 1.70% 1.496%
10 but less than 13 3.00% 2.80% 2.60% 2.45% 2.30% 2.00% 1.747%
13 but less than 16 3.25% 3.15% 3.00% 2.75% 2.50% 2.15% 1.878%
16 or more 3.50% 3.50% 3.40% 3.35% 3.00% 2.50% 2.185%
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--------------------
* Breakpoint sales charges and related dealer concessions are computed both
on a dollar basis and on the basis of the number of Units purchased, using
the equivalent of 500 Units to $50,000, 2,500 Units to $250,000, etc., and
will be applied on that basis which is more favorable to the purchaser.
The Sponsor reserves the right to change the foregoing dealer
concessions from time to time.
Volume incentives can be earned as a marketing allowance by eligible
dealer firms who reach cumulative firm sales or sales arrangement levels of a
specified dollar amount of Nuveen unit trusts (other than any series of the
Nuveen-The Dow 5SM Portfolios and Nuveen-The Dow 10SM Portfolios) sold in the
primary or secondary market during any quarter as set forth in the table below.
Eligible dealer firms are dealers that are providing marketing support for
Nuveen unit trusts in the form of 1) distributing or permitting the distribution
of marketing materials and other product information, 2) providing Nuveen
representatives access to the dealer's branch offices, and 3) generally
facilitating the placement of orders by the dealer's registered representatives
such as putting Nuveen unit trusts on their order entry screens. Eligible firms
will not include firms that solely provide clearing services to broker/dealer
firms. For purposes of determining the applicable volume incentive rate for a
given quarter, the dollar amount of all units sold over the current and three
previous quarters (the "Measuring Period") is aggregated. The volume incentive
received by the dealer firm will equal the dollar amount of units sold during
the current quarter times the highest applicable rate for the Measuring Period.
For firms that meet the necessary volume level, volume incentives may be given
on all applicable trades originated from or by that firm.
TOTAL DOLLAR AMOUNT SOLD
OVER MEASURING PERIOD VOLUME INCENTIVES
$ 5,000,000 to $9,999,999 0.10% of current quarter sales
$10,000,00 to $19,999,999 0.125% of current quarter sales
$20,000,000 to $49,999,999 0.1375% of current quarter sales
$50,000,000 or more 0.15% of current quarter sales
Only sales through the Sponsor qualify for volume incentives and for
meeting minimum requirements. The Sponsor reserves the right to modify or change
the volume incentive schedule at any time and make the determination as to which
firms qualify for the marketing allowance and the amount paid.
Firms are not entitled to receive any dealer concession for any sales
made to investors which qualified as "Discounted Purchases" (as defined in
"Public Offering Price").
OWNERSHIP AND TRANSFER OF UNITS
Ownership of Units is evidenced in Certificated form unless the
Unitholder expressly requests that in the purchased Units be evidenced by
book-entry positions recorded on the books and records of the Trustee. [For
Trusts included in Nuveen Tax-Free Unit Trust, Series 723 and all subsequent
Trusts, the ownership of Units is evidenced by book entry positions recorded on
the books and records of the Trustee unless the Unitholder expressly requests
that the purchased Units be evidenced in Certificate form.] The Trustee is
authorized to treat as the owner of Units that person who at the time is
registered as such on the books of the Trustee. Any Unitholder who holds a
Certificate may change to book-entry ownership by submitting to the Trustee the
Certificate along with a written request that the Units represented by such
Certificate be held in book-entry form. Likewise, a Unitholder who holds Units
in book-entry form may obtain a Certificate for such Units by written request to
the Trustee. Units may be held in denominations of one Unit or any multiple or
fraction thereof. Fractions of Units are computed to three decimal places. Any
Certificates issued will be numbered serially for identification, and are issued
in fully registered form, transferable only on the books of the Trustee.
Book-entry Unitholders will receive a Book-Entry Position Confirmation
reflecting their ownership.
For series allowing optional plans of distribution, Certificates for
Units bear an appropriate notation on their face indicating which plan of
distribution has been selected. When a holder of certificated Units changes his
plan of distribution, the existing Certificate must be surrendered to the
Trustee and a new Certificate issued to reflect the currently effective plan of
distribution. There will be no charge for this service. Holders of book-entry
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Units can change their plan of distribution by making a written request to the
Trustee, which will issue a new Book-Entry Position Confirmation to reflect the
change.
Units are transferable by making a written request to the Trustee and,
in the case of Units evidenced by Certificate(s), by presenting and surrendering
such Certificate(s) to the Trustee, at its unit investment trust office in New
York City, properly endorsed or accompanied by a written instrument or
instruments of transfer. The Certificate(s) should be sent registered or
certified mail for the protection of the Unitholders. Each Unitholder must sign
such written request, and such Certificate(s) or transfer instrument, exactly as
his name appears on (a) the face of the Certificate(s) representing the Units to
be transferred, or (b) the Book-Entry Position Confirmation(s) relating to the
Units to be transferred. Such signature(s) must be guaranteed by a guarantor
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority. Mutilated Certificates must be surrendered to the
Trustee in order for a replacement Certificate to be issued.
Although at the date hereof no charge is made and none is contemplated,
a Unitholder may be required to pay $2.00 to the Trustee for each Certificate
reissued or transfer of Units requested and to pay any governmental charge which
may be imposed in connection therewith.
The process of registration and delivery to the Unitholder of
Certificates or Book-Entry Position Confirmations may take up to 30 days.
Purchasers of Units will be unable to exercise any right to transfer or
redemption until they have received their Certificate(s) or Book-Entry Position
Confirmation(s). (See "How Units May Be Redeemed Without Charge.")
REPLACEMENT OF LOST, STOLEN OR DESTROYED CERTIFICATES
To obtain a new Certificate replacing one that has been lost, stolen,
or destroyed, the Unitholder must furnish the Trustee with sufficient
indemnification and pay such expenses as the Trustee may incur. The
indemnification protects the Trustee, Sponsor, and Trust from risk if the
original Certificate is presented for transfer or redemption by a person who
purchased it in good faith, for value, and without notice of any fraud or
irregularity. This indemnification must be in the form of an Open Penalty Bond
of Indemnification. The premium for such an indemnity bond may vary, but
currently amounts to 1.0% of the market value of the Units represented by the
Certificate. In the case, however, of a Trust as to which notice of termination
has been given, the premium currently amounts to 0.5% of the market value of the
Units represented by such Certificate.
HOW UNITS MAY BE REDEEMED WITHOUT CHARGE
Unitholders may redeem all or a portion of their Units by (1) making a
written request for such redemption (book entry Unitholders may use the
redemption form on the reverse side of their Book Entry Position Confirmation)
to the Trustee at its unit investment trust office in New York City (redemptions
of 1,000 Units or more will require a signature guarantee), (2) in the case of
Units evidenced by a Certificate, by also tendering such Certificate to the
Trustee, duly endorsed or accompanied by proper instruments of transfer with
signatures guaranteed as explained above, or by providing satisfactory indemnity
required in connection with lost, stolen or destroyed Certificates and (3)
payment of applicable governmental charges, if any. Certificates should be sent
only by registered or certified mail to minimize the possibility of their being
lost or stolen. (See "Ownership and Transfer of Units.") No redemption fee will
be charged by the Trust, Sponsor or the Trustee. However, a Unitholder's
financial adviser may charge for serving as agent in the redemption of Units. A
Unitholder may authorize the Trustee to honor telephone instructions for the
redemption of Units held in book entry form. Units represented by Certificates
may not be redeemed by telephone. The proceeds of Units redeemed by telephone
will be sent by check either to the Unitholder at the address specified on his
account or to a financial institution specified by the Unitholder for credit to
the account of the Unitholder. A Unitholder wishing to use this method of
redemption must complete a Telephone Redemption Authorization Form and furnish
the Form to the Trustee. Telephone Redemption Authorization Forms can be
obtained from a Unitholder's registered representative or by calling the
Trustee. Once the completed Form is on file, the Trustee will honor telephone
redemption requests by any authorized person. The time a telephone redemption
request is received determines the "date of tender" as
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discussed below. The redemption proceeds will be mailed within three business
days following the telephone redemption request. Only Units held in the name of
individuals may be redeemed by telephone; accounts registered in broker name, or
accounts of corporations or fiduciaries (including among others, trustees,
guardians, executors and administrators) may not use the telephone redemption
privilege.
On the third business day following the date of tender, the Unitholder
will be entitled to receive in cash for each Unit tendered an amount equal to
the Unit Value of such Trust determined by the Trustee, as of 4:00 p.m. eastern
time, or as of any earlier closing time on a day on which the Exchange is
scheduled in advance to close at such earlier time, on the date of tender as
defined hereafter, plus accrued interest to, but not including, the third
business day after the date of tender ("Redemption Price"). The price received
upon redemption may be more or less than the amount paid by the Unitholder
depending on the value of the Bonds on the date of tender. Unitholders should
check with the Trustee or their broker to determine the Redemption Price before
tendering Units.
The "date of tender" is deemed to be the date on which the request for
redemption of Units is received in proper form by the Trustee, except that as
regards a redemption request received after 4:00 p.m. eastern time, or as of any
earlier closing time on a day on which the Exchange is scheduled in advance to
close at such earlier time, or on any day on which the Exchange is normally
closed, the date of tender is the next day on which the Exchange is normally
open for trading and such request will be deemed to have been made on such day
and the redemption will be effected at the Redemption Price computed on that
day.
Accrued interest paid on redemption will be withdrawn from the Interest
Account of the appropriate Trust or, if the balance therein is insufficient,
from the Principal Account of such Trust. All other amounts paid on redemption
shall be withdrawn from the Principal Account of the Trust. The Trustee is
empowered to sell underlying Bonds of a Trust in order to make funds available
for redemption. (See "How Bonds May Be Removed from the Trusts.") Units so
redeemed shall be cancelled. To the extent that Bonds are sold from a Trust, the
size and diversity of such Trust will be reduced. Such sales may be required at
a time when Bonds would not otherwise be sold and might result in lower prices
than might otherwise be realized.
