MUNICIPAL INVESTMENT TR FD MULTISTATE SER 318 DEF ASSET FDS
497, 1999-01-25
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<PAGE>
                                     DEFINED ASSET FUNDSSM
- --------------------------------------------
- ----------------------------------
 

                              MUNICIPAL INVESTMENT TRUST FUND
                              MULTISTATE SERIES--318
                              (A UNIT INVESTMENT TRUST)
                              O   CALIFORNIA, FLORIDA, NEW YORK AND PENNSYLVANIA
                                  PORTFOLIOS
                              O   PORTFOLIOS OF LONG TERM MUNICIPAL BONDS
                              O   DESIGNED FOR FEDERALLY TAX-FREE INCOME
                              O   EXEMPT FROM SOME STATE TAXES
                              O   MONTHLY DISTRIBUTIONS

 

SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith         -------------------------------------------------
    Incorporated               The Securities and Exchange Commission has not
Salomon Smith Barney Inc.      approved or disapproved these Securities or
Prudential Securities          passed upon the adequacy of this prospectus. Any
Incorporated                   representation to the contrary is a criminal
PaineWebber Incorporated       offense.
Dean Witter Reynolds Inc.      Prospectus dated January 22, 1999.

 
<PAGE>
- --------------------------------------------------------------------------------
 
Defined Asset FundsSM
Defined Asset FundsSM is America's oldest and largest family of unit investment
trusts, with over $115 billion sponsored over the last 25 years. Defined Asset
Funds has been a leader in unit investment trust research and product
innovation. Our family of Funds helps investors work toward their financial
goals with a full range of quality investments, including municipal, corporate
and government bond portfolios, as well as domestic and international equity
portfolios.
 
Defined Asset Funds offer a number of advantages:
   o A disciplined strategy of buying and holding with a long-term view is the
     cornerstone of Defined Asset Funds.
   o Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
     funds are not managed and portfolio changes are limited.
o Defined Portfolios: We choose the stocks and bonds in advance, so you know
  what you're investing in.
o Professional research: Our dedicated research team seeks out stocks or bonds
      appropriate for a particular fund's objectives.
o Ongoing supervision: We monitor each portfolio on an ongoing basis.
No matter what your investment goals, tolerance for risk or time horizon,
there's probably a Defined Asset Fund that suits your investment style. Your
financial professional can help you select a Defined Asset Fund that works best
for your investment portfolio.
 
THE FINANCIAL INFORMATION IN THIS PROSPECTUS IS AS OF SEPTEMBER 30, 1998, THE
EVALUATION DATE.
 

CONTENTS
                                                                PAGE
                                                          -----------
California Insured Portfolio--
   Risk/Return Summary..................................           3
Florida Insured Portfolio-- Risk/Return Summary.........           6
New York Insured Portfolio-- Risk/Return Summary........           9
Pennsylvania Portfolio--
   Risk/Return Summary..................................          12
What You Can Expect From Your Investment................          17
   Monthly Income.......................................          17
   Return Figures.......................................          17
   Records and Reports..................................          17
The Risks You Face......................................          18
   Interest Rate Risk...................................          18
   Call Risk............................................          18
   Reduced Diversification Risk.........................          18
   Liquidity Risk.......................................          18
   Concentration Risk...................................          18
   State Concentration Risk.............................          19
   Bond Quality Risk....................................          21
   Insurance Related Risk...............................          21
   Litigation and Legislation Risks.....................          22
Selling or Exchanging Units.............................          22
   Sponsors' Secondary Market...........................          22
   Selling Units to the Trustee.........................          22
   Exchange Option......................................          23
How The Fund Works......................................          23
   Pricing..............................................          23
   Evaluations..........................................          23
   Income...............................................          24
   Expenses.............................................          24
   Portfolio Changes....................................          24
   Fund Termination.....................................          25
   Certificates.........................................          25
   Trust Indenture......................................          25
   Legal Opinion........................................          26
   Auditors.............................................          26
   Sponsors.............................................          26
   Trustee..............................................          26
   Underwriters' and Sponsors' Profits                            26
   Public Distribution..................................          27
   Code of Ethics.......................................          27
   Year 2000 Issues.....................................          27
Taxes...................................................          27
Supplemental Information................................          29
Financial Statements....................................         D-1

 
                                       2
<PAGE>
- --------------------------------------------------------------------------------
 
CALIFORNIA INSURED PORTFOLIO--RISK/RETURN SUMMARY
 

       1.  WHAT IS THE FUND'S OBJECTIVE?
           The Fund seeks interest income that is exempt from regular
           federal income taxes and some state and local taxes by
           investing in a fixed portfolio consisting primarily of
           insured, long term municipal revenue bonds.
       2.  WHAT ARE MUNICIPAL REVENUE BONDS?
           Municipal revenue bonds are bonds issued by states,
           municipalities and public authorities to finance the cost
           of buying, building or improving various projects intended
           to generate revenue, such as airports, health care
           facilities, housing and municipal electric, water and sewer
           utilities. Generally, payments on these bonds depend solely
           on the revenues generated by the projects, excise taxes or
           state appropriations, and are not backed by the
           government's taxing power.
 
       3.  WHAT IS THE FUND'S INVESTMENT STRATEGY?
        O  The Fund plans to hold to maturity 12 long-term tax-exempt
           municipal bonds, and some short-term bonds reserved to pay
           the deferred sales fee, with an aggregate face amount of
           $4,535,000.
        o  The Fund is a unit investment trust which means that,
           unlike a mutual fund, the Portfolio is not managed.
        o  The bonds are rated AAA or Aaa by Standard & Poor's,
           Moody's or Fitch.
        o  Many of the bonds can be called at a premium declining over
           time to par value. Some bonds may be called earlier at par
           for extraordinary reasons.
        o  100% of the bonds are insured by insurance companies that
           guarantee timely payments of principal and interest on the
           bonds (but not Fund units or the market value of the bonds
           before they mature).
 
           The Portfolio consists of municipal bonds of the following
           types:

 

                                                  APPROXIMATE
                                                   PORTFOLIO
                                                   PERCENTAGE

 

/ / Hospital/Health Care                               17%
/ / Lease Rental Appropriation                         47%
/ / Municipal Water/Sewer Utilities                    15%
/ / Special Tax                                        3%
/ / Municipal Electric Utilities                       1%
/ / Tax Allocation                                     17%

 

       4.  WHAT ARE THE SIGNIFICANT RISKS?
           YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN
           HAPPEN FOR VARIOUS REASONS, INCLUDING:
        o  Rising interest rates, an issuer's worsening financial
           condition or a drop in bond ratings can reduce the price of
           your units.
        o  Because the Fund is concentrated in lease rental
           appropriation bonds, adverse developments in this sector
           may affect the value of your units.
        o  Assuming no changes in interest rates, when you sell your
           units, they will generally be worth less than your cost
           because your cost included a sales fee.
        o  The Fund will receive early returns of principal if bonds
           are called or sold before they mature. If this happens your
           income will decline and you may not be able to reinvest the
           money you receive at as high a yield or as long a maturity.
 
           ALSO, THE PORTFOLIO IS CONCENTRATED IN BONDS OF CALIFORNIA
           SO IT IS LESS DIVERSIFIED THAN A NATIONAL FUND AND IS
           SUBJECT TO RISKS PARTICULAR TO CALIFORNIA WHICH ARE BRIEFLY
           DESCRIBED UNDER STATE CONCENTRATION RISKS LATER IN THIS
           PROSPECTUS.

 
                                       3
<PAGE>
 

       5.  IS THIS FUND APPROPRIATE FOR YOU?
           Yes, if you want federally tax-free income. You will
           benefit from a professionally selected and supervised
           portfolio whose risk is reduced by investing in insured
           bonds of several different issuers.
           The Fund is not appropriate for you if you want a
           speculative investment that changes to take advantage of
           market movements, if you do not want a tax-advantaged
           investment or if you cannot tolerate any risk.

 
           DEFINING YOUR INCOME
 

           WHAT YOU MAY EXPECT (Payable on the 25th day of
           the month to holders of record on the 10th day
           of the month):
           Regular Monthly Income per unit                           $    4.10
           Annual Income per unit:                           $   49.29
           These figures are estimates determined on the evaluation
           day; actual payments may vary.

 

       6.  WHAT ARE THE FUND'S FEES AND EXPENSES?
           This table shows the costs and expenses you may pay,
           directly or indirectly, when you invest in the Fund.

 

           INVESTOR FEES
                                                               2.90%
           Maximum Sales Fee (Load) on new purchases
           (as a percentage of $1,000 invested)

 

           You will pay a deferred sales fee of $3.75 per unit
           quarterly November, February, May and August through
           November, 2000. Employees of some of the Sponsors and
           their affiliates may pay a reduced sales fee of no less
           than $5.00 per unit.
           The maximum sales fee is reduced if you invest at least
           $100,000, as follows:

 

                                                 YOUR MAXIMUM
                                                    SALES FEE
                     IF YOU INVEST:                  WILL BE:
           -----------------------------------  -----------------
           Less than $100,000                            2.90%
           $100,000 to $249,999                          2.65%
           $250,000 to $499,999                          2.40%
           $500,000 to $999,999                          2.15%
           $1,000,000 and over                           1.90%
 
           Maximum Exchange Fee                          1.90%

 
           ESTIMATED ANNUAL FUND OPERATING EXPENSES
 

                                                        AMOUNT
                                                      PER UNIT
                                                    -----------
                                                     $    0.72
           Trustee's Fee
                                                     $    0.46
           Portfolio Supervision,
           Bookkeeping and
           Administrative Fees
                                                     $    0.30
           Evaluator's Fee
                                                     $    0.20
           Organization Costs
                                                     $    0.53
           Other Operating Expenses
                                                    -----------
                                                     $    2.21
           TOTAL

 

       7.  HOW HAVE SIMILAR FUNDS PERFORMED IN THE PAST?
           In the following chart we show past performance of prior
           California Portfolios, which had investment objectives,
           strategies and types of bonds substantially similar to this
           Fund. These prior Series differed in that they charged a
           higher sales fee. These prior California Series were offered
           between March 30, 1988 and September 27, 1996 and were
           outstanding on September 30, 1998. OF COURSE, PAST
           PERFORMANCE OF PRIOR SERIES IS NO GUARANTEE OF FUTURE
           RESULTS OF THIS FUND.
           AVERAGE ANNUAL COMPOUND TOTAL RETURNS
           FOR PRIOR SERIES
           Reflecting all expenses. For periods ended 9/30/98.