The Redemption Price is determined on the basis of the bid prices of
the Bonds in each Trust.
The right of redemption may be suspended and payment postponed for any
period during which the Securities and Exchange Commission determines that
trading in the municipal bond market is restricted or an emergency exists, as a
result of which disposal or evaluation of the Bonds is not reasonably
practicable, or for such other periods as the Securities and Exchange Commission
may by order permit.
Under regulations issued by the Internal Revenue Service, the Trustee
will be required to withhold a specified percentage of the principal amount of a
Unit redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any amount
so withheld is transmitted to the Internal Revenue Service and may be recovered
by the Unitholder only when filing his or her tax return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification number
from the selling broker at the time the Certificate or Book Entry Return
Confirmation is issued, and this number is printed on the Certificate or Book
Entry Return Confirmation and on distribution statements. If a Unitholder's tax
identification number does not appear as noted above, or if it is incorrect, the
Unitholder should contact the Trustee before redeeming Units to determine what
action, if any, is required to avoid this "back-up withholding."
HOW UNITS MAY BE PURCHASED BY THE SPONSOR
The Trustee will notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time equals or
exceeds the Redemption Price it may purchase such Units by notifying the Trustee
before the close of business on the second succeeding business day and by making
payment therefor to the Unitholder not later than the day on which payment would
otherwise have been made by the Trustee. (See "How Units May Be Redeemed Without
Charge.") The Sponsor's current practice is to bid at the Redemption Price in
the secondary market. Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units.
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HOW BONDS MAY BE REMOVED FROM THE TRUSTS
Bonds will be removed from a Trust as they mature or are redeemed by
the issuers thereof. See the "Schedule of Investments" in Part Two and
"Selection of Bonds for Deposit in the Trusts" herein for a discussion of call
provisions of Bonds in the Trusts.
The Indenture also empowers the Trustee to sell Bonds for the purpose
of redeeming Units tendered by any Unitholder, and for the payment of expenses
for which income may not be available. Under the Indenture, the Sponsor is
obligated to provide the Trustee with a current list of Bonds in each Trust to
be sold in such circumstances. In deciding which Bonds should be sold the
Sponsor intends to consider, among other things, such factors as: (1) market
conditions; (2) market prices of the Bonds; (3) the effect on income
distributions to Unitholders of the sale of various Bonds; (4) the effect on
principal amount of underlying Bonds per Unit of the sale of various Bonds; (5)
the financial condition of the issuers; and (6) the effect of the sale of
various Bonds on the investment character of the Trust. Such sales, if required,
could result in the sale of Bonds by the Trustee at prices less than original
cost to the Trust. To the extent Bonds are sold, the size and diversity of the
Trust will be reduced.
In addition, the Sponsor is empowered to direct the Trustee to
liquidate Bonds upon the happening of certain other events, such as default in
the payment of principal and/or interest, an action of the issuer that will
adversely affect its ability to continue payment of the principal of and
interest on its Bonds, or an adverse change in market, revenue or credit factors
affecting the investment character of the Bonds. If a default in the payment of
the principal of and/or interest on any of the Bonds occurs, and if the Sponsor
fails to instruct the Trustee whether to sell or continue to hold such Bonds
within 30 days after notification by the Trustee to the Sponsor of such default,
the Indenture provides that the Trustee shall liquidate said Bonds forthwith and
shall not be liable for any loss so incurred. The Sponsor may also direct the
Trustee to liquidate Bonds in a Trust if the Bonds in the Trust are the subject
of an advanced refunding, generally considered to be when refunding bonds are
issued and the proceeds thereof are deposited in irrevocable trust to retire the
refunded bonds on their redemption date.
Except for refunding securities that may be exchanged for Bonds under
certain conditions specified in the Indenture, and except as otherwise provided
in the Prospectus or the Indenture, the Indenture does not permit either the
Sponsor or the Trustee to acquire or deposit bonds either in addition to, or in
substitution for, any of the Bonds initially deposited in the Trust.
INFORMATION ABOUT THE TRUSTEE
The Trustee is The Chase Manhattan Bank, 4 New York Plaza, New York,
New York 10004. The Trustee is subject to supervision and examination by the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System and either the Comptroller of the Currency or state banking
authorities. The Trustee has assumed no responsibility for the accuracy,
adequacy and completeness of the information not furnished by it contained in
this Prospectus.
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE
The Sponsor and the Trustee shall be under no liability to Unitholders
for taking any action or for refraining from any action in good faith pursuant
to the Indenture, or for errors in judgment, but shall be liable only for their
own negligence, lack of good faith or willful misconduct. The Trustee shall not
be liable for depreciation or loss incurred by reason of the sale by the Trustee
of any of the Bonds. In the event of the failure of the Sponsor to act under the
Indenture, the Trustee may act thereunder and shall not be liable for any action
taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest thereon or
upon it as Trustee under the Indenture or upon or in respect of any Trust which
the Trustee may be required to pay under any present or future law of the United
States of America or of any other taxing authority having jurisdiction. In
addition, the Indenture contains other customary provisions limiting the
liability of the Trustee.
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SUCCESSOR TRUSTEES AND SPONSORS
The Trustee or any successor trustee may resign by executing an
instrument of resignation in writing and filing same with the Sponsor and
mailing a copy of a notice or resignation to all Unitholders then of record.
Upon receiving such notice, the Sponsor is required to promptly appoint a
successor trustee. If the Trustee becomes incapable of acting or is adjudged a
bankrupt or insolvent, or a receiver or other public officer shall take charge
of its property or affairs, the Sponsor may remove the Trustee and appoint a
successor by written instrument. The resignation or removal of a trustee and the
appointment of a successor trustee shall become effective only when the
successor trustee accepts its appointment as such. Any successor trustee shall
be a corporation authorized to exercise corporate trust powers, having capital,
surplus and undivided profits of not less than $5,000,000. Any corporation into
which a trustee may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which a trustee shall
be a party, shall be the successor trustee.
If upon resignation of a trustee no successor has been appointed and
has accepted the appointment within 30 days after notification, the retiring
trustee may apply to a court of competent jurisdiction for the appointment of a
successor.
If the Sponsor fails to undertake any of its duties under the
Indenture, and no express provision is made for action by the Trustee in such
event, the Trustee may, in addition to its other powers under the Indenture, (1)
appoint a successor sponsor, or (2) terminate the Indenture and liquidate the
Trusts.
INFORMATION ABOUT THE SPONSOR
Since our founding in 1898, John Nuveen & Co. Incorporated has been
synonymous with investments that withstand the test of time. Today, we offer a
broad range of investments designed for investors seeking to build and sustain
their wealth. More than 1.5 million investors have entrusted Nuveen to help them
maintain the lifestyle they currently enjoy.
To meet the unique circumstances and financial planning needs of
our investors, Nuveen offers a wide array of taxable and tax-free investment
products--including equity and fixed-income mutual funds, defined portfolios,
exchange-traded funds, customized asset management services and cash management
products. Nuveen is a subsidiary of The John Nuveen Company which, in turn, is
approximately 78% owned by the St. Paul Companies, Inc. ("St. Paul"). St. Paul
is located in St. Paul, Minnesota and is principally engaged in providing
property-liability insurance through subsidiaries. Nuveen is a member of the
National Association of Securities Dealers, Inc. and the Securities Industry
Association and has its principal office located in Chicago (333 West Wacker
Drive).
To help advisors and investors better understand and more efficiently
use an investment in the Trusts to reach their investment goals, the Sponsor may
advertise and create specific investment programs and systems. For example, such
activities may include presenting information on how to use an investment in the
Trusts, alone or in combination with an investment in other mutual funds or unit
investment trusts sponsored by Nuveen, to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Sponsor may produce
software or additional sales literature to promote the advantages of using the
Trusts to meet these and other specific investor needs.
DESCRIPTIONS OF RATINGS
The Bonds included in the Portfolios are rated by one of the rating
agencies provided below. The following descriptions are published by the rating
agencies.
Standard & Poor's Corporation. The following is a brief description of
the applicable Standard & Poor's rating symbols and their meanings:
A Standard & Poor's rating is a current assessment of the
creditworthiness of an obligor with respect to a specific debt obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
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The rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of payment--capacity and willingness of
the obligor to meet its financial commitment on an obligation in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of,
the obligation in the event of bankruptcy, reorganization or other
arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on an
obligation is extremely strong.
AA -- An obligation rated AA differs from the highest rated issues only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project.
Note Ratings: A Standard & Poor's note rating reflects the liquidity
concerns and market access risks unique to notes. Notes due in 3 years or less
will likely receive a note rating. Notes maturing beyond 3 years will most
likely receive a long-term debt rating.
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes over the
term of the notes.
Moody's Investors Service, Inc. The following is a description of the
applicable Moody's Investors Service, Inc. rating symbols and their meanings:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be
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of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such Bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Bonds for
which the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by: (a) earnings
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
Note Ratings:
MIG 1 This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
MIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.). The
following is a brief description of the applicable Fitch IBCA, Inc. rating
symbols and their meanings:
AAA-- `AAA' ratings denote the lowest expectation of credit risk. They
are assigned only in a case of exceptionally strong capacity for timely payment
of financial commitments. The capacity is highly unlikely to be adversely
affected by foreseeable events.
AA-- `AA' ratings denote a very low expectation of credit risk. They
indicate a very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
A-- `A' ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This capacity
may, nevertheless, be more vulnerable to changes in circumstances or economic
conditions than is the case for higher ratings.
BBB-- `BBB' ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
Note Ratings:
F1 Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
AMENDMENT AND TERMINATION OF INDENTURE
The Indenture may be amended by the Trustee and the Sponsor without the
consent of any of the Unitholders (1) to cure any ambiguity or to correct or
supplement any provision thereof which may be defective or inconsistent, or (2)
to make such other provisions as shall not adversely affect the Unitholders,
provided, however, that the Indenture may not be amended to increase the number
of Units in a Trust or to permit the deposit or
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acquisition of bonds either in addition to, or in substitution for any of the
Bonds initially deposited in a Trust except the substitution of refunding bonds
under certain circumstances. The Trustee shall advise the Unitholders of any
amendment promptly after execution thereof.