 

                   WITH SALES FEE                    NO SALES FEE
            1 YEAR     5 YEARS   10 YEARS    1 YEAR     5 YEARS   10 YEARS

 
- -------------------------------------------------------------------
 

High         6.54%      5.07%      7.45%     11.50%      6.15%      8.05%
Average      4.38       4.38       7.32       7.66       5.39       7.91
Low          2.62       3.84       7.19       4.39       4.75       7.68

 
- -------------------------------------------------------------------
 

Average
Sales fee    3.18%      5.01%      5.70%

 
- -------------------------------------------------------------------
 
Note: All returns represent changes in unit price with distributions reinvested
 into the Municipal Fund Investment Accumulation Program.
 

       8.  IS THE FUND MANAGED?
           Unlike a mutual fund, the Fund is not managed and bonds are
           not sold because of market changes. Rather, experienced
           Defined Asset Funds financial analysts regularly review the
           bonds in the Fund. The Fund may sell a bond if certain
           adverse credit or other conditions exist.

 
                                       4
<PAGE>
 

       9.  HOW DO I BUY UNITS?
           The minimum investment is one unit.
           You can buy units from any of the Sponsors and other
           broker-dealers. The Sponsors are listed later in this
           prospectus. Some banks may offer units for sale through
           special arrangements with the Sponsors, although certain
           legal restrictions may apply.
           UNIT PRICE PER UNIT                     $1,054.47
           (as of September 30, 1998)
           Unit price is based on the net asset value of the Fund plus
           the sales fee. An amount equal to any principal cash, as
           well as net accrued but undistributed interest on the unit,
           is added to the unit price. An independent evaluator prices
           the bonds at 3:30 p.m. Eastern time every business day.
           Unit price changes every day with changes in the prices of
           the bonds in the Fund.
      10.  HOW DO I SELL UNITS?
           You may sell your units at any time to any Sponsor or the
           Trustee for the net asset value determined at the close of
           business on the date of sale less any remaining deferred
           sales fee. You will not pay any other fee when you sell
           your units.

 

      11.  HOW ARE DISTRIBUTIONS MADE AND TAXED?
           The Fund pays income monthly.
           In the opinion of bond counsel when each bond was issued,
           interest on the bonds in this Fund is generally 100% exempt
           from regular federal income tax. Your income may also be
           exempt from some California state and local personal income
           taxes if you live in California.
           You will also receive principal payments if bonds are sold
           or called or mature, when the cash available is more than
           $5.00 per unit. You will be subject to tax on any gain
           realized by the Fund on the disposition of bonds.
      12.  WHAT OTHER SERVICES ARE AVAILABLE?
           REINVESTMENT
           You will receive your income in cash unless you choose to
           compound your income by reinvesting at no sales fee in the
           Municipal Fund Investment Accumulation Program, Inc. This
           program is an open-end mutual fund with a comparable
           investment objective, but the bonds will generally not be
           insured. Income from this program will generally be subject
           to state and local income taxes. For more complete
           information about the program, including charges and fees,
           ask the Trustee for the program's prospectus. Read it
           carefully before you invest. The Trustee must receive your
           written election to reinvest at least 10 days before the
           record day of an income payment.
           EXCHANGE PRIVILEGES
           You may exchange units of this Fund for units of certain
           other Defined Asset Funds. You may also exchange into this
           Fund from certain other funds. We charge a reduced sales fee
           on exchanges.

 
                                       5
<PAGE>
- --------------------------------------------------------------------------------
 
FLORIDA INSURED PORTFOLIO--RISK/RETURN SUMMARY
 

       1.  WHAT IS THE FUND'S OBJECTIVE?
           The Fund seeks interest income that is exempt from regular
           federal income taxes and some state and local taxes by
           investing in a fixed portfolio consisting primarily of
           insured, long term municipal revenue bonds.
       2.  WHAT ARE MUNICIPAL REVENUE BONDS?
           Municipal revenue bonds are bonds issued by states,
           municipalities and public authorities to finance the cost
           of buying, building or improving various projects intended
           to generate revenue, such as airports, health care
           facilities, housing and municipal electric, water and sewer
           utilities. Generally, payments on these bonds depend solely
           on the revenues generated by the projects, excise taxes or
           state appropriations, and are not backed by the
           government's taxing power.
 
       3.  WHAT IS THE FUND'S INVESTMENT STRATEGY?
        O  The Fund plans to hold to maturity 10 long-term tax-exempt
           municipal bonds, and some short-term bonds reserved to pay
           the deferred sales fee, with an aggregate face amount of
           $3,755,000.
        o  The Fund is a unit investment trust which means that,
           unlike a mutual fund, the Portfolio is not managed.
        o  The bonds are rated AAA or Aaa by Standard & Poor's,
           Moody's or Fitch.
        o  Many of the bonds can be called at a premium declining over
           time to par value. Some bonds may be called earlier at par
           for extraordinary reasons.
        o  100% of the bonds are insured by insurance companies that
           guarantee timely payments of principal and interest on the
           bonds (but not Fund units or the market value of the bonds
           before they mature).
 
           The Portfolio consists of municipal bonds of the following
           types:

 

                                                  APPROXIMATE
                                                   PORTFOLIO
                                                   PERCENTAGE

 

/ / Airports/Ports/Highways                            7%
/ / General Obligation Bonds                           14%
/ / Hospitals/Health Care                              29%
/ / Lease Rental Appropriation                         16%
/ / Municipal Water/Sewer Utilities                    18%
/ / Refunded Bonds                                     16%

 

       4.  WHAT ARE THE SIGNIFICANT RISKS?
           YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN
           HAPPEN FOR VARIOUS REASONS, INCLUDING:
        o  Rising interest rates, an issuer's worsening financial
           condition or a drop in bond ratings can reduce the price of
           your units.
        o  Because the Fund is concentrated in hospital/health care
           bonds, adverse developments in this sector may affect the
           value of your units.
        o  Assuming no changes in interest rates, when you sell your
           units, they will generally be worth less than your cost
           because your cost included a sales fee.
        o  The Fund will receive early returns of principal if bonds
           are called or sold before they mature. If this happens your
           income will decline and you may not be able to reinvest the
           money you receive at as high a yield or as long a maturity.
 
           ALSO, THE PORTFOLIO IS CONCENTRATED IN BONDS OF FLORIDA SO
           IT IS LESS DIVERSIFIED THAN A NATIONAL FUND AND IS SUBJECT
           TO RISKS PARTICULAR TO FLORIDA WHICH ARE BRIEFLY DESCRIBED
           UNDER STATE CONCENTRATION RISKS LATER IN THIS PROSPECTUS.

 
                                       6
<PAGE>
 

       5.  IS THIS FUND APPROPRIATE FOR YOU?
           Yes, if you want federally tax-free income. You will
           benefit from a professionally selected and supervised
           portfolio whose risk is reduced by investing in insured
           bonds of several different issuers.
           The Fund is not appropriate for you if you want a
           speculative investment that changes to take advantage of
           market movements, if you do not want a tax-advantaged
           investment or if you cannot tolerate any risk.

 
           DEFINING YOUR INCOME
 

           WHAT YOU MAY EXPECT (Payable on the 25th day of
           the month to holders of record on the 10th day
           of the month):
           Regular Monthly Income per unit                           $    4.10
           Annual Income per unit:                           $   49.25
           These figures are estimates determined on the evaluation
           day; actual payments may vary.

 

       6.  WHAT ARE THE FUND'S FEES AND EXPENSES?
           This table shows the costs and expenses you may pay,
           directly or indirectly, when you invest in the Fund.

 

           INVESTOR FEES
                                                               2.90%
           Maximum Sales Fee (Load) on new purchases
           (as a percentage of $1,000 invested)

 

           You will pay a deferred sales fee of $3.75 per unit
           quarterly November, February, May and August through
           February 2001. Employees of some of the Sponsors and their
           affiliates may pay a reduced sales fee of no less than
           $5.00 per unit.
           The maximum sales fee is reduced if you invest at least
           $100,000, as follows:

 

                                                 YOUR MAXIMUM
                                                    SALES FEE
                     IF YOU INVEST:                  WILL BE:
           -----------------------------------  -----------------
           Less than $100,000                            2.90%
           $100,000 to $249,999                          2.65%
           $250,000 to $499,999                          2.40%
           $500,000 to $999,999                          2.15%
           $1,000,000 and over                           1.90%
 
           Maximum Exchange Fee                          1.90%

 
           ESTIMATED ANNUAL FUND OPERATING EXPENSES
 

                                                        AMOUNT
                                                      PER UNIT
                                                    -----------
                                                     $    0.72
           Trustee's Fee
                                                     $    0.46
           Portfolio Supervision,
           Bookkeeping and
           Administrative Fees
                                                     $    0.36
           Evaluator's Fee
                                                     $    0.20
           Organization Costs
                                                     $    0.62
           Other Operating Expenses
                                                    -----------
                                                     $    2.36
           TOTAL

 

       7.  HOW HAVE SIMILAR FUNDS PERFORMED IN THE PAST?
           In the following chart we show past performance of prior
           Florida Portfolios, which had investment objectives,
           strategies and types of bonds substantially similar to this
           Fund. These prior Series differed in that they charged a
           higher sales fee. These prior Florida Series were offered
           between April 20, 1988 and December 6, 1996 and were
           outstanding on September 30, 1998. OF COURSE, PAST
           PERFORMANCE OF PRIOR SERIES IS NO GUARANTEE OF FUTURE
           RESULTS OF THIS FUND.
           AVERAGE ANNUAL COMPOUND TOTAL RETURNS
           FOR PRIOR SERIES
           Reflecting all expenses. For periods ended 9/30/98.

 

                  WITH SALES FEE             NO SALES FEE
               1 YEAR       5 YEARS      1 YEAR       5 YEARS
- ---------------------------------------------------------------
High            6.79%        5.03%       11.75%        6.22%
Average         4.12         4.34         7.49         5.39
Low             2.01         3.81         4.00         4.81

 
- -------------------------------------------------------------------
 

Average         3.30%        5.17%
Sales fee

 
- -------------------------------------------------------------------
 
Note: All returns represent changes in unit price with distributions reinvested
 into the Municipal Fund Investment Accumulation Program.
 