A Trust may be liquidated at any time by the written consent of 100% of
the Unitholders or by the Trustee when the value of such Trust, as shown by any
evaluation, is less than 20% of the original principal amount of such Trust and
will be liquidated by the Trustee in the event that Units not yet sold
aggregating more than 60% of the Units originally created are tendered for
redemption by the Sponsor thereby reducing the net worth of the Trust to less
than 40% of the principal amount of the Bonds originally deposited in the
portfolio. The sale of Bonds from the Trusts upon termination may result in
realization of a lesser amount than might otherwise be realized if such sale
were not required at such time. For this reason, among others, the amount
realized by a Unitholder upon termination may be less than the principal amount
of Bonds originally represented by the Units held by such Unitholder. The
Indenture will terminate upon the redemption, sale or other disposition of the
last Bond held thereunder, but in no event shall it continue beyond the end of
the calendar year preceding the fiftieth anniversary of its execution for
National and State Trusts, beyond the end of the calendar year preceding the
twentieth anniversary of its execution for Long Intermediate, and Intermediate
Trusts or beyond the end of the calendar year preceding the tenth anniversary of
its execution for Short Intermediate and Short Term Trusts.
Written notice of any termination specifying the time or times at which
Unitholders may surrender their Certificates, if any, for cancellation shall be
given by the Trustee to each Unitholder at the address appearing on the
registration books of the Trust maintained by the Trustee. Within a reasonable
time thereafter, the Trustee shall liquidate any Bonds in the Trust then held
and shall deduct from the assets of the Trust any accrued costs, expenses or
indemnities provided by the Indenture which are allocable to such Trust,
including estimated compensation of the Trustee and costs of liquidation and any
amounts required as a reserve to provide for payment of any applicable taxes or
other governmental charges. The Trustee shall then distribute to Unitholders of
such Trust their pro rata share of the balance of the Interest and Principal
Accounts. With such distribution, the Unitholders shall be furnished a final
distribution statement, in substantially the same form as the annual
distribution statement, of the amount distributable. At such time as the Trustee
in its sole discretion shall determine that any amounts held in reserve are no
longer necessary, it shall make distribution thereof to Unitholders in the same
manner.
CODE OF ETHICS
The Sponsor and the Trusts have adopted a code of ethics requiring the
Sponsor's employees who have access to information on Trust transactions to
report personal securities transactions. The purpose of the code is to avoid
potential conflicts of interest and to prevent fraud, deception or misconduct
with respect to the Trusts.
LEGAL OPINION
The legality of the Units offered hereby has been passed upon by
Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603. Special
counsel for the Trusts for respective state matters are named in "Tax Status of
Unitholders" herein. Carter, Ledyard & Milburn, 2 Wall Street, New York, New
York 10005, act as counsel for the Trustee with respect to the Trusts and as
special New York tax counsel for the Trusts.
AUDITORS
The "Statement of Condition" and the "Schedule of Investments" for each
Trust in a Series and the related "Statement of Operations" and "Statement of
Changes in Condition" and changes in the Trust Units have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report in
Part Two of this Prospectus with information pertaining to the specific Trusts
in the Series to which such report relates, and are set forth in reliance upon
the authority of said firm as experts in giving said report.
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Prospectus Part One must be accompanied by
Part Two
Sponsor John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606-1286
Trustee The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
800/257-8787
Legal Counsel to Sponsor Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Legal Counsel to Trustee Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Independent Public
Accountants for the Trust Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603
--------------------
This Prospectus does not contain complete information about the Trusts
filed with the Securities and Exchange Commission in Washington, DC under the
Securities Act of 1933 and the Investment Company Act of 1940.
More information about the Trusts, including the code of ethics adopted
by the Sponsor and the Trusts, can be found in the Commission's Public Reference
Room. Information about the operation of the Public Reference Room may be
obtained by calling the Commission at 1-202-942-8090. Trust information is also
available on the EDGAR Database on the Commission's website at
http://www.sec.gov, or may be obtained at prescribed rates by sending an e-mail
request to publicinfo@sec.gov or by writing to the Commission's Public Reference
Section at 450 Fifth Street NW, Washington, D.C. 20549-0102.
No person is authorized to give any information or representation about
the Trusts not contained in Parts One or Two of this Prospectus or the
Information Supplement, and you should not rely on any other information.
When Units of a Trust are no longer available or for investors who will
reinvest into subsequent series of the Trusts may be used as preliminary
Prospectus for a future series. If this is the case, investors should note the
following:
1. Information in this Prospectus is not complete and
may be changed;
2. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective; and
3. This Prospectus is not an offer to sell the securities of
a future series and is not soliciting an offer to buy such securities
in any state where the offer or sale is not permitted.
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NUVEEN TAX-FREE UNIT TRUSTS
INFORMATION SUPPLEMENT
This Information Supplement provides additional information concerning
the structure, operations and risks of a Nuveen Tax-Free Unit Trust not found in
the prospectuses for the Trusts. This Information Supplement is not a prospectus
and does not include all of the information that a prospective investor should
consider before investing in a Trust. This Information Supplement should be read
in conjunction with the prospectus for the Trust in which an investor is
considering investing ("Prospectus"). Copies of the Prospectus can be obtained
by calling or writing the Trustee at the telephone number and address indicated
in Part One of the Prospectus dated May 26, 2000. This Information Supplement
has been created to supplement information contained in the Prospectus.
This Information Supplement is dated June 30, 2000. Capitalized terms
have been defined in the Prospectus.
TABLE OF CONTENTS
SECTION HEADING PAGE
GENERAL RISK DISCLOSURE........................................................1
WHY AND HOW ARE THE BONDS INSURED?.............................................6
ACCUMULATION PLAN..............................................................9
ALABAMA RISK FACTORS..........................................................11
ARIZONA RISK FACTORS..........................................................13
CALIFORNIA RISK FACTORS.......................................................13
COLORADO RISK FACTORS.........................................................16
CONNECTICUT RISK FACTORS......................................................19
FLORIDA RISK FACTORS..........................................................19
GEORGIA RISK FACTORS..........................................................22
MARYLAND RISK FACTORS.........................................................23
MASSACHUSETTS RISK FACTORS....................................................24
MICHIGAN RISK FACTORS.........................................................25
MINNESOTA RISK FACTORS........................................................25
MISSOURI RISK FACTORS.........................................................27
NEW JERSEY RISK FACTORS.......................................................28
NEW YORK RISK FACTORS.........................................................29
NORTH CAROLINA RISK FACTORS...................................................30
OHIO RISK FACTORS.............................................................31
OREGON RISK FACTORS...........................................................32
PENNSYLVANIA RISK FACTORS.....................................................33
TENNESSEE RISK FACTORS........................................................34
TEXAS RISK FACTORS............................................................35
VIRGINIA RISK FACTORS.........................................................40
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GENERAL RISK DISCLOSURE
An investment in Units of any Trust should be made with an
understanding of the risks that such an investment may entail. These include the
ability of the issuer, or, if applicable, an insurer, to make payments of
interest and principal when due, the effects of changes in interest rates
generally, early call provisions and the potential for changes in the tax status
of the Bonds. As set forth in the portfolio summaries in Part A of this
Prospectus, the Trusts may contain or be concentrated in one or more of the
types of bonds discussed below. The following paragraphs discuss certain
circumstances which may adversely affect the ability of issuers of Bonds held in
the portfolio of a Trust to make payment of principal and interest thereon or
which may adversely affect the ratings of such Bonds; with respect to Insured
Trusts, however, because of the insurance obtained by the Sponsor or by the
issuers of the Bonds, such changes should not adversely affect an insured
Trust's receipt of principal and interest, the Standard & Poor's Corporation
("Standard & Poor's") AAA or Moody's Investors Service, Inc. ("Moody's") Aaa
ratings of the Bonds in the Insured Trust portfolio. For economic risks specific
to the individual Trusts, see "Risk Factors" for each Trust.
Health Care Facility Revenue Obligations. Some of the Bonds in a Trust
may be obligations of issuers whose revenues are derived from services provided
by hospitals or other health care facilities, including nursing homes. Ratings
of bonds issued for health care facilities are sometimes based on feasibility
studies that contain projections of occupancy levels, revenues and expenses. A
facility's gross receipts and net income available for debt service may be
affected by future events and conditions including, among other things, demand
for services, the ability of the facility to provide the services required, an
increasing shortage of qualified nurses or a dramatic rise in nursing salaries,
physicians' confidence in the facility, management capabilities, economic
developments in the service area, competition from other similar providers,
efforts by insurers and governmental agencies to limit rates, legislation
establishing state rate-setting agencies, expenses, government regulation, the
cost and possible unavailability of malpractice insurance, and the termination
or restriction of governmental financial assistance, including that associated
with Medicare, Medicaid and other similar third party payor programs. Medicare
reimbursements are currently calculated on a prospective basis and are not based
on a provider's actual costs. Such method of reimbursement may adversely affect
reimbursements to hospitals and other facilities for services provided under the
Medicare program and thereby may have an adverse effect on the ability of such
institutions to satisfy debt service requirements. In the event of a default
upon a bond secured by hospital facilities, the limited alternative uses for
such facilities may result in the recovery upon such collateral not providing
sufficient funds to fully repay the bonds.
Certain hospital bonds provide for redemption at par upon the damage,
destruction or condemnation of the hospital facilities or in other special
circumstances.