       8.  IS THE FUND MANAGED?
           Unlike a mutual fund, the Fund is not managed and bonds are
           not sold because of market changes. Rather, experienced
           Defined Asset Funds financial analysts regularly review the
           bonds in the Fund. The Fund may sell a bond if certain
           adverse credit or other conditions exist.

 
                                       7
<PAGE>
 

       9.  HOW DO I BUY UNITS?
           The minimum investment is one unit.
           You can buy units from any of the Sponsors and other
           broker-dealers. The Sponsors are listed later in this
           prospectus. Some banks may offer units for sale through
           special arrangements with the Sponsors, although certain
           legal restrictions may apply.
           UNIT PRICE PER UNIT                     $1,058.04
           (as of September 30, 1998)
           Unit price is based on the net asset value of the Fund plus
           the sales fee. An amount equal to any principal cash, as
           well as net accrued but undistributed interest on the unit,
           is added to the unit price. An independent evaluator prices
           the bonds at 3:30 p.m. Eastern time every business day.
           Unit price changes every day with changes in the prices of
           the bonds in the Fund.
      10.  HOW DO I SELL UNITS?
           You may sell your units at any time to any Sponsor or the
           Trustee for the net asset value determined at the close of
           business on the date of sale less any remaining deferred
           sales fee. You will not pay any other fee when you sell
           your units.

 

      11.  HOW ARE DISTRIBUTIONS MADE AND TAXED?
           The Fund pays income monthly.
           In the opinion of bond counsel when each bond was issued,
           interest on the bonds in this Fund is generally 100% exempt
           from regular federal income tax. Your income may also be
           exempt from some Florida state and local taxes if you live
           in Florida.
           You will also receive principal payments if bonds are sold
           or called or mature, when the cash available is more than
           $5.00 per unit. You will be subject to tax on any gain
           realized by the Fund on the disposition of bonds.
      12.  WHAT OTHER SERVICES ARE AVAILABLE?
           REINVESTMENT
           You will receive your income in cash unless you choose to
           compound your income by reinvesting at no sales fee in the
           Municipal Fund Investment Accumulation Program, Inc. This
           program is an open-end mutual fund with a comparable
           investment objective. Income from this program will
           generally be subject to state and local income taxes. For
           more complete information about the program, including
           charges and fees, ask the Trustee for the program's
           prospectus. Read it carefully before you invest. The Trustee
           must receive your written election to reinvest at least 10
           days before the record day of an income payment.
           EXCHANGE PRIVILEGES
           You may exchange units of this Fund for units of certain
           other Defined Asset Funds. You may also exchange into this
           Fund from certain other funds. We charge a reduced sales fee
           on exchanges.

 
                                       8
<PAGE>
- --------------------------------------------------------------------------------
 
NEW YORK INSURED PORTFOLIO--RISK/RETURN SUMMARY
 

       1.  WHAT IS THE FUND'S OBJECTIVE?
           The Fund seeks interest income that is exempt from regular
           federal income taxes and some state and local taxes by
           investing in a fixed portfolio consisting primarily of
           insured, long term municipal revenue bonds.
       2.  WHAT ARE MUNICIPAL REVENUE BONDS?
           Municipal revenue bonds are bonds issued by states,
           municipalities and public authorities to finance the cost
           of buying, building or improving various projects intended
           to generate revenue, such as airports, health care
           facilities, housing and municipal electric, water and sewer
           utilities. Generally, payments on these bonds depend solely
           on the revenues generated by the projects, excise taxes or
           state appropriations, and are not backed by the
           government's taxing power.
 
       3.  WHAT IS THE FUND'S INVESTMENT STRATEGY?
        O  The Fund plans to hold to maturity 12 long-term tax-exempt
           municipal bonds, and some short-term bonds reserved to pay
           the deferred sales fee, with an aggregate face amount of
           $4,380,000.
        o  The Fund is a unit investment trust which means that,
           unlike a mutual fund, the Portfolio is not managed.
        o  The bonds are rated AAA or Aaa by Standard & Poor's,
           Moody's or Fitch.
        o  Many of the bonds can be called at a premium declining over
           time to par value. Some bonds may be called earlier at par
           for extraordinary reasons.
        o  100% of the bonds are insured by insurance companies that
           guarantee timely payments of principal and interest on the
           bonds (but not Fund units or the market value of the bonds
           before they mature).
 
           The Portfolio consists of municipal bonds of the following
           types:

 

                                                  APPROXIMATE
                                                   PORTFOLIO
                                                   PERCENTAGE

 

/ / General Obligation                                 1%
/ / Hospital/Health Care                               45%
/ / Lease Rental Appropriation                         15%
/ / Miscellaneous                                      1%
/ / Special Tax Issues                                 15%
/ / Municipal Electric Utilities                       1%
/ / Transit/Transportation                             9%
/ / Universities/Colleges                              13%

 

       4.  WHAT ARE THE SIGNIFICANT RISKS?
           YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN
           HAPPEN FOR VARIOUS REASONS, INCLUDING:
        o  Rising interest rates, an issuer's worsening financial
           condition or a drop in bond ratings can reduce the price of
           your units.
        o  Because the Fund is concentrated in hospital/health care
           bonds, adverse developments in these sectors may affect the
           value of your units.
        o  Assuming no changes in interest rates, when you sell your
           units, they will generally be worth less than your cost
           because your cost included a sales fee.
        o  The Fund will receive early returns of principal if bonds
           are called or sold before they mature. If this happens your
           income will decline and you may not be able to reinvest the
           money you receive at as high a yield or as long a maturity.
 
           ALSO, THE PORTFOLIO IS CONCENTRATED IN BONDS OF NEW YORK SO
           IT IS LESS DIVERSIFIED THAN A NATIONAL FUND AND IS SUBJECT
           TO RISKS PARTICULAR TO NEW YORK WHICH ARE BRIEFLY DESCRIBED
           UNDER STATE CONCENTRATION RISKS LATER IN THIS PROSPECTUS.

 
                                       9
<PAGE>
 

       5.  IS THIS FUND APPROPRIATE FOR YOU?
           Yes, if you want federally tax-free income. You will
           benefit from a professionally selected and supervised
           portfolio whose risk is reduced by investing in insured
           bonds of several different issuers.
           The Fund is not appropriate for you if you want a
           speculative investment that changes to take advantage of
           market movements, if you do not want a tax-advantaged
           investment or if you cannot tolerate any risk.

 
           DEFINING YOUR INCOME
 

           WHAT YOU MAY EXPECT (Payable on the 25th day of
           the month to holders of record on the 10th day
           of the month):
           Regular Monthly Income per unit                           $    4.19
           Annual Income per unit:                           $   50.39
           These figures are estimates determined on the evaluation
           day; actual payments may vary.

 

       6.  WHAT ARE THE FUND'S FEES AND EXPENSES?
           This table shows the costs and expenses you may pay,
           directly or indirectly, when you invest in the Fund.

 

           INVESTOR FEES
                                                               2.90%
           Maximum Sales Fee (Load) on new purchases
           (as a percentage of $1,000 invested)

 

           You will pay a deferred sales fee of $3.75 per unit
           quarterly November, February, May and August through
           November 2000. Employees of some of the Sponsors and their
           affiliates may pay a reduced sales fee of no less than
           $5.00 per unit.
           The maximum sales fee is reduced if you invest at least
           $100,000, as follows:

 

                                                 YOUR MAXIMUM
                                                    SALES FEE
                     IF YOU INVEST:                  WILL BE:
           -----------------------------------  -----------------
           Less than $100,000                            2.90%
           $100,000 to $249,999                          2.65%
           $250,000 to $499,999                          2.40%
           $500,000 to $999,999                          2.15%
           $1,000,000 and over                           1.90%
 
           Maximum Exchange Fee                          1.90%

 
           ESTIMATED ANNUAL FUND OPERATING EXPENSES
 

                                                        AMOUNT
                                                      PER UNIT
                                                    -----------
                                                     $    0.72
           Trustee's Fee
                                                     $    0.46
           Portfolio Supervision,
           Bookkeeping and
           Administrative Fees
                                                     $    0.31
           Evaluator's Fee
                                                     $    0.20
           Organization Costs
                                                     $    0.52
           Other Operating Expenses
                                                    -----------
                                                     $    2.21
           TOTAL

 

       7.  HOW HAVE SIMILAR FUNDS PERFORMED IN THE PAST?
           In the following chart we show past performance of prior New
           York Portfolios, which had investment objectives, strategies
           and types of bonds substantially similar to this Fund. These
           prior Series differed in that they charged a higher sales
           fee. These prior New York Series were offered between
           January 14, 1988 and September 11, 1997 and were outstanding
           on September 30, 1998. OF COURSE, PAST PERFORMANCE OF PRIOR
           SERIES IS NO GUARANTEE OF FUTURE RESULTS OF THIS FUND.
           AVERAGE ANNUAL COMPOUND TOTAL RETURNS
           FOR PRIOR SERIES
           Reflecting all expenses. For periods ended 9/30/98.

 

                   WITH SALES FEE                    NO SALES FEE
            1 YEAR     5 YEARS   10 YEARS    1 YEAR     5 YEARS   10 YEARS

 
- -------------------------------------------------------------------
 

High         6.94%      5.26%      7.87%     11.62%      6.02%      8.47%
Average      4.47       4.41       7.51       7.72       5.44       8.10
Low          2.18       3.81       7.37       4.79       4.76       7.59

 
- -------------------------------------------------------------------
 

Average
Sales fee    3.17%      5.11%      5.73%

 
- -------------------------------------------------------------------
 
Note: All returns represent changes in unit price with distributions reinvested
 into the Municipal Fund Investment Accumulation Program.
 

       8.  IS THE FUND MANAGED?
           Unlike a mutual fund, the Fund is not managed and bonds are
           not sold because of market changes. Rather, experienced
           Defined Asset Funds financial analysts regularly review the
           bonds in the Fund. The Fund may sell a bond if certain
           adverse credit or other conditions exist.