Single Family and Multi-Family Housing Revenue Obligations. Some of the
Bonds in a Trust may be obligations of issuers whose revenues are primarily
derived from mortgage loans to housing projects for the elderly or for low to
moderate income families. Such issues are generally characterized by mandatory
redemption at par or, in the case of original issue discount bonds, accreted
value in the event of economic defaults and in the event of a failure of the
operator of a project to comply with certain covenants as to the operation of
the project. The failure of such operator to comply with certain covenants
related to the tax-exempt status of interest on the Bonds, such as provisions
requiring that a specified percentage of units be rented or available for rental
to low or moderate income families, potentially could cause interest on such
Bonds to be subject to Federal income taxation from the date of issuance of the
Bonds. The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects, including, among
other things, the achievement and maintenance of sufficient occupancy levels and
adequate rental income, employment and income conditions prevailing in local
labor markets, increases in taxes, utility costs and other operating expenses,
the managerial ability of project managers, changes in laws and governmental
regulations, the appropriation of subsidies, and social and economic trends
affecting the localities in which the projects are located. Occupancy of such
housing projects may be adversely affected by high rent levels and income
limitations imposed under Federal and state programs.
Page 1
Single Family Mortgage Revenue Bonds. Some of the Bonds in a Trust may
be single family mortgage revenue bonds, which are issued for the purpose of
acquiring from originating financial institutions notes secured by mortgages on
residences located within the issuer's boundaries and owned by persons of low or
moderate income. Mortgage loans are generally partially or completely prepaid
prior to their final maturities as a result of events such as sale of the
mortgaged premises, default, condemnation or casualty loss. Because these bonds
are subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. Extraordinary mandatory redemption without premium could also result
from the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. The redemption price
of such issues may be more or less than the offering price of such bonds.
Additionally, unusually high rates of default on the underlying mortgage loans
may reduce revenues available for the payment of principal of or interest on
such mortgage revenue bonds. Single family mortgage revenue bonds issued after
December 31, 1980 were issued under Section 103A of the Internal Revenue Code of
1954, as amended, or Section 143 of the Internal Revenue Code of 1986, which
Sections contain certain requirements relating to the use of the proceeds of
such bonds in order for the interest on such bonds to retain its tax-exempt
status. In each case, the issuer of the bonds has covenanted to comply with
applicable requirement and bond counsel to such issuer has issued an opinion
that the interest on the bonds is exempt from Federal income tax under existing
laws and regulations. There can be no assurance that such continuing
requirements will be satisfied; the failure to meet such requirements could
cause interest on the Bonds to be subject to Federal income taxation, possibly
from the date of issuance of the Bonds.
Congregate Care Revenue Obligations. Some of the Bonds in a Trust may
be obligations of issuers whose revenues are primarily derived from loans to
finance the construction and/or acquisition of congregate care facilities,
including retirement facilities and nursing care units. A facility's gross
receipts and net income available for debt service may be affected by future
events and conditions, including, among other things, demand for services, the
ability of the facility to provide the services required, management
capabilities, an increasing shortage of qualified nurses or a dramatic rise in
nursing salaries, economic developments in the service area, competition from
other similar providers, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation and the termination or restriction of governmental
financial assistance.
Federally Enhanced Obligations. Some of the mortgages which secure the
various health care or housing projects which underlie the previously discussed
Health Care Facility Revenue, Single Family and Multi-Family Housing Revenue
Single Family Mortgage Revenue Obligations and Congregate Care Revenue Bonds
(the "Obligations") in a Trust may be insured by the Federal Housing
Administration ("FHA"). Under FHA regulations, the maximum insurable mortgage
amount cannot exceed 90% of the FHA's estimated value of the project. The FHA
mortgage insurance does not constitute a guarantee of timely payment of the
principal of and interest on the Obligations. Payment of mortgage insurance
benefits may be (1) less than the principal amount of Obligations outstanding or
(2) delayed if disputes arise as to the amount of the payment or if certain
notices are not given to the FHA within the prescribed time periods. In
addition, some of the previously discussed Obligations may be secured by
mortgage-backed certificates guaranteed by the Government National Mortgage
Association ("GNMA"), a wholly owned corporate instrumentality of the United
States, and/or the Federal National Mortgage Association ("Fannie Mae") a
federally chartered and stockholder-owed corporation. GNMA and Fannie Mae
guarantee timely payment of principal and interest on the mortgage-backed
certificates, even where the underlying mortgage payments are not made. While
such mortgage-backed certificates are often pledged to secure payment of
principal and interest on the Obligations, timely payment of interest and
principal on the Obligations is nor insured or guaranteed by the United States,
GNMA, Fannie Mae or any other governmental agency or instrumentality. The GNMA
mortgage-backed certificates constitute a general obligation of the United
States backed by its full faith and credit. The obligations of Fannie Mae,
including its obligations under the Fannie Mae mortgage-backed securities, are
obligations solely of Fannie Mae and are not backed by or entitled to, the full
faith and credit of the United States.
Public Housing Authority Revenue Obligations. Some of the Bonds in a
Trust may be obligations of issuers whose revenues are primarily derived from
loans to finance public housing projects. These bonds are
Page 2
guaranteed by the federal Department of Housing and Urban Development. Such
issues are generally characterized by mandatory redemption at par or, in the
case of original issue discount bonds, accreted value in the event of economic
defaults. The ability of such issuers to make debt service payments will be
affected by events and conditions affecting financed projects, including, among
other things, the achievement and maintenance of sufficient occupancy levels,
employment and income conditions prevailing in local labor markets, increases in
taxes, utility costs and other operating expenses, change in laws and
governmental regulations, and social and economic trends affecting the
localities in which the projects are located. In addition, the federal
Department of Housing and Urban Development may impose regulations and/or
limitations which may have an adverse impact on the Bonds in a Trust.
Industrial Revenue Obligations. Certain of the Bonds in a Trust may be
industrial revenue bonds ("IRBs"), which are tax-exempt securities issued by
states, municipalities, public authorities or similar entities to finance the
cost of acquiring, constructing or improving various industrial projects. These
projects are usually operated by corporate entities. Issuers are obligated only
to pay amounts due on the IRBs to the extent that funds are available from the
unexpended proceeds of the IRBs or receipts or revenues of the issuer under an
arrangement between the issuer and the corporate operator of a project. The
arrangement may be in the form of a lease, installment sale agreement,
conditional sale agreement or loan agreement, but in each case the payments to
the issuer are designed to be sufficient to meet the payments of amounts due on
the IRBs. Regardless of the structure, payment of IRBs is solely dependent upon
the creditworthiness of the corporate operator of the project and, if
applicable, the corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues and
earnings, regulatory and environmental restriction, litigation resulting from
accidents or environmentally-caused illnesses, extensive competition and
financial deterioration resulting from a corporate restructuring pursuant to a
leveraged buy-out, takeover or otherwise. Such a restructuring may result in the
operator of a project becoming highly leveraged which may have an impact on such
operator's creditworthiness which in turn would have an adverse impact on the
rating and/or market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact on the market for and consequently the
value of such Bonds, even though no actual takeover or other action is ever
contemplated or effected. The IRBs in a Trust may be subject to special or
extraordinary redemption provisions which may provide for redemption at par or,
in the case of original issue discount bonds, accreted value. The Sponsor cannot
predict the causes or likelihood of the redemption of IRBs in a Trust prior to
the stated maturity of such Bonds.
Power Revenue Obligations. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are primarily derived from pollution
control bonds as well as the sale of electric energy and oil and gas. Some of
these obligations are backed by the credit of an investor owned utility (IOU).
The problems faced by such issuers include the difficulty in obtaining approval
for timely and adequate rate increases from the applicable public utility
commissions, the difficulty of financing large construction programs, increased
competition, reductions in estimates of future demand for electricity in certain
areas of the country, the limitations on operations and increases costs and
delays attributable to environmental considerations, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of such issuers
have been experiencing certain of these problems in varying degrees. In
addition, Federal, state and municipal governmental authorities may from time to
time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of certain of the Bonds in a Trust
to make payments of principal and/or interest on such Bonds.
Utility Obligations. Some of the Bonds in a Trust may be obligations of
issuers whose revenues are primarily derived from the sale of natural gas or the
combined net revenue of two or more municipal utility systems operating as a
single entity. The problems faced by such issuers include the difficulty in
obtaining approval for timely and adequate rate increases from the applicable
public utility commissions, the difficulty of financing large construction
programs, increased competition, reductions in estimates of future demands for
natural gas in certain areas of the country, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
difficulty of the capital market in absorbing utility debt, the difficulty in
obtaining fuel at reasonable prices and the effect of energy conservation. In
addition, Federal, state and municipal governmental authorities may from time to
time review existing, and impose additional, regulations governing the
licensing,
Page 3
construction and operation of nuclear power plants, which may adversely affect
the ability of the issuers of certain of the Bonds in a Trust to make payments
of principal and/or interest on such Bonds.
Transportation Bonds. Some of the Bonds in a Trust may be obligations
of issuers which are payable from and secured by revenues derived from the
ownership and operation of airports, public transit systems and ports. The major
portion of an airport's gross operating income is generally derived from fees
received from airlines pursuant to use agreements which consist of annual
payments for airport use, occupancy of certain terminal space, service fees and
leases. Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. In particular, facilities with use agreements involving
airlines experiencing financial difficulty may experience a reduction in revenue
due to the possible inability of these airlines to meet their use agreement
obligations because of such financial difficulties and possible bankruptcy. The
Sponsor cannot predict what effect these industry conditions may have on airport
revenues which are dependent for payment on the financial condition of the
airlines and their usage of the particular airport facility. Bonds that are
secured primarily by the revenue collected by a public transit system typically
are additionally secured by a pledge of sales tax receipts collected at the
state or local level, or of other governmental financial assistance. Transit
system net revenues will be affected by variations in utilization, which in turn
may be affected by the degree of local governmental subsidization, demographic
and population shifts, and competition from other forms of transportation; and
by increased costs, including costs resulting from previous deferrals of
maintenance. Port authorities derive their revenues primarily from fees imposed
on ships using the facilities. The rate of utilization of such facilities may
fluctuate depending on the local economy and on competition from competing forms
of transportation such as air, rail and trucks.
Water and/or Sewerage Revenue Obligations. Some of the Bonds in a Trust
may be obligations of issuers whose revenues are derived from the sale of water
and/or sewerage services. Such Bonds are generally payable from user fees. The
problems of such issuers include the ability to obtain timely and adequate rate
increases, population decline resulting in decreased user fees, the difficulty
of financing large construction programs, the limitations on operations and
increased costs and delays attributable to environmental considerations, the
increasing difficulty of obtaining or discovering new supplies of fresh water,
the effect of conservation programs and the impact of "no-growth" zoning
ordinances. All of such issuers have been experiencing certain of these problems
in varying degrees.
Resource Recovery Revenue Obligations. Some of the Bonds in a Trust may
be obligations of issuers whose revenues are derived from the sale of sewerage
or solid waste disposal services. Such bonds are generally payable from user
fees. The problems of such issuers include the ability to obtain timely and
adequate rate increases, population decline resulting in decreased user fees,
the difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the effect of conservation programs and the impact of
"no-growth" zoning ordinances. All of such issuers have been experiencing
certain of these problems in varying degrees.
Education Revenue Obligations. Some of the Bonds in a Trust may be
obligations of issuers which are, or which govern the operation of, colleges and
universities and whose revenues are derived mainly from tuition, dormitory
revenues, grants and endowments. General problems of such issuers include the
prospect of a declining percentage of the population consisting of "college" age
individuals, possible inability to raise tuitions and fees sufficiently to cover
increased operating costs, the uncertainty of continued receipt of Federal
grants and state funding, and government legislation or regulations which may
adversely affect the revenues or costs of such issuers. All of such issuers have
been experiencing certain of these problems in varying degrees.
Bridge and Tollroad Revenue Obligations. Some of the Bonds in a Trust
may be obligations of issuers which derive their payments from bridge, road or
tunnel toll revenues. The revenues of such an issuer could be adversely affected
by competition from toll-free vehicular bridges and roads and alternative modes
of transportation. Such revenues could also be adversely affected by a reduction
in the availability of fuel to motorists or significant increases in the costs
thereof. Specifically, governmental regulations restricting the use of vehicles
Page 4
in the New York City metropolitan area may adversely affect revenues of the
Triborough Bridge and Tunnel Authority.
Dedicated-Tax Supported Revenue Bonds. Some of the Bonds in a Trust may
be obligations of issuers which are payable from and secured by tax revenues
from a designated source, which revenues are pledged to secure the bonds. The
various types of Bonds described below differ in structure and with respect to
the rights of the bondholders to the underlying property. Each type of
dedicated-tax supported Bond has distinct risks, only some of which are set
forth below. One type of dedicated-tax supported Bond is secured by the
incremental tax received on either real property or on sales within a
specifically defined geographical area; such tax generally will not provide
bondholders with a lien on the underlying property or revenues. Another type of
dedicated-tax supported Bond is secured by a special tax levied on real property
within a defined geographical area in such a manner that the tax is levied on
those who benefit from the project; such bonds typically provide for a statutory
lien on the underlying property for unpaid taxes. A third type of dedicated-tax
supported Bond may be secured by a tax levied upon the manufacture, sale or
consumption of commodities or upon the license to pursue certain occupations or
upon corporate privileges within a taxing jurisdiction. As to any of these types
of Bonds, the ability of the designated revenues to satisfy the interest and
principal payments on such bonds may be affected by changes in the local
economy, the financial success of the enterprise responsible for the payment of
the taxes, the value of any property on which taxes may be assessed and the
ability to collect such taxes in a timely fashion. Each of these factors will
have a different affect on each distinct type of dedicated-tax supported bonds.
Municipal Lease Revenue Bonds. Some of the Bonds in a Trust may be
obligations that are secured by lease payments of a governmental entity. Such
payments are normally subject to annual budget appropriations of the leasing
governmental entity. A governmental entity that enters into such a lease
agreement cannot obligate future governments to appropriate for and make lease
payments but covenants to take such action as is necessary to include any lease
payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby.
Special Obligation to Crossover. Some of the Bonds in a Trust may be
issued with the intention of crossover refunding an outstanding issue at a
future date. These bonds are secured to the crossover date by U.S. Government
securities purchased with the proceeds of the refunding bonds. The revenues of
such an issuer could be adversely affected by problems associated with the
outstanding issue, economic, social and environmental policies and conditions
that are not within the control of the issuer and governmental policies and
regulations affecting the issuer.
Civic Organization Obligations. Some of the Bonds in a Trust may be
obligations of issuers whose revenues are derived from the pledge of civic
organizations, including their assets. The problems faced by such issuers
include the ability to collect pledges made, the unpredictable nature of an
organization's composition and participation, the quality and skill of
management, increased costs and delays attributable to organizations, expenses,
and legislation regarding certain organizational purposes.
Original Issue Discount Bonds and Stripped Obligations. Certain of the
Bonds in a Trust may be original issue discount bonds. These Bonds were issued
with nominal interest rates less than the rates then offered by comparable
securities and as a consequence were originally sold at a discount from their
face, or par, values. This original issue discount, the difference between the
initial purchase price and face value, is deemed under current law to accrue on
a daily basis and the accrued portion is treated as tax-exempt interest income
for federal income tax purposes. On sale or redemption, gain, if any, realized
in excess of the earned portion of original issue discount will be taxable as
capital gain. See "What is the Tax Status of Unitholders". The current value of
an original issue discount bond reflects the present value of its face amount at
maturity. In a stable interest rate environment, the market value of an original
issue discount bond would tend to increase more slowly in early years and in
greater increments as the bond approached maturity.
Certain of the original issue discount bonds in a Trust may be zero
coupon bonds. Zero coupon bonds do not provide for the payment of any current
interest; the buyer receives only the right to receive a final payment of
Page 5
the face amount of the bond at its maturity. The effect of owning a zero coupon
bond is that a fixed yield is earned not only on the original investment but
also, in effect, on all discount earned during the life of the obligation. This
implicit reinvestment of earnings at the same rate eliminates the risk of being
unable to reinvest the income on such obligation at a rate as high as the
implicit yield, but at the same time also eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are securities of comparable quality that pay
interest currently.
Original issue discount bonds, including zero coupon bonds, may be
subject to redemption at prices based on the issue price plus the amount of
original issue discount accreted to redemption (the "accreted value") plus, if
applicable, some premium. Pursuant to such call provisions an original issue
discount bond may be called prior to its maturity date at a price less than its
face value. See the "Schedules of Investments" for more information about the
call provisions of portfolio Bonds.
Certain of the Bonds in a Trust may be Stripped Obligations, which
represent evidences of ownership with respect to either the principal amount of
or a payment of interest on a tax-exempt obligation. An obligation is "stripped"
by depositing it with a custodian, which then effects a separation in ownership
between the bond and any interest payment which has not yet become payable, and
issues evidences of ownership with respect to such constituent parts. A Stripped
Obligation therefore has economic characteristics similar to zero coupon bonds,
as described above.
Each Stripped Obligation has been purchased at a discount from the
amount payable at maturity. With respect to each Unitholder, the Internal
Revenue Code treats as "original issue discount" that portion of the discount
which produces a yield to maturity (as of the date of purchase of the
Unitholder's Units) equal to the lower of the coupon rate of interest on the
underlying obligation or the yield to maturity on the basis of the purchase
price of the Unitholder's Units which is allocable to each Stripped Obligation.
Original issue discount which accrues with respect to a Stripped Obligation will
be exempt from Federal income taxation to the same extent as interest on the
underlying obligations. (See "WHAT IS THE TAX STATUS OF UNITHOLDERS?" in Part B
of this Prospectus.)
Unitholders should consult their own tax advisors with respect to the
state and local tax consequences of owning original issue discount bonds or
Stripped Obligations. Under applicable provisions governing determination of
state and local taxes, interest on original issue discount bonds or Stripped
Obligations may be deemed to be received in the year of accrual even though
there is no corresponding cash payment.
WHY AND HOW ARE THE BONDS INSURED?
Insurance on the Bonds
Insured Trust. The bonds in the Trust are covered by insurance policies
obtained by the Sponsor or by the issuers or underwriters of the bonds from MBAC
Assurance Corporation ("MBAC"), Financial Guaranty Insurance Company ("FGIC"),
Financial Security Assurance Inc. ("FSA") or MBIA Insurance Corporation ("MBIA")
(the "Insurers"). The "Schedule of Investments" in Part A of the Prospectus
identifies the Insurer of each bond. Insurance guarantees the timely payment,
when due, of all principal and interest on the bonds. Such insurance is
effective so long as the insured bond is outstanding and the insurer remains in
business. Insurance relates only to the particular bond and not to the Units
offered hereby or to their market value. The bonds have received a rating of
"Aaa" by Moody's, "AAA" by Fitch IBCA, Inc. "Fitch" and/or "AAA" by Standard &
Poor's in recognition of such insurance. There can be no assurance that any
Insurer listed will be able to satisfy its commitments in the event claims are
made in the future. However, Standard & Poor's, Fitch and/or Moody's have rated
the claims-paying ability of each Insurer "AAA," "AAA" or "Aaa," respectively.
The following are brief descriptions of the Insurers.
MBAC Assurance Corporation. Effective July 14, 1997, MBAC Indemnity
Corporation changed its name to MBAC Assurance Corporation. MBAC is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin and licensed to do business
in 50 states, the
Page 6
District of Columbia, the Territory of Guam and the Commonwealth of Puerto Rico,
with admitted assets of approximately $4,013,000,000 (unaudited) and statutory
capital of approximately $2,402,000,000 (unaudited) as of December 31, 1999.
Statutory capital consists of MBAC's policyholders' surplus and statutory
contingency reserve. MBAC is a wholly owned subsidiary of MBAC Financial Group,
Inc., a 100% publicly held company. Moody's Investors Service, Inc., Fitch and
Standard & Poor's have both assigned a triple-A financial strength rating to
MBAC.