 
                                       10
<PAGE>
 

       9.  HOW DO I BUY UNITS?
           The minimum investment is one unit.
           You can buy units from any of the Sponsors and other
           broker-dealers. The Sponsors are listed later in this
           prospectus. Some banks may offer units for sale through
           special arrangements with the Sponsors, although certain
           legal restrictions may apply.
           UNIT PRICE PER UNIT                     $1,050.19
           (as of September 30, 1998)
           Unit price is based on the net asset value of the Fund plus
           the sales fee. An amount equal to any principal cash, as
           well as net accrued but undistributed interest on the unit,
           is added to the unit price. An independent evaluator prices
           the bonds at 3:30 p.m. Eastern time every business day.
           Unit price changes every day with changes in the prices of
           the bonds in the Fund.
      10.  HOW DO I SELL UNITS?
           You may sell your units at any time to any Sponsor or the
           Trustee for the net asset value determined at the close of
           business on the date of sale less any remaining deferred
           sales fee. You will not pay any other fee when you sell
           your units.

 

      11.  HOW ARE DISTRIBUTIONS MADE AND TAXED?
           The Fund pays income monthly.
           In the opinion of bond counsel when each bond was issued,
           interest on the bonds in this Fund is generally 100% exempt
           from regular federal income tax. Your income may also be
           exempt from some New York state and local personal income
           taxes if you live in New York.
           You will also receive principal payments if bonds are sold
           or called or mature, when the cash available is more than
           $5.00 per unit. You will be subject to tax on any gain
           realized by the Fund on the disposition of bonds.
      12.  WHAT OTHER SERVICES ARE AVAILABLE?
           REINVESTMENT
           You will receive your income in cash unless you choose to
           compound your income by reinvesting at no sales fee in the
           Municipal Fund Investment Accumulation Program, Inc. This
           program is an open-end mutual fund with a comparable
           investment objective, but the bonds generally will not be
           insured. Income from this program will generally be subject
           to state and local income taxes. For more complete
           information about the program, including charges and fees,
           ask the Trustee for the program's prospectus. Read it
           carefully before you invest. The Trustee must receive your
           written election to reinvest at least 10 days before the
           record day of an income payment.
           EXCHANGE PRIVILEGES
           You may exchange units of this Fund for units of certain
           other Defined Asset Funds. You may also exchange into this
           Fund from certain other funds. We charge a reduced sales fee
           on exchanges.

 
                                       11
<PAGE>
- --------------------------------------------------------------------------------
 
PENNSYLVANIA PORTFOLIO--RISK/RETURN
SUMMARY
 

       1.  WHAT IS THE FUND'S OBJECTIVE?
           The Fund seeks interest income that is exempt from regular
           federal income taxes and some state and local taxes by
           investing in a fixed portfolio consisting primarily of long
           term municipal revenue bonds.
       2.  WHAT ARE MUNICIPAL REVENUE BONDS?
           Municipal revenue bonds are bonds issued by states,
           municipalities and public authorities to finance the cost
           of buying, building or improving various projects intended
           to generate revenue, such as airports, health care
           facilities, housing and municipal electric, water and sewer
           utilities. Generally, payments on these bonds depend solely
           on the revenues generated by the projects, excise taxes or
           state appropriations, and are not backed by the
           government's taxing power.
 
       3.  WHAT IS THE FUND'S INVESTMENT STRATEGY?
        O  The Fund plans to hold to maturity 8 long-term tax-exempt
           municipal bonds, and some short-term bonds reserved to pay
           the deferred sales fee, with an aggregate face amount of
           $3,355,000.
        o  The Fund is a unit investment trust which means that,
           unlike a mutual fund, the Portfolio is not managed.
        o  When the bonds were initially deposited they were rated A
           or better by Standard & Poor's, Moody's or Fitch. The
           quality of the bonds may currently be lower.
        o  Many of the bonds can be called at a premium declining over
           time to par value. Some bonds may be called earlier at par
           for extraordinary reasons.
        o  67% of the bonds are insured by insurance companies that
           guarantee timely payments of principal and interest on the
           bonds (but not Fund units or the market value of the bonds
           before they mature).
 
           The Portfolio consists of municipal bonds of the following
           types:

 

                                                  APPROXIMATE
                                                   PORTFOLIO
                                                   PERCENTAGE

 

/ / General Obligation                                 2%
/ / Hospital/Health Care                               48%
/ / Municipal Water/Sewer Utilities                    34%
/ / Universities/Colleges                              16%

 

       4.  WHAT ARE THE SIGNIFICANT RISKS?
           YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN
           HAPPEN FOR VARIOUS REASONS, INCLUDING:
        o  Rising interest rates, an issuer's worsening financial
           condition or a drop in bond ratings can reduce the price of
           your units.
        o  Because the Fund is concentrated in hospital/health care
           and municipal water/sewer utility bonds, adverse
           developments in these sectors may affect the value of your
           units.
        o  Assuming no changes in interest rates, when you sell your
           units, they will generally be worth less than your cost
           because your cost included a sales fee.
        o  The Fund will receive early returns of principal if bonds
           are called or sold before they mature. If this happens your
           income will decline and you may not be able to reinvest the
           money you receive at as high a yield or as long a maturity.
 
           ALSO, THE PORTFOLIO IS CONCENTRATED IN BONDS OF
           PENNSYLVANIA SO IT IS LESS DIVERSIFIED THAN A NATIONAL FUND
           AND IS SUBJECT TO RISKS PARTICULAR TO PENNSYLVANIA WHICH
           ARE BRIEFLY DESCRIBED UNDER STATE CONCENTRATION RISKS LATER
           IN THIS PROSPECTUS.

 
                                       12
<PAGE>
 

       5.  IS THIS FUND APPROPRIATE FOR YOU?
           Yes, if you want federally tax-free income. You will
           benefit from a professionally selected and supervised
           portfolio whose risk is reduced by investing in bonds of
           several different issuers.
           The Fund is not appropriate for you if you want a
           speculative investment that changes to take advantage of
           market movements, if you do not want a tax-advantaged
           investment or if you cannot tolerate any risk.

 
           DEFINING YOUR INCOME
 

           WHAT YOU MAY EXPECT (Payable on the 25th day of
           the month to holders of record on the 10th day
           of the month):
           Regular Monthly Income per unit                           $    4.20
           Annual Income per unit:                           $   50.49
           These figures are estimates determined on the evaluation
           day; actual payments may vary.

 

       6.  WHAT ARE THE FUND'S FEES AND EXPENSES?
           This table shows the costs and expenses you may pay,
           directly or indirectly, when you invest in the Fund.

 

           INVESTOR FEES
                                                               2.90%
           Maximum Sales Fee (Load) on new purchases
           (as a percentage of $1,000 invested)

 

           You will pay a deferred sales fee of $3.75 per unit
           quarterly November, February, May and August, through
           November 2000. Employees of some of the Sponsors and their
           affiliates may pay a reduced sales fee of no less than
           $5.00 per unit.
           The maximum sales fee is reduced if you invest at least
           $100,000, as follows:

 

                                                 YOUR MAXIMUM
                                                    SALES FEE
                     IF YOU INVEST:                  WILL BE:
           -----------------------------------  -----------------
           Less than $100,000                            2.90%
           $100,000 to $249,999                          2.65%
           $250,000 to $499,999                          2.40%
           $500,000 to $999,999                          2.15%
           $1,000,000 and over                           1.90%
 
           Maximum Exchange Fee                          1.90%

 
           ESTIMATED ANNUAL FUND OPERATING EXPENSES
 

                                                        AMOUNT
                                                      PER UNIT
                                                    -----------
                                                     $    0.72
           Trustee's Fee
                                                     $    0.46
           Portfolio Supervision,
           Bookkeeping and
           Administrative Fees
                                                     $    0.40
           Evaluator's Fee
                                                     $    0.20
           Organization Costs
                                                     $    0.67
           Other Operating Expenses
                                                    -----------
                                                     $    2.45
           TOTAL

 

       7.  HOW HAVE SIMILAR FUNDS PERFORMED IN THE PAST?
           In the following chart we show past performance of prior
           Pennsylvania Portfolios, which had investment objectives,
           strategies and types of bonds substantially similar to this
           Fund. These prior Series differed in that they charged a
           higher sales fee. These prior Pennsylvania Series were
           offered between March 4, 1988 and September 11, 1997 and
           were outstanding on September 30, 1998. OF COURSE, PAST
           PERFORMANCE OF PRIOR SERIES IS NO GUARANTEE OF FUTURE
           RESULTS OF THIS FUND.
           AVERAGE ANNUAL COMPOUND TOTAL RETURNS
           FOR PRIOR SERIES
           Reflecting all expenses. For periods ended 9/30/98.

 

                   WITH SALES FEE                    NO SALES FEE
            1 YEAR     5 YEARS   10 YEARS    1 YEAR     5 YEARS   10 YEARS

 
- -------------------------------------------------------------------
 

High         6.45%      5.08%      7.33%     10.73%      6.08%      7.93%
Average      3.97       4.31       7.28       7.24       5.35       7.86
Low          2.42       3.72       7.22       3.61       4.76       7.76

 
- -------------------------------------------------------------------
 

Average
Sales fee    3.20%      5.12%      5.60%

 
- -------------------------------------------------------------------
 
Note: All returns represent changes in unit price with distributions reinvested
 into the Municipal Fund Investment Accumulation Program.
 

       8.  IS THE FUND MANAGED?
           Unlike a mutual fund, the Fund is not managed and bonds are
           not sold because of market changes. Rather, experienced
           Defined Asset Funds financial analysts regularly review the
           bonds in the Fund. The Fund may sell a bond if certain
           adverse credit or other conditions exist.

 
                                       13
<PAGE>
 

       9.  HOW DO I BUY UNITS?
           The minimum investment is one unit.
           You can buy units from any of the Sponsors and other
           broker-dealers. The Sponsors are listed later in this
           prospectus. Some banks may offer units for sale through
           special arrangements with the Sponsors, although certain
           legal restrictions may apply.
           UNIT PRICE PER UNIT                     $1,039.61
           (as of September 30, 1998)
           Unit price is based on the net asset value of the Fund plus
           the sales fee. An amount equal to any principal cash, as
           well as net accrued but undistributed interest on the unit,
           is added to the unit price. An independent evaluator prices
           the bonds at 3:30 p.m. Eastern time every business day.
           Unit price changes every day with changes in the prices of
           the bonds in the Fund.
      10.  HOW DO I SELL UNITS?
           You may sell your units at any time to any Sponsor or the
           Trustee for the net asset value determined at the close of
           business on the date of sale less any remaining deferred
           sales fee. You will not pay any other fee when you sell
           your units.

 

      11.  HOW ARE DISTRIBUTIONS MADE AND TAXED?
           The Fund pays income monthly.
           In the opinion of bond counsel when each bond was issued,
           interest on the bonds in this Fund is generally 100% exempt
           from regular federal income tax. Your income may also be
           exempt from some Pennsylvania state and local personal
           income taxes if you live in Pennsylvania.
           You will also receive principal payments if bonds are sold
           or called or mature, when the cash available is more than
           $5.00 per unit. You will be subject to tax on any gain
           realized by the Fund on the disposition of bonds.
      12.  WHAT OTHER SERVICES ARE AVAILABLE?
           REINVESTMENT
           You will receive your income in cash unless you choose to
           compound your income by reinvesting at no sales fee in the
           Municipal Fund Investment Accumulation Program, Inc. This
           program is an open-end mutual fund with a comparable
           investment objective. Income from this program will
           generally be subject to state and local income taxes. For
           more complete information about the program, including
           charges and fees, ask the Trustee for the program's
           prospectus. Read it carefully before you invest. The Trustee
           must receive your written election to reinvest at least 10
           days before the record day of an income payment.
           EXCHANGE PRIVILEGES
           You may exchange units of this Fund for units of certain
           other Defined Asset Funds. You may also exchange into this
           Fund from certain other funds. We charge a reduced sales fee
           on exchanges.

 
                                       14
<PAGE>
- --------------------------------------------------------------------------------
    TAX-FREE VS. TAXABLE INCOME: A COMPARISON OF TAXABLE AND TAX-FREE YIELDS
 
                            FOR CALIFORNIA RESIDENTS
- --------------------------------------------------------------------------------
 
<TABLE><CAPTION>

                                  COMBINED
                                  EFFECTIVE
TAXABLE INCOME 1999*              TAX RATE                       TAX-FREE YIELD OF
 SINGLE RETURN      JOINT RETURN     %       4%     4.5%     5%     5.5%     6%     6.5%     7%     7.5%     8%
                                                        IS EQUIVALENT TO A TAXABLE YIELD OF

 
- --------------------------------------------------------------------------------
 

<S>              <C>                <C>       <C>    <C>      <C>    <C>     <C>    <C>      <C>    <C>      <C>
$      0- 25,750  $     $0- 43,050  20.10     5.01   5.63     6.26   6.88     7.51   8.14     8.76   9.39    10.01
$ 25,751- 62,450  $ 43,051-104,050  34.70     6.13   6.89     7.66   8.42     9.19   9.95    10.72  11.48    12.25
$ 62,451-130,250  $104,051-158,550  37.42     6.39   7.19     7.99   8.79     9.59  10.39    11.19  11.98    12.78
$130,251-283,150  $158,551-283,150  41.95     6.89   7.75     8.61   9.47    10.34  11.20    12.06  12.92    13.78
OVER $283,151        OVER $283,151  45.22     7.30   8.21     9.13  10.04    10.95  11.87    12.78  13.69    14.60
</TABLE>

 
                             FOR FLORIDA RESIDENTS
- --------------------------------------------------------------------------------
 
<TABLE><CAPTION>

                                  EFFECTIVE
TAXABLE INCOME 1999*              TAX RATE                       TAX-FREE YIELD OF
 SINGLE RETURN      JOINT RETURN     %       3%     3.5%     4%     4.5%     5%     5.5%     6%     6.5%     7%
                                                        IS EQUIVALENT TO A TAXABLE YIELD OF

 
- --------------------------------------------------------------------------------
 

<S>              <C>                <C>       <C>    <C>      <C>    <C>     <C>    <C>      <C>    <C>      <C>
$      0- 25,750  $      0- 43,050  15.00     3.53   4.12     4.71   5.29     5.88   6.47     7.06   7.65     8.24
$ 27,751- 62,450  $ 43,051-104,050  28.00     4.17   4.86     5.56   6.25     6.94   7.64     8.33   9.03     9.72
$ 62,451-130,250  $104,051-158,550  31.00     4.35   5.07     5.80   6.52     7.25   7.97     8.70   9.42    10.14
$130,251-283,150  $158,551-283,150  36.00     4.69   5.47     6.25   7.03     7.81   8.59     9.38  10.16    10.94
OVER $283,151        OVER $283,151  39.60     4.97   5.79     6.62   7.45     8.28   9.11     9.93  10.76    11.59
</TABLE>

 
To compare the yield of a taxable security with the yield of a tax-free
security, find your taxable income and read across. The table incorporates 1999
federal and applicable State income tax rates and assumes that all income would
otherwise be taxed at the investor's highest tax rate. Yield figures are for
example only.
 
*Based upon net amount subject to federal income tax after deductions and
exemptions. This table does not reflect the possible effect of other tax
factors, such as alternative minimum tax, personal exemptions, the phase out of
exemptions, itemized deductions or the possible partial disallowance of
deductions. Consequently, you should consult your own tax advisers in this
regard.
 
                                       15
<PAGE>
- --------------------------------------------------------------------------------
    TAX-FREE VS. TAXABLE INCOME: A COMPARISON OF TAXABLE AND TAX-FREE YIELDS
 
                          FOR NEW YORK CITY RESIDENTS
- --------------------------------------------------------------------------------
 
<TABLE><CAPTION>

                                  COMBINED
                                  EFFECTIVE
TAXABLE INCOME 1999*              TAX RATE                       TAX-FREE YIELD OF
 SINGLE RETURN      JOINT RETURN     %       4%     4.5%     5%     5.5%     6%     6.5%     7%     7.5%     8%
                                                        IS EQUIVALENT TO A TAXABLE YIELD OF

 
- --------------------------------------------------------------------------------
 

<S>              <C>                <C>       <C>    <C>      <C>    <C>     <C>    <C>      <C>    <C>      <C>
                  $      0- 43,060  23.59     5.24   5.89     6.54   7.20     7.85   8.51     9.16   9.82    10.47
$      0-25,750-                    23.63     5.24   5.89     6.55   7.20     7.86   8.51     9.17   9.82    10.48
$ 25,751- 62,450  $ 43,051-104,050  35.35     6.19   6.96     7.73   8.51     9.28  10.05    10.83  11.60    12.37
$ 62,451-130,250  $104,051-158,550  38.04     6.46   7.26     8.07   8.88     9.68  10.49    11.30  12.11    12.91
$130,251-283,150  $158,551-283,150  42.53     6.96   7.83     8.70   9.57    10.44  11.31    12.18  13.05    13.92
OVER $283,151        OVER $283,151  45.77     7.38   8.30     9.22  10.14    11.06  11.98    12.91  13.83    14.75
</TABLE>

 
                          FOR NEW YORK STATE RESIDENTS
- --------------------------------------------------------------------------------
 
<TABLE><CAPTION>

                                  COMBINED
                                  EFFECTIVE
TAXABLE INCOME 1999*              TAX RATE                       TAX-FREE YIELD OF
 SINGLE RETURN      JOINT RETURN     %       4%     4.5%     5%     5.5%     6%     6.5%     7%      8%
                                                        IS EQUIVALENT TO A TAXABLE YIELD OF

 
- --------------------------------------------------------------------------------
 

<S>              <C>                <C>       <C>    <C>      <C>    <C>     <C>    <C>      <C>    <C>      <C>
$      0- 25,750  $      0- 43,050  20.82     5.05   5.68     6.31   6.95     7.58   8.21     8.84   9.47    10.10
$ 25,751- 62,450  $ 43,051-104,050  32.93     6.71   7.46     8.20   8.95     9.69  10.44    11.18  11.93    10.10
$ 62,451-130,250  $104,051-158,550  35.73     6.22   7.00     7.78   8.56     9.34  10.11    10.69  11.67    12.45
$130,251-283,150  $158,551-283,150  40.38     6.71   7.55     8.39   9.23    10.06  10.90    11.74  12.58    13.42
OVER $283,151        OVER $283,151  43.74     7.11   8.00     8.89   9.78    10.66  11.55    12.44  13.33    14.22
</TABLE>

 
                           FOR PENNSYLVANIA RESIDENTS
- --------------------------------------------------------------------------------
 
<TABLE><CAPTION>

                                  COMBINED
                                  EFFECTIVE
TAXABLE INCOME 1999*              TAX RATE                       TAX-FREE YIELD OF
 SINGLE RETURN      JOINT RETURN     %       3%     3.5%     4%     4.5%     5%     5.5%     6%     6.5%     7%
                                                        IS EQUIVALENT TO A TAXABLE YIELD OF

 
- --------------------------------------------------------------------------------
 

<S>              <C>                <C>       <C>    <C>      <C>    <C>     <C>    <C>      <C>    <C>      <C>
$      0- 25,750  $      0- 43,050  17.38     3.63   4.24     4.84   5.45     6.05   6.66     7.26   7.87     8.47
$ 27,751- 62,450  $ 43,051-104,050  30.02     4.29   5.00     5.72   6.43     7.14   7.86     8.57   9.29    10.00
$ 62,451-130,250  $104,051-158,550  32.93     4.47   5.22     5.96   6.71     7.46   8.20     8.95   9.69    10.44
$130,251-283,150  $158,551-283,150  37.79     4.82   5.63     6.43   7.23     8.04   8.84     9.65  10.45    11.25
OVER $283,151        OVER $283,151  41.29     5.11   5.96     6.81   7.66     8.52   9.37    10.22  11.07    11.92
</TABLE>

 
To compare the yield of a taxable security with the yield of a tax-free
security, find your taxable income and read across. The table incorporates 1999
federal and applicable State (and City) income tax rates and assumes that all
income would otherwise be taxed at the investor's highest tax rate. Yield
figures are for example only.
 
*Based upon net amount subject to federal income tax after deductions and
exemptions. This table does not reflect the possible effect of other tax
factors, such as alternative minimum tax, personal exemptions, the phase out of
exemptions, itemized deductions or the possible partial disallowance of
deductions. Consequently, investors are urged to consult their own tax advisers
in this regard.
 