Copies of its financial statements prepared in accordance with
statutory accounting standards are available from MBAC. The address of MBAC's
administrative offices and its telephone number are One State Street Plaza, 17th
Floor, New York, New York 10004 and (212) 668-0340.
MBAC has entered into quota share reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of MBAC has been and will be assumed by a number of foreign
and domestic unaffiliated reinsurers.
MBIA Insurance Corporation. MBIA is the principal operating subsidiary
of MBIA, Inc., a New York Stock Exchange listed company (the "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 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 MBIA, 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, 1999, MBIA had admitted assets of $7.0 billion
(audited), total liabilities of $4.6 billion (audited), and total capital and
surplus of $2.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 2000, MBIA had admitted assets of $7.1 billion
(unaudited), total liabilities of $4.7 billion (unaudited), and total capital
and surplus of $2.4 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of MBIA's year-end financial statements prepared in
accordance with statutory accounting practices are available without charge from
MBIA. A copy of the Annual Report on Form 10-K of the Company is available from
the Insurer or the Securities and Exchange Commission. The address of the
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Insurer is (914) 273-4545.
Moody's rates the financial strength of MBIA "Aaa".
Standard & Poor's rates the financial strength of MBIA "AAA".
Fitch rates the financial strength of MBIA "AAA".
Each rating of MBIA should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of MBIA and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Bonds, and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the Bonds. MBIA does
not guaranty the market price of the Bonds nor does it guaranty that the ratings
on the Bonds will not be revised or withdrawn.
Page 7
Financial Guaranty Insurance Company. FGIC is a wholly-owned subsidiary
of FGIC Corporation (the "Corporation"), a Delaware holding company. The
Corporation is a subsidiary of General Electric Capital Corporation ("GE
Capital"). Neither the Corporation nor GE Capital is obligated to pay the debts
of or the claims against FGIC. FGIC is a monoline financial guaranty insurer
domiciled in the State of New York and subject to regulation by the State of New
York Insurance Department. As of March 31, 2000, the total capital and surplus
of FGIC was $1.281 billion. FGIC prepares financial statements on the basis of
both statutory accounting principles, and generally accepted accounting
principles. Copies of such financial statements may be obtained by writing to
FGIC at 115 Broadway, New York, New York 10006, Attention: Communications
Department, telephone number: (212) 312-3000 or to the New York State Insurance
Department at 25 Beaver Street, New York, New York 10004-2319, Attention:
Financial Condition Property/Casualty Bureau, telephone number: (212) 480-5187.
In addition, FGIC is currently licensed to write insurance in all 50
states and the District of Columbia.
Financial Security Assurance Inc. FSA is a monoline insurance company
incorporated in 1984 under the laws of the State of New York. FSA is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
FSA and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. Financial guaranty insurance provides a guaranty
of scheduled payments of an issuer's securities--thereby enhancing the credit
rating of those securities--in consideration of payment of a premium to the
insurer. FSA and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are typically
supported by residential mortgage loans, consumer or trade receivables,
securities or other asset having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities include general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. FSA insures both newly issued securities sold in the primary market
and outstanding securities sold in the secondary market that satisfy FSA
underwriting criteria.
FSA is a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Major
shareholders of Holdings include White Mountains Insurance Group, Ltd., The
Tokio Marine and Fire Insurance Co., Ltd. and XL Capital Ltd. No shareholder of
FSA is obligated to pay any debt of FSA or its subsidiaries or any claim under
any insurance policy issued by FSA or its subsidiaries or to make any additional
contribution to the capital of FSA. As of December 31, 1999, the total
policyholders' surplus and contingency reserves and the total unearned premium
reserve, respectively, of FSA and its consolidated subsidiaries were, in
accordance with statutory accounting principles, approximately $1,320,082,000
(unaudited) and $669,691,000 (unaudited), and the total shareholders' equity and
the total unearned premium reserve, respectively, of FSA and its consolidated
subsidiaries were, in accordance with generally accepted accounting principles,
approximately $1,294,946,000 (audited) and $559,041,000 (audited). Copies of
FSA's financial statements may be obtained by writing to FSA at 350 Park Avenue,
New York, New York 10022, Attention: Communications Department. Its telephone
number is (212) 826-0100.
Under an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by FSA or its domestic or
Bermuda operating insurance company subsidiaries are generally reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis. This
reinsurance is used by FSA as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
FSA's obligations under any financial guaranty insurance policy.
FSA's insurance financial strength is rated "Aaa" by Moody's FSA's
insurer financial strength is rated "AAA" by Standard & Poor's and Standard &
Poor's (Australia) Pty Ltd. FSA's claims-paying ability is rated "AAA" by Fitch
and Japan Rating and Investment Information, Inc. These ratings reflect only the
views of the
Page 8
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by those rating
agencies.
Traditional Trusts. Insurance guaranteeing the timely payment, when
due, of all principal and interest on certain Bonds in a Traditional Trust may
have been obtained by the Sponsor, issuer or underwriter of the particular Bonds
involved or by another party. Such insurance, which provides coverage
substantially the same as that obtained with respect to Bonds in Insured Trusts
as described above, is effective so long as the insured Bond is outstanding and
the insurer remains in business. Insurance relates only to the particular Bond
and not to the Units offered hereby or to their market value. Insured Bonds have
received a rating of "Aaa" by Moody's and/or "AAA" by Standard & Poor's in
recognition of such insurance.
If a Bond in a Traditional Trust is insured, the Schedule of
Investments in Part A of this Prospectus will identify the insurer. Such
insurance will be provided by FGIC, MBAC, Bond Investors Guaranty Insurance
Company, now known as MBIA Corp. of Illinois ("BIG"), FSA, Municipal Bond
Insurance Association (the "Association"), MBIA or Connie Lee Insurance Company
("ConnieLee"). There can be no assurance that any insurer listed therein will be
able to satisfy its commitments in the event claims are made in the future.
However, Standard & Poor's has rated the claims-paying ability of each insurer
"AAA," and Moody's has rated all bonds insured by each such insurer, except
ConnieLee, "Aaa." Moody's gives no ratings for bonds insured by ConnieLee.
Because any such insurance will be effective so long as the insured
Bonds are outstanding, such insurance will be taken into account in determining
the market value of such Bonds and therefore some value attributable to such
insurance will be included in the value of the Units of the Trust that includes
such Bonds. The insurance does not, however, guarantee the market value of the
Bonds or of the Units.
ACCUMULATION PLAN
The Sponsor, John Nuveen & Co. Incorporated, is also the principal
underwriter of the Accumulation Funds listed in the following table. Each of
these funds is an open-end, diversified management investment company into which
Unitholders may choose to reinvest Trust distributions automatically, without
any sales charge. Unitholders may reinvest both interest and principal
distributions or principal distributions only. Each Accumulation Fund has
investment objectives which differ in certain respects from those of the Trusts
and may invest in securities which would not be eligible for deposit in the
Trusts. The investment advisor to each Accumulation Fund is a wholly-owned
subsidiary of the Sponsor. Unitholders should contact their financial advisor or
the Sponsor to determine which of the Accumulation Funds they may reinvest into,
as reinvestment in certain of the Accumulation Funds may be restricted to
residents of a particular state or states. Unitholders may obtain a prospectus
for each Accumulation Fund through their financial advisor or through the
Sponsor at (800) 257-8787. For a more detailed description, Unitholders should
read the prospectus of the Accumulation Fund in which they are interested.
The following is a complete list of the Accumulation Funds currently
available, as of the Date of Deposit of this Prospectus, to Unitholders under
the Accumulation Plan. The list of available Accumulation Funds is subject to
change without the consent of any of the Unitholders.
Accumulation Funds
Mutual Funds
NUVEEN FLAGSHIP MUNICIPAL TRUST
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Page 9
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund Nuveen Flagship Colorado
Municipal Bond Fund Nuveen Flagship Florida Municipal Bond Fund Nuveen
Flagship Florida Intermediate Municipal Bond Fund Nuveen Maryland
Municipal Bond Fund Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund Nuveen Flagship
Virginia Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST II
Nuveen California Municipal Bond Fund Nuveen California Insured
Municipal Bond Fund Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund Nuveen Massachusetts Insured
Municipal Bond Fund Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund Nuveen
Flagship New York Municipal Bond Fund Nuveen New York Insured Municipal
Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST III
Nuveen Flagship Alabama Municipal Bond Fund Nuveen Flagship Georgia
Municipal Bond Fund Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund Nuveen Flagship
South Carolina Municipal Bond Fund Nuveen Flagship Tennessee Municipal
Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST IV
Nuveen Flagship Kansas Municipal Bond Fund Nuveen Flagship Kentucky
Municipal Bond Fund Nuveen Flagship Kentucky Limited Term Municipal
Bond Fund Nuveen Flagship Michigan Municipal Bond Fund Nuveen Flagship
Missouri Municipal Bond Fund Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
Flagship Utility Income Fund
Nuveen Municipal Money Market Fund, Inc.
Nuveen Taxable Funds, Inc.
Nuveen Dividend and Growth Fund
NUVEEN INVESTMENT TRUST
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Page 10
Nuveen Balanced Municipal and Stock Fund
Nuveen European Value Fund
NUVEEN INVESTMENT TRUST II
Nuveen Rittenhouse Growth Fund
Nuveen Innovation Fund
Nuveen International Growth Fund
NUVEEN INVESTMENT TRUST II
Nuveen Income Fund
Money Market Funds
Nuveen California Tax-Free Money Market Fund Nuveen Massachusetts
Tax-Free Money Market Fund Nuveen New York Tax-Free Money Market Fund
Nuveen Tax-Free Reserves, Inc.
Nuveen Tax-Exempt Money Market Fund, Inc.
Each person who purchases Units of a Trust may become a participant in
the Accumulation Plan and elect to have his or her distributions on Units of a
Trust invested directly in shares of one of the Accumulation Funds. Reinvesting
Unitholders may select any interest distribution plan. Thereafter, each
distribution of interest income or principal on the participant's Units
(principal only in the case of a Unitholder who has chosen to reinvest only
principal distributions) will, on the applicable distribution date, or the next
day on which the New York Stock Exchange is normally open ("business day") if
the distribution date is not a business day, automatically be received by the
transfer agent for each of the Accumulation Funds, on behalf of such participant
and applied on that date to purchase shares (or fractions thereof) of the
Accumulation Fund chosen at net asset value as computed as of 4:00 p.m. eastern
time on each such date. All distributions will be reinvested in the Accumulation
Fund chosen and no part thereof will be retained in a separate account. These
purchases will be made without a sales charge.
The Transfer Agent of the Accumulation Fund will mail to each
participant in the Accumulation Plan a quarterly statement containing a record
of all transactions involving purchases of Accumulation Fund shares (or
fractions thereof) with Trust interest distributions or as a result of
reinvestment of Accumulation Fund dividends. Any distribution of principal used
to purchase shares of an Accumulation Fund will be separately confirmed by the
Transfer Agent. Unitholders will also receive distribution statements from the
Trustee detailing the amounts transferred to their Accumulation Fund accounts.
Participants may at any time, by so notifying the Trustee in writing,
elect to change the Accumulation Fund into which their distributions are being
reinvested, to change from principal only reinvestment to reinvestment of both
principal and interest or vice versa, or to terminate their participation in the
Accumulation Plan altogether and receive future distributions on their Units in
cash. There will be no charge or other penalty for such change of election or
termination. The character of Trust distributions for income tax purposes will
remain unchanged even if they are reinvested in an Accumulation Fund.
ALABAMA RISK FACTORS
Alabama Economy. Alabama's economy has experienced a major trend toward
industrialization over the past three decades. During the 1960s and 1970s, the
State's industrial base became more diversified and balanced, moving away from
primary metals into pulp and paper, lumber, furniture, electrical machinery,
transportation equipment, textiles (including apparel), chemicals, rubber and
plastics. Since the early 1980s, modernization of
Page 11
existing facilities and an increase in direct foreign investments in the State
has made the manufacturing sector more competitive in domestic and international
markets. And by 1990, manufacturing accounted for only 26.7% of Alabama's real
Gross State Product (the total value of goods and services produced in Alabama).
The state's service sector, with about 24 percent of the state's total
nonfarm employment, enjoyed moderate growth in 1999. Service employment growth
slowed from 4.6 percent in 1998 to 1.9 percent from the third quarter of 1998
through the third quarter of 1999. Overall, Alabama's service industry should
grow at about the same rate as in 1999, continuing on the sector's basic
long-term growth path.
Alabama's manufacturing employment fell by 3.1 percent from the third
quarter of 1998 through the third quarter of 1999; the nation's manufacturing
employment dropped 2.2 percent. This decline was significant for Alabama since
the factory sector accounts for 19 percent of the state's payroll employment
compared with 13 percent across the Southeast.
Despite gains in expanding its non-farm sectors of its economy, Alabama
is still strongly reliant on agriculture. Weather and international conditions
are the main factors that will affect Alabama's farmers in 2000. While domestic
demand should continue to grow moderately in 2000, international demand from
Asia will rebound as that region recovers economically.
Preliminary data show total nonagricultural employment as of March 2000
was 1.94 million, an increase of 1.7% from March 1999. This slow performance was
due to two main factors. First, job losses, particularly in the non-durable
(especially apparel) industries, offset job gains in other sectors. Secondly,
the state's low unemployment rate (4.8% compared to 4.2% nationally in 1998) and
the slow growth rate of its civilian labor force (-0.5% in 1999) makes it
difficult for companies to find people with the skills needed to fill the jobs.
Labor shortages are not expected to end soon in the state.
Revenues and Expenditures. Political subdivisions of the State of
Alabama have limited taxing authority. In addition, the Alabama Supreme Court
has held that a governmental unit may first use its taxes and other revenues to
pay the expenses of providing necessary governmental services before paying debt
service on its bonds, warrants or other indebtedness. The State has statutory
budget provisions which result in a proration procedure in the event estimated
budget resources in a fiscal year are insufficient to pay in full all
appropriations for that year. Proration has a materially adverse effect on
public entities that are dependent upon State funds subject to proration.
Revenues received by the State of Alabama for Fiscal Year 1999 totaled
$12.87 billion. Taxes, accounting for more than half of all receipts, increased
by 4.6% over Fiscal 1998 collections. The gain was lead by strong growth in
personal and sales tax income, offsetting significant losses in oil and gas
production taxes.
Debt Management. Various authorities of the State of Alabama have been
given statutory power to issue bonds. Records of bond issues are maintained by
the Alabama Treasurer's Office and are included in the bonded indebtedness
report, as compiled annually by the State Examiner. As of September 30, 1999,
the Treasurer is responsible for paying debt service on 35 issues and is the
paying agent on 32 of those issues.
Total bonded indebtedness for the State of Alabama is $2.69 billion for
the fiscal year ended September 30, 1999. The annual payment for Fiscal 1999 on
these bonds is $279 million.
Deterioration of economic conditions could adversely affect both tax
and other governmental revenues, as well as revenues to be used to service
various revenue obligations, such as industrial development obligations. Such
difficulties could adversely affect the market value of the bonds held by an
Alabama Trust and thereby adversely affect Unitholders.
Ratings. State of Alabama general obligation bonds have been assigned
the following ratings: Standard & Poor's, AA; Moody's, Aa3; and Fitch, Inc., AA.
Page 12
ARIZONA RISK FACTORS
The financial condition of the State of Arizona is affected by various
national, economic, social and environmental policies and conditions.
Additionally, Constitutional and statutory limitations imposed on the State and
its local governments concerning taxes, bond indebtedness and other matters may
constrain the revenue-generating capacity of the State and its local governments
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations. Historically, the State has experienced significant revenue
shortfalls.
The economic vitality of the State and its various regions and,
therefore, the ability of the State and its local governments to satisfy the
Bonds, are affected by numerous factors. The economy of the State continues to
be dependent on services, tourism and manufacturing. These sectors tend to be
cyclical. Commercial and residential real estate markets, which experienced
depression and high vacancy rates in the early 1980s and early 1990s, have
recovered and are growing strong. Yet, Arizona has experienced rapid declines in
the real estate markets after reaching peaks. Such declines may occur in the
future.
The State is a party to numerous lawsuits in which an adverse final
decision could materially affect the State's governmental operations and
consequently its ability to pay debt service on its obligations.
Further information concerning Arizona risk factors may be obtained
upon request to the Sponsor as described in "ADDITIONAL INFORMATION" appearing
in Part Two of this Prospectus.
CALIFORNIA RISK FACTORS
Economic Factors. Each California Trust is susceptible to political,
economic or regulatory factors affecting issuers of California municipal
obligations (the "California Municipal Obligations"). These include the possible
adverse effects of certain California constitutional amendments, legislative
measures, voter initiatives and other matters that are described below. The
following information provides only a brief summary of the complex factors
affecting the financial situation in California (the "State") and is derived
from sources that are generally available to investors and are believed to be
accurate. No independent verification has been made of the accuracy or
completeness of any of the following information. It is based in part on
information obtained from various State and local agencies in California or
contained in Official Statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of a Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
Despite a recession in the beginning of the decade and the Asian
financial crisis which affected the high-technology manufacturing industry in
1997 and 1998, California's economy has expanded over the last several years and
ended 1999 on a strong note. Nonfarm employment growth averaged 2.9% and
personal income was up more than 6.5%. The jobless rate was below 6% all year.
The construction industry led California's employment growth in 1999, expanding
by almost 9% over the year.
The high technology manufacturing sector is improving as major foreign
economies improve. Demand for computer services and software remains extremely
strong, buoyed by the continued explosive growth of the Internet, and by
financial sector needs related to the new Euro currency.
California's population is expected to grow by 578,000 people in
1999-2000 to a total of 34.7 million. This reflects a 1.7% increase of
population for the year. California's population is concentrated in metropolitan
areas specifically located in the Los Angeles and San Diego counties.
California's unemployment rate was 5.9% in 1999. In comparison, the unemployment
rate for the United States during the same time was 4.2%.
Page 13
Limitation on Taxes. Certain California municipal obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to the rate of inflation, not to exceed 2% per year or
decline in value, except upon new construction or change of ownership (subject
to a number of exemptions). Taxing entities may, however, raise ad valorem taxes
above the 1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13 and on June 18, 1992, the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the voters
of the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
Appropriations Limits. California and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979 or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 by Proposition 111 to follow more closely growth in
California's economy.
"Excess" revenues are measured over a two-year cycle. With respect to
local governments, excess revenues must be returned by a revision of tax rates
or fee schedules within the two subsequent fiscal years. The appropriations
limit for a local government may be overridden by referendum under certain
conditions for up to four years at a time. With respect to the State, 50% of any
excess revenues is to be distributed to K-12 school districts and community
college districts (collectively, "K-14 districts") and the other 50% is to be
refunded to taxpayers. With more liberal annual adjustment factors since 1988,
and depressed revenues since 1990 because of the recession, few governments,
including the State, are currently operating near their spending limits, but
this condition may change over time. Local governments may by voter approval
exceed their spending limits for up to four years.
Page 14
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIIIA or Article XIIIB on California Municipal Obligations or the
ability of California or local governments to pay debt service on such
California Municipal Obligations. It is not presently possible to predict the
outcome of any pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or the impact of any
such determinations upon State agencies or local governments, or upon their
ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Obligations of the State of California. Under the California
Constitution, debt service on outstanding general obligation bonds is the second
charge to the General Fund after support of the public school system and public
institutions of higher education. The State had $19.9 billion aggregate
principal amount of general obligation bonds outstanding, and $13.2 billion
general obligation bonds authorized and unissued, as of June 30, 1999.