                                       16
<PAGE>
WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
 
MONTHLY INCOME
 
The Fund will pay you regular monthly income. Your monthly income may vary
because of:
   o elimination of one or more bonds from the Fund's portfolio because of
     calls, redemptions or sales;
   o a change in the Fund's expenses; or
   o the failure by a bond's issuer to pay interest.
 
Changes in interest rates generally will not affect your income because the
portfolio is fixed.
 
Along with your income, you will receive your share of any available bond
principal.
 
RETURN FIGURES
 
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
 
Estimated Current Return equals the estimated annual cash to be received from
the bonds in the Fund less estimated annual Fund expenses, divided by the Unit
Price (including the maximum sales fee):
 

 Estimated Annual                  Estimated
 Interest Income        -       Annual Expenses
- -------------------------------------------------
                   Unit Price

 
Estimated Long Term Return is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the bonds in the Fund. It
is an average of the yields to maturity (or in certain cases, to an earlier call
date) of the individual bonds in the portfolio, adjusted to reflect the Fund's
maximum sales fee and estimated expenses. We calculate the average yield for the
portfolio by weighting each bond's yield by its market value and the time
remaining to the call or maturity date.
 
Yields on individual bonds depend on many factors including general conditions
of the bond markets, the size of a particular offering and the maturity and
quality rating of the particular issues. Yields can vary among bonds with
similar maturities, coupons and ratings.
 
These return quotations are designed to be comparative rather than predictive.
 
RECORDS AND REPORTS
 
You will receive:
o a monthly statement of income payments and any principal payments;
o a notice from the Trustee when new bonds are deposited in exchange or
  substitution for bonds originally deposited;
o an annual report on Fund activity; and
o annual tax information. This will also be sent to the IRS. You must report the
  amount of tax-exempt interest received during the year.
 
You may request:
o copies of bond evaluations to enable you to comply with federal and state tax
  reporting requirements; and
o audited financial statements of the Fund.
 
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
 
                                       17
<PAGE>
THE RISKS YOU FACE
 
INTEREST RATE RISK
 
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, bonds with longer maturities will
change in value more than bonds with shorter maturities. Bonds in the Fund are
more likely to be called when interest rates decline. This would result in early
returns of principal to you and may result in early termination of the Fund. Of
course, we cannot predict how interest rates may change.
 
CALL RISK
 
Many bonds can be prepaid or 'called' by the issuer before their stated
maturity.
 
For example, some bonds may be required to be called pursuant to mandatory
sinking fund provisions.
 
Also, an issuer might call its bonds during periods of falling interest rates,
if the issuer's bonds have a coupon higher than current market rates.
 
An issuer might call its bonds in extraordinary cases, including if:
   o it no longer needs the money for the original purpose;
   o the project is condemned or sold;
   o the project is destroyed and insurance proceeds are used to redeem the
     bonds;
   o any related credit support expires and is not replaced; or
   o interest on the bonds become taxable.
 
If the bonds are called, your income will decline and you may not be able to
reinvest the money you receive at as high a yield or as long a maturity. An
early call at par of a premium bond will reduce your return.
 
REDUCED DIVERSIFICATION RISK
 
If many investors sell their units, the Fund will have to sell bonds. This could
reduce the diversification of your investment and increase your share of Fund
expenses.
 
LIQUIDITY RISK
 
You can always sell back your units, but we cannot assure you that a liquid
trading market will always exist for the bonds in the portfolio, especially
since current law may restrict the Fund from selling bonds to any Sponsor. The
bonds will generally trade in the over-the-counter market. The value of the
bonds, and of your investment, may be reduced if trading in bonds is limited or
absent.
 
CONCENTRATION RISK
 
When a certain type of bond makes up 25% or more of the portfolio, it is said to
be 'concentrated' in that bond type, which makes the Portfolio less diversified.
 
Here is what you should know about the California Portfolio's concentration in
lease rental bonds. Lease rental bonds are generally issued by governmental
financing authorities that cannot assess a tax to cover the cost of equipment or
construction of buildings that will be used by a state or local government. The
risks associated with these bonds include:
   o the failure of the government to appropriate funds for the leasing rental
      payments to service the bonds; and
   o rental obligations, and therefore payments, may terminate in the event of
      damages to or destruction or condemnation of the of the equipment or
      building.
 
Here is what you should know about the Florida, New York and Pennsylvania
Portfolio's concentration in hospital and health care bonds.
 
                                       18
<PAGE>
   o payment for these bonds depends on revenues from private third-party payors
      and government programs, including Medicare and Medicaid, which have
      generally undertaken cost containment measures to limit payments to health
     care providers;
   o hospitals face increasing competition resulting from hospital mergers and
      affiliations;
   o hospitals need to reduce costs as HMOs increase market penetration and
     hospital supply and drug companies raise prices;
   o hospitals and health care providers are subject to various legal claims by
     patients and others and are adversely affected by increasing costs of
     insurance; and
   o many hospitals are aggressively buying physician practices and assuming
     risk contracts to gain market share. If revenues do not increase
     accordingly, this practice could reduce profits;
   o Medicare is changing its reimbursement system for nursing homes. Many
     nursing home providers are not sure how they will be treated. In many
     cases, the providers may receive lower reimbursements and these would have
     to cut expenses to maintain profitability; and
   o most retirement/nursing home providers rely on entrance fees for operating
     revenues. If people live longer than expected and turnover is lower than
     budgeted, operating revenues would be adversely affected by less than
     expected entrance fees.
 
Here is what you should know about the Pennsylvania Portfolio's concentration in
municipal water and sewer revenue bonds. The payment of interest and principal
of these bonds depends on the rates the utilities may charge, the demand for
their services and the cost of operating their business which includes the
expense of complying with environmental and other energy and licensing laws and
regulations. The operating results of utilities are particularly influenced by:
   o increases in operating and construction costs; and
   o unpredicability of future usage requirements.
 
Changes to the portfolio from bond redemptions, maturities and sales may affect
the Fund's concentrations over time.
 
STATE CONCENTRATION RISK
 
CALIFORNIA RISKS
 
Generally
 
From the late 1980s through the early 1990s, an economic recession eroded
California's revenue base. At the same time rapid population growth caused State
expenditures to exceed budget appropriations.
 
   o As a result California experienced a period of sustained budget imbalance.
 
   o Since that time the California economy has improved and the extreme
     budgetary pressures have begun to lessen.
 
State Government
 
The 1997-98 Budget Act allocated a State budget of approximately $66.9 Billion
and contains no tax increases or reductions. Despite this somewhat improved
state, California's budget is still subject to certain unforeseeable events. For
example:
 
   o In December, 1994, Orange County and its investment pool filed for
     bankruptcy. While a settlement has been reached, the full impact on the
     State and Orange County is still unknown.
 
   o California faces constant fluctuations in other expenses (including health
     and welfare caseloads, property tax receipts, federal funding and natural
     disaster relief) that will undoubtedly create new
 
                                       19
<PAGE>
      budgetary pressure and reduce issuers' ability to pay their debts.
 
   o California's general obligation bonds are currently rated A1 by Moody's and
     A+ by Standard & Poor's.
 
Other Risks
 
Issuers' ability to make payments on bonds (and the remedies available to
bondholders) could also be adversely affected by the following constraints:
 
   o Certain provisions of California's Constitution, laws and regulatory system
      contain tax, spending and appropriations limits and prohibit certain new
     taxes.
 
   o Certain other California laws subject the users of bond proceeds to strict
     rules and limits regarding revenue repayment.
 
   o Bonds of healthcare institutions which are subject to the strict rules and
     limits regarding reimbursement payments of California's Medi-Cal program
     for health care services to welfare recipients and bonds secured by liens
     on real property are two of the types of bonds affected by these
     provisions.
 
FLORIDA RISKS
 
Generally
 
Florida's financial condition is affected by numerous national, economic, social
and environmental policies and conditions. For example:
 
   o south Florida is heavily involved with foreign tourism, trade and
     investment capital. As a result, the region is susceptible to international
     trade and currency imbalances and economic problems in Central and South
     America;
 
   o central and northern Florida are more vulnerable to agricultural problems,
     such as crop failures or severe weather conditions, especially in the
     citrus and sugar industries; and
 
   o the state as a whole is also very dependent on tourism and construction.
 
State and Local Government
 
The state of Florida and its local governments are restricted in their ability
to raise taxes and incur debts. These restrictions limit their ability to
generate revenue, and so could hurt their ability to pay debts.
 
General obligations of the state are rated Aa2 by Moody's, AA+ by Standard &
Poor's and AA by Fitch.
 
NEW YORK RISKS
 
Generally
 
For decades, New York's economy has trailed the rest of the nation. Both the
state and New York City have experienced long-term structural imbalances between
revenues and expenses, and have repeatedly relied substantially on non-recurring
measures to achieve budget balance. The pressures that contribute to budgetary
problems at both the state and local level include:
 
   o the high combined state and local tax burden;
 
   o a decline in manufacturing jobs, leading to above-average unemployment;
 
   o sensitivity to the financial services industry; and
 
   o dependence on federal aid.
 
State Government
 
The State government frequently has difficulty approving budgets on time. Budget
gaps of $1 billion and $4 billion are projected for the next two years. The
State's general obligation bonds are rated A by Standard & Poor's and
 
                                       20
<PAGE>
A2 by Moody's. There is $37 billion of state-related debt outstanding.
 
New York City Government
 
Even though the City had budget surpluses each year from 1981, budget gaps of $2
billion are projected for each of the next three years. New York City faces
fiscal pressures from:
 
   o aging public facilities that need repair or replacement;
 
   o welfare and medical costs;
 
   o expiring labor contracts; and
 
   o a high and increasing debt burden.
 
The City requires substantial state aid, and its fiscal strength depends heavily
on the securities industry. Its general obligation bonds are rated A-by Standard
& Poor's and A3 by Moody's.
 
PENNSYLVANIA RISKS
 
Generally
 
Pennsylvania and many of its municipalities (including Philadelphia) have
undergone an economic decline:
 
   o coal, steel, railroads and other heavy industry historically associated
     with the Commonwealth has given way to increased competition from foreign
      producers.
 
   o agriculture and related industries are still an important part of the
      Commonwealth's economy.
 
   o Recently, however, service sector industries (trade, medical and health
      services, education and financial services) have provided new sources of
     growth.
 