From July 1, 1997 to July 1, 1998, the State issued approximately $2.6
billion in non-self liquidating general obligation bonds and $1.0 billion in
revenue bonds. Refunding bonds, which are used to refinance existing long-term
debt, accounted for $1.0 billion of the general obligation bonds and $514
million of the revenue bonds.
Recent Financial Results. California maintains a Special Fund for
Economic Uncertainties derived from General Fund revenues as a reserve to meet
cash needs of the General Fund. As of June 30, 1999, the balance of this fund
was $1.6 billion.
The Budget. California's solid economic performance during 1998 led to
healthy revenue growth. General Fund collections grew by 11.7% in fiscal year
1997-98 to reach $55.0 billion, an increase of $5.8 billion from the prior year.
For fiscal year 1999-2000, the Governor's Budget expects total General Fund
revenues of $60.3 billion, a 7.1% net increase from 1998-99. This revised
estimate reflects the impact of the tax relief legislation which reduces current
year collections $320 million from the baseline estimate, with a more moderate
revenue loss in the budget year.
Overall, General Fund revenues and transfers represent nearly 80% of
total revenues. The remaining 20% are special funds dedicated to specific
programs. The three largest revenue sources (personal income, sales, and bank
and corporation) account for about 75% of total revenues with personal income
comprising 50% of the total. The personal income tax revenue in 1999-2000 is
expected to be $30,175 million, an increase of $1,649 million from the forecast
for 1998-1999.
Other Issuers of California Municipal Obligations. There are a number
of state agencies, instrumentalities and political subdivisions of the State
that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
the obligations backed by the full faith and credit of the State.
Other Considerations. Substantially all of California is within an
active geologic region subject to major seismic activity. Northern California,
in 1989, and southern California, in 1994, experienced major earthquakes causing
billions of dollars in damages. The federal government provided more than $13
billion in aid for both earthquakes, and neither event is expected to have any
long-term negative economic impact. Any California Municipal Obligation in a
California Trust could be affected by an interruption of revenues because of
damaged facilities, or, consequently, income tax deductions for casualty losses
or property tax assessment reductions. Compensatory financial assistance could
be constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the Federal
or State government to appropriate sufficient funds within their respective
budget limitations.
Page 15
The State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, although under existing legal precedents, the State may be obligated
to ensure that school districts have sufficient funds to operate.
Legal Proceedings. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided against
the State, may require the State to make significant future expenditures or may
substantially impair revenues.
Bond Ratings. The State's general obligation bonds have received
ratings of Aa3 by Moody's, AA- by Standard & Poor's and AA by Fitch. There can
be no assurance that such ratings will be maintained in the future. It should be
noted that the creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State of California, and that there is no obligation on the part of the State to
make payment on such local obligations in the event of default.
COLORADO RISK FACTORS
Economic Outlook. Despite slowing somewhat later in the year, the
State's economy continued on its fast track in 1998, and the economic outlook in
Colorado remains moderately positive.
Based on data published by the Colorado Department of Labor and
Employment, job creation decreased during the 1999 fiscal year (July 1998 - June
1999). While there were 74,900 jobs created in the 1998 fiscal year, this figure
dropped to 39,600 in 1999. Services and Special Trade Contractors were the
number one and two largest growing industries in Colorado in 1998, followed by
the finance, insurance, and real estate sector.
The annual average non-agricultural unemployment rate in Colorado from
1994 to 1996 stabilized at 4.2%. In 1997, the unemployment rate in Colorado
dropped to 3.3% while the nation's unemployment rate was 5.0%. The unemployment
rate in Colorado held at 3.8% in 1998 while the nation's rate fell to 4.5%.
Colorado's job growth rate increased 3.6% in 1998, down from the 4.0% growth
rate in 1997. Total growth in nonagricultural employment in Colorado is expected
to slow to slightly under 3.0% in 1999.
Personal income rose 8.9% in Colorado during 1998 as compared with 5.9%
for the nation as a whole. Colorado's real personal income growth has outpaced
the national average since 1989 and will continue to do so in the foreseeable
future.
Restrictions on Appropriations and Revenues. The State Constitution
requires that expenditures for any fiscal year not exceed revenues for such
fiscal year. By statute, the amount of General Fund revenues available for
appropriation is based upon revenue estimates which, together with other
available resources, must exceed annual appropriations by the amount of the
unappropriated reserve (the "Unappropriated Reserve"). The Unappropriated
Reserve requirement for fiscal year 1991, 1992 and 1993 was set at 3% of total
appropriations from the General Fund. For fiscal years 1994 and thereafter, the
Unappropriated Reserve requirement is set at 4%. In addition to the
Unappropriated Reserve, a constitutional amendment approved by Colorado voters
in 1992 requires the State and local government to reserve a certain percentage
of its fiscal year spending (excluding bonded debt service) for emergency use
(the "Emergency Reserve"). The minimum Emergency Reserve is set at 2% for 1994
and 3% for 1995 and later years. For fiscal year 1992 and thereafter, General
Fund appropriations are also limited by statute to an amount equal to the cost
of performing certain required reappraisals of taxable property plus an amount
equal to the lesser of (i) 5% of Colorado personal income or (ii) 106% of the
total General Fund appropriations for the previous fiscal year. This restriction
does not apply to any General Fund appropriations which are required as a result
of a new federal law, a final state or federal court order or moneys derived
from the increase in the rate or amount of any tax or fee approved by a majority
of the registered electors of the State voting at any general election. In
addition, the statutory limit on the level of General Fund appropriations may be
exceeded for a given fiscal year upon the declaration of a State fiscal
emergency by the State General Assembly.
Page 16
The 1997 fiscal year ending General Fund balance was $375.1 million
prior to legislative change HB 98-1414. The restated 1997 ending fund balance is
$514.1 million or $347.4 million over the combined Unappropriated Reserve and
Emergency Reserve requirement. As required by the new law, the revised ending
fund balance does not net out the state's first TABOR rebate. The new measure
directs the state controller's office to show TABOR refunds in the year they are
to be refunded, rather than the year they were incurred. In 1998, the ending
fund balance is $904 million. After accounting for the statutory 4% reserve of
$177 million, the balance is $727. Based on December 20, 1998 estimates, the
1999 fiscal year ending General Fund balance is expected to be $673.9 million,
or $486.3 million over the required Unappropriated Reserve and Emergency
Reserve.
On November 3, 1992, voters in Colorado approved a constitutional
amendment (the "Amendment") which, in general, became effective December 31,
1992, and which could restrict the ability of the State and local governments to
increase revenues and impose taxes. The Amendment applies to the State and all
local governments, including home rule entities ("Districts"). Enterprises,
defined as government-owned businesses authorized to issue revenue bonds and
receiving under 10% of annual revenue in grants from all Colorado state and
local governments combined, are excluded from the provisions of the Amendment.
The provisions of the Amendment are unclear and have required judicial
interpretation. Among other provisions, beginning November 4, 1992, the
Amendment requires voter approval prior to tax increases, creation of debt, or
mill levy or valuation for assessment ratio increases. The Amendment also limits
increases in government spending and property tax revenues to specified
percentages. The Amendment requires that District property tax revenues yield no
more than the prior year's revenues adjusted for inflation, voter approved
changes and (except with regard to school districts) local growth in property
values according to a formula set forth in the Amendment. School districts are
allowed to adjust tax levies for changes in student enrollment. Pursuant to the
Amendment, local government spending is to be limited by the same formula as the
limitation for property tax revenues. The Amendment limits increases in
expenditures from the State General Fund and program revenues (cash funds) to
the growth in inflation plus the percentage change in state population in the
prior calendar year. The basis for spending and revenue limits for each fiscal
year is the prior fiscal year's spending and property taxes collected in the
prior calendar year. Debt service changes, reductions and voter-approved revenue
changes are excluded from the calculation bases. The Amendment also prohibits
new or increased real property transfer tax rates, new state real property taxes
and local district income taxes.
Litigation concerning several issues relating to the Amendment was
filed in the Colorado courts. The litigation dealt with three principal issues:
(i) whether Districts can increase mill levies to pay debt service on general
obligation bonds without obtaining voter approval; (ii) whether a multi-year
lease purchase agreement subject to annual appropriations is an obligation which
requires voter approval prior to execution of the agreement; and (iii) what
constitutes an "enterprise" which is excluded from the provisions of the
Amendment. In September 1994, the Colorado Supreme Court held that Districts can
increase mill levies to pay debt service on general obligation bonds issued
after the effective date of the Amendment; in June, 1995, the Colorado Supreme
Court validated mill levy increases to pay general obligation bonds issued prior
to the Amendment. In late 1994, the Colorado Court of Appeals held that
multi-year lease-purchase agreements subject to annual appropriation do not
require voter approval. The time to file an appeal in that case has expired.
Finally, in May, 1995, the Colorado Supreme Court ruled that entities with the
power to levy taxes may not themselves be "enterprises" for purposes of the
Amendment; however, the Court did not address the issue of how valid enterprises
may be created. Litigation in the "enterprise" arena may be filed in the future
to clarify these issues.
According to the Colorado Economic Perspective, First Quarter, FY 1998,
June 12, 1998 (the "Economic Report"), inflation for 1996 was 3.5% and
population grew at the rate of 2.0% in Colorado. Accordingly, under the
Amendment, increases in State expenditures during the 1998 fiscal year were
limited to 5.5% (TABOR revenue growth limit) over expenditures during the 1997
fiscal year. The 1998 fiscal year is the base year for calculating the
limitation for the 1999 fiscal year. The limitation for the 1999 fiscal year is
estimated at 4.4%, based on inflation of 2.4% and population growth of 2.0%
during 1998. The 1999 fiscal year General Fund and program revenues (cash funds)
are expected to total $7,905.2 million, or $655.3 million more than expenditures
allowed under the spending limitation. This will be the third time the state has
breached the limit since its implementation in 1992. The first breach was in
1997 and the excess revenue of $139.0 million was refunded to Colorado
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