State and Local Governments
 
Historically, both the Commonwealth and the City of Philadelphia have
experienced serious revenue shortfalls. At the same time, rising demands for
state and local programs and services (particularly medical assistance and cash
assistance programs) have lead to increased spending.
 
   o In recent years, both the Commonwealth and the City of Philadelphia have
     tried to balance their budgets with a mix of tax increases and spending
     cuts.
 
   o Philadelphia has considered significant service cuts and privatization of
     certain services which it has provided to date.
 
   o In 1991, the Commonwealth created the Pennsylvania Inter-Governmental
      Cooperation Authority ('PICA') which it authorized to issue debt to cover
      Philadelphia's budget shortfalls, eliminate the City's projected deficits
     and fund its capital spending. PICA issued approximately $1.76 billion of
     Special Revenue Bonds on Philadelphia's behalf. Its power to issue bonds on
     Philadelphia's behalf expired at the end of 1996; as of June 30, 1997,
     approximately $1.1 billion in PICA Special Revenue Bonds were outstanding.
 
   o Pennsylvania's general obligation bonds are currently rated A1 by Moody's
     and AA-by Standard & Poor's. Philadelphia's general obligation bonds are
     rated Baa by Moody's and BBB by Standard & Poor's. There can be no
     assurance that these ratings will not be lowered.
 
BOND QUALITY RISK
 
A reduction in a bond's rating may decrease its value and, indirectly, the value
of your investment in the Fund.
 
INSURANCE RELATED RISK
 
Some bonds may be backed by insurance companies (as shown under Portfolios).
 
                                       21
<PAGE>
Insurance policies generally make payments only according to a bond's original
payment schedule and do not make early payments when a bond defaults or becomes
taxable. Although the federal government does not regulate the insurance
business, various state laws and federal initiatives and tax law changes could
significantly affect the insurance business. The claims-paying ability of the
insurance companies is generally rated A or better by Standard & Poor's or
another nationally recognized rating organization. The insurance company ratings
are subject to change at any time at the discretion of the rating agencies.
 
LITIGATION AND LEGISLATION RISKS
 
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
 
Future tax legislation could affect the value of the portfolio by:
   o limiting real property taxes,
   o reducing tax rates,
   o imposing a flat or other form of tax, or
   o exempting investment income from tax.
 
SELLING OR EXCHANGING UNITS
 
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
   o adding the value of the bonds, net accrued interest, cash and any other
     Fund assets;
   o subtracting accrued but unpaid Fund expenses, unreimbursed Trustee
      advances, cash held to buy back units or for distribution to investors and
     any other Fund liabilities; and
   o dividing the result by the number of outstanding units.
 
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
If you sell your units before the final deferred sales fee installment, the
amount of any remaining installments will be deducted from your proceeds.
 
SPONSORS' SECONDARY MARKET
 
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge other than any remaining deferred sales charge.
We may resell the units to other buyers or to the Trustee. You should consult
your financial professional for current market prices to determine if other
broker-dealers or banks are offering higher prices.
 
We have maintained the secondary market continuously for over 25 years, but we
could discontinue it without prior notice for any business reason.
 
SELLING UNITS TO THE TRUSTEE
 
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold Unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional documents are
needed such as a trust document, certificate of corporate authority, certificate
of death or appointment as executor, administrator or guardian.
 
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
 
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee may sell your units in the over-the-counter market for a
 
                                       22
<PAGE>
higher price, but it is not obligated to do so. In that case, you will receive
the net proceeds of the sale.
 
If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select bonds to be sold. Bonds will be selected
based on market and credit factors. These sales could be made at times when the
bonds would not otherwise be sold and may result in your receiving less than the
unit par value and also reduce the size and diversity of the Fund.
 
If you acquire 25% or more of the outstanding units of the Fund and you sell
units with a value exceeding $250,000, the Trustee may choose to pay you 'in
kind' by distributing bonds and cash with a total value equal to the price of
those units. The Trustee will try to distribute bonds in the portfolio pro rata,
but it reserves the right to distribute only one or a few bonds. The Trustee
will act as your agent in an in kind distribution and will either hold the bonds
for your account or sell them as you instruct. You must pay any transaction
costs as well as transfer and ongoing custodial fees on sales of bonds
distributed in kind.
 
There could be a delay in paying you for your units:
   o if the New York Stock Exchange is closed (other than customary weekend and
      holiday closings);
   o if the SEC determines that trading on the New York Stock Exchange is
     restricted or that an emergency exists making sale or evaluation of the
     bonds not reasonably practicable; and
   o for any other period permitted by SEC order.
 
EXCHANGE OPTION
 
You may exchange units of certain Defined Asset Funds for units of this Fund at
a maximum exchange fee of 1.90%. You may exchange units of this Fund for units
of certain other Defined Asset Funds at a reduced sales fee if your investment
goals change. To exchange units, you should talk to your financial professional
about what funds are exchangeable, suitable and currently available.
 
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds are not materially different; you should consult your own tax adviser.
 
We may amend or terminate this exchange option at any time without notice.
 
HOW THE FUND WORKS
 
PRICING
 
The price of a unit includes interest accrued on the bonds, less expenses, from
the initial most recent Record Day up to, but not including, the settlement
date, which is usually three business days after the purchase date of the unit.
 
A portion of the price of a unit consists of cash so that the Trustee can
provide you with regular monthly income. When you sell your units you will
receive your share of this cash.
 
In addition, as with mutual funds, the Fund (and therefore the investors) pay
all or some of the costs of organizing the Fund including:
   o cost of initial preparation of legal documents;
   o federal and state registration fees;
   o initial fees and expenses of the Trustee;
   o initial audit; and
   o legal expenses and other out-of-pocket expenses.
 
EVALUATIONS
 
An independent Evaluator values the bonds on each business day (excluding
Saturdays,
 
                                       23
<PAGE>
Sundays and the following holidays as observed by the New York Stock Exchange:
New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas). Bond
values are based on current bid or offer prices for the bonds or comparable
bonds. In the past, the difference between bid and offer prices of publicly
offered tax-exempt bonds has ranged from 0.5% of face amount on actively traded
issues to 3.5% on inactively traded issues; the difference has averaged between
1 and 2%.
 
INCOME
 
The Trustee credits interest to an Income Account and other receipts to a
Capital Account. The Trustee may establish a Reserve Account by withdrawing from
these accounts amounts it considers appropriate to pay any material liability.
These accounts do not bear interest.
 
EXPENSES
 
The Trustee is paid monthly. It also benefits when it holds cash for the Fund in
non-interest bearing accounts. The Trustee may also receive additional amounts:
   o to reimburse the Trustee for the Fund's operating expenses;
   o for extraordinary services and costs of indemnifying the Trustee and the
      Sponsors;
   o costs of actions taken to protect the Fund and other legal fees and
     expenses;
   o expenses for keeping the Fund's registration statement current; and
   o Fund termination expenses and any governmental charges.
 
The Sponsors are currently reimbursed up to 45 cents per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. While this
fee may exceed the amount of these costs and expenses attributable to this Fund,
the total of these fees for all Series of Defined Asset Funds will not exceed
the aggregate amount attributable to all of these Series for any calendar year.
The Fund also pays the Evaluator's fees.
 
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
 
Any quarterly deferred sales fees you owe are paid with interest and principal
from certain bonds. If these amounts are not enough, the rest will be paid out
of distributitons to you from the Fund's Capital and Income Accounts.
 
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
 
PORTFOLIO CHANGES
 
The Sponsors and Trustee are not liable for any default or defect in a bond; if
a contract to buy any bond.
 
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
bonds in the portfolio even if their credit quality declines or other adverse
financial circumstances occur. However, we may sell a bond in certain cases if
we believe that certain adverse credit conditions exist or if a bond becomes
taxable.
 
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of bonds that they did originally.
 
                                       24
<PAGE>
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
   o diversity of the portfolio;
   o size of the Fund relative to its original size;
   o ratio of Fund expenses to income;
   o current and long-term returns;
   o degree to which units may be selling at a premium over par; and
   o cost of maintaining a current prospectus.
 
FUND TERMINATION
 
The Fund will terminate following the stated maturity or sale of the last bond
in the portfolio. The Fund may also terminate earlier with the consent of
investors holding 51% of the units or if total assets of the Fund have fallen
below 40% of the face amount of bonds deposited. We will decide whether to
terminate the Fund early based on the same factors used in deciding whether or
not to offer units in the secondary market.
 
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining bonds, and you will receive your final distribution. Any
bond that cannot be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final sale.
 
You will pay your share of the expenses associated with termination, including
brokerage costs in selling bonds. This may reduce the amount you receive as your
final distribution.
 
CERTIFICATES
 
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
 
TRUST INDENTURE
 
The Fund is a 'unit investment trust' governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
 
The Sponsors and the Trustee may amend the Indenture without your consent:
   o to cure ambiguities;
   o to correct or supplement any defective or inconsistent provision;
   o to make any amendment required by any governmental agency; or
   o to make other changes determined not to be materially adverse to your best
     interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
 
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
 
   o it fails to perform its duties and the Sponsors determine that its
     replacement is in your best interest; or
   o it becomes incapable of acting or bankrupt or its affairs are taken over by
      public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts
 
                                       25
<PAGE>
appointment. The Sponsors will try to appoint a successor promptly; however, if
no successor has accepted within 30 days after notice of resignation, the
resigning Trustee or Evaluator may petition a court to appoint a successor.
 
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one Sponsor and it fails to perform
its duties or becomes bankrupt the Trustee may:
   o remove it and appoint a replacement Sponsor;
   o liquidate the Fund; or
   o continue to act as Trustee without a Sponsor.
 
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
 
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
 
LEGAL OPINION
 
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
counsel for the Sponsors, has given an opinion that the units are validly
issued. Special counsel located in the relevant states have given state and
local tax opinions.
 
AUDITORS
 
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statements of Condition included in this
prospectus.
 
SPONSORS
 
The Sponsors are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051
SALOMON SMITH BARNEY INC. (an indirectly wholly-owned subsidiary of Citigroup
Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048
PRUDENTIAL SECURITIES INCORPORATED (an
indirect wholly-owned subsidiary of the
Prudential Insurance Company of America)
One New York Plaza
New York, NY 10292
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019
 
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
 
TRUSTEE
 
The Bank of New York, 101 Barclay Street, 17 W, New York, New York 10268, is the
Trustee.
 
It is supervised by the Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System and New York State banking authorities.
 
UNDERWRITERS' AND SPONSORS' PROFITS
 
Underwriters receive sales charges when they sell units. The Sponsors also
realized a profit or loss on the initial date of deposit of the bonds. Any cash
made available by you to the
 
                                       26
<PAGE>
Sponsors before the settlement date for those units may be used in the Sponsors'
businesses to the extent permitted by federal law and may benefit the Sponsors.
 
A Sponsor or Underwriter may realize profits or sustain losses on bonds in the
Fund which were acquired from underwriting syndicates of which it was a member.
 
In maintaining a secondary market, the Sponsors will also realize profits or
sustain losses in the amount of any difference between the prices at which they
buy units and the prices at which they resell or redeem them.
 
PUBLIC DISTRIBUTION
 
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
 
CODE OF ETHICS
 
Merrill Lynch, as agent for the Sponsors, has adopted a code of ethics requiring
preclearance and reporting of personal securities transactions by its employees
with access to information on portfolio transactions. The goal of the code is to
prevent fraud, deception or misconduct against the Fund and to provide
reasonable standards of conduct.
 
YEAR 2000 ISSUES
 
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the 'Year
2000 Problem'). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Fund.
 
TAXES
 
The following summary describes some of the important income tax consequences of
holding units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances. You should
consult your own tax adviser about your particular circumstances.
 
At the date of issue of each bond, counsel for the issuer delivered an opinion
to the effect that interest on the bond is exempt from regular federal income
tax. However, interest may be subject to state and local taxes and federal
alternative minimum tax. Neither we nor our counsel have reviewed the issuance
of the bonds, related proceedings or the basis for the opinions of counsel for
the issuers. We cannot assure you that the issuer (or other users) have complied
or will comply with any requirements necessary for a bond to be tax-exempt. If
any of the bonds were determined not to be tax-exempt, you could be required to
pay income tax for current and prior years, and if the Fund were to sell the
bond, it might have to sell it at a substantial discount.
 
In the opinion of our counsel, under existing law:
 
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
 
The Fund will not be taxed as a corporation for federal income tax purposes, and
you will be considered to own directly your share of each bond in the Fund.
 
INCOME OR LOSS UPON DISPOSITION
 
When all or part of your share of a bond is disposed of (for example, when the
Fund sells, exchanges or redeems a bond or when you sell or exchange your
units), you will generally recognize capital gain or loss. Your gain,
 
                                       27
<PAGE>
however, will generally be ordinary income to the extent of any accrued 'market
discount'. Generally you will have market discount to the extent that your basis
in a bond when you purchase a unit is less than its stated redemption price at
maturity (or, if it is an original issue discount bond, the issue price
increased by original issue discount that has accrued on the bond before your
purchase). You should consult your tax adviser in this regard.
 
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain from the Fund will be long-term if you are considered to have held
your investment on each bond for more than one year and short-term if you held
it for one year or less. If you are an individual and sell your units after
holding them for more than one year, you may be entitled to a 20% maximum
federal tax rate on any resulting gains. Consult your tax adviser in this
regard. Because the deductibility of capital losses is subject to limitations,
you may not be able to deduct all of your capital losses.
 
YOUR BASIS IN THE BONDS
 
Your aggregate basis in the bonds will be equal to the cost of your units,
including any sales charges and the organizational expenses you pay, adjusted to
reflect any accruals of 'original issue discount,' 'acquisition premium' and
'bond premium'. You should consult your tax adviser in this regard.
 
EXPENSES
 
If you are not a corporate investor, you will not be entitled to a deduction for
your share of fees and expenses of the Fund. Also, if you borrowed money in
order to purchase or carry your units, you will not be able to deduct the
interest on this borrowing for federal income tax purposes. The IRS may treat
your purchase of units as made with borrowed money even if the money is not
directly traceable to the purchase of units.
 
STATE AND LOCAL TAXES
 
Under the income tax laws of the State and City of New York, the Fund will not
be taxed as a corporation. If you are a New York taxpayer, your income from the
Fund will not be tax-exempt in New York except to the extent that the income is
earned on bonds that are tax-exempt for New York purposes. Depending on where
you live, your income from the Fund may be subject to state and local taxation.
You should consult your tax adviser in this regard.
 
CALIFORNIA TAXES
 
In the opinion of O'Melveny & Myers LLP, Los Angeles, California, special
counsel on California tax matters:
 
Under the income tax laws of the State of California, the Trust will not be
taxed as a corporation and you will be considered to own directly your share of
each bond of the Trust. If you are a California taxpayer, your share of the
income from the bonds of the Trust will not be tax-exempt in California except
for California personal income tax purposes and only to the extent that the
income is earned on bonds that are exempt for such purposes. If you are a
California taxpayer and all or part of your share of a bond is disposed of (for
example, when a bond is sold, exchanged or redeemed at maturity or you sell or
exchange your units), you will recognize gain or loss for California tax
purposes. Depending on where you live, your income from the Trust may be subject
to state and local taxation. You should consult your tax advisor in this regard.
 
                                       28
<PAGE>
FLORIDA TAXES
 
In the opinion of Greenberg, Traurig, P.A., Miami, Florida, special counsel on
Florida tax matters:
 
Under the income tax laws of the State of Florida, the Fund will not be taxed as
a corporation. Florida imposes an income tax on corporations but does not impose
a personal income tax. Accordingly, if you are an individual taxpayer your
income from the Fund will not be subject to tax in Florida. However, if you are
an entity that is normally taxed as a corporation, your income from the fund
will not be exempt from tax in Florida and special rules for taxation apply
depending on the type of entity. You should consult your tax adviser in this
regard.
 
Florida also imposes a tax on intangible personal property, such as stocks,
bonds, notes and units in trusts. The tax is imposed on Florida taxpayers as of
January 1st of each year. Florida exempts certain types of bonds and debt
obligations from this tax. Your units will be exempt from the intangible
personal property tax as long as the Fund invests exclusively in bonds and other
debt obligations that are tax-exempt for Florida purposes.
 
PENNSYLVANIA TAXES
 
In the opinion of Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania,
special counsel on Pennsylvania tax matters:
 
The Pennsylvania Trust will not be taxed as a corporation under the current
income tax laws of Pennsylvania. Your income from the Trust may be subject to
taxation depending on where you live. If you are a Pennsylvania taxpayer your
interest income from the Trust will be tax exempt to the extent that income is
earned on bonds that are tax exempt for Pennsylvania purposes. However, gains on
the sale of bonds by the Trust or on the sale of your Units will be subject to
Pennsylvania income tax. If you are a Philadelphia resident you may be subject
to the Philadelphia school district tax on any gains realized from the sale of
bonds by the Trust or the sale of Units by you to the extent either the bonds or
Units have been held for six months or less. You should consult your tax adviser
as to the consequences to you with respect to any investment you make in the
Trust.
 
SUPPLEMENTAL INFORMATION
 
You can receive at no cost supplemental information about the Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the types of bonds that may be in the Fund's portfolios, general risk
disclosure concerning any insurance securing certain bonds, and general
information about the structure and operation of the Fund. The supplemental
information is also available from the SEC.
 
                                       29

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA, FLORIDA, NEW YORK AND
PENNSYLVANIA TRUSTS)
DEFINED ASSET FUNDS


REPORT OF INDEPENDENT ACCOUNTANTS


The Sponsors, Trustee and Holders
  of Municipal Investment Trust Fund,
  Multistate Series - 318 (California, Florida, New York and
  Pennsylvania Trusts)
  Defined Asset Funds:

We have audited the accompanying statements of condition of Municipal
Investment Trust Fund, Multistate Series - 318 (California, Florida,
New York and Pennsylvania Trusts) Defined Asset Funds, including the
portfolios, as of September 30, 1998 and the related statements of
operations and of changes in net assets for the period November 1,
1997 to September 30, 1998. These financial statements are the
responsibility of the Trustee. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Securities owned at September 30, 1998, as shown
in such portfolios, were confirmed to us by The Bank of New York, the
Trustee. An audit also includes assessing the accounting principles
used and significant estimates made by the Trustee, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Municipal
Investment Trust Fund, Multistate Series - 318 (California, Florida,
New York and Pennsylvania Trusts) Defined Asset Funds at September 30,
1998 and the results of their operations and changes in their net
assets for the above-stated period in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP

New York, N.Y.
December 27, 1998







                                                   D - 1
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1998
<TABLE>


<S>                                                <C>           <C>
TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $4,459,710)(Note 1)......................                  $4,656,626
  Accrued interest receivable......................                      45,177
  Accrued interest on segregated bonds.............                       2,377
  Deferred organization costs (Note 6).............                       3,632
  Cash.............................................                       2,684
                                                                   _____________

              Total trust property.................                   4,710,496

LESS LIABILITIES:
  Deferred sales charge payable....................   $   14,179
  Accrued expenses.................................        3,286         17,465
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  4,400 units of fractional undivided
    interest outstanding (Note 3)..................    4,680,627
  Undistributed net investment income..............       12,404
                                                    _____________
                                                                     $4,693,031
                                                                   =============
UNIT VALUE ($4,693,031/4,400 units)................                   $1,066.60
                                                                   =============


</TABLE>
                         See Notes to Financial Statements.




                                                   D - 2

<PAGE>


MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                              November 1,
                                                 1997
                                                  to
                                             September 30,
                                                 1998
                                             _____________
<S>                                        <C>
INVESTMENT INCOME:
  Interest income...........................    $212,555
  Interest income on segregated bonds.......       8,799
  Trustee's fees and expenses...............      (6,911)
  Sponsors' fees............................      (1,840)
  Organization expense......................        (908)
                                             _____________
  Net investment income.....................     211,695
                                             _____________

REALIZED AND UNREALIZED GAIN
  ON INVESTMENTS:
  Realized gain on securities sold
    or redeemed.............................         990
  Unrealized appreciation of investments....     196,916
                                             _____________

  Net realized and unrealized gain on
    investments.............................     197,906
                                             _____________

NET INCREASE IN NET ASSETS RESULTING
  FROM OPERATIONS...........................    $409,601
                                             =============


</TABLE>
             See Notes to Financial Statements.

                                                   D - 3

 <PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                November 1,
                                                   1997
                                                    to
                                               September 30,
                                                   1997
                                               _____________
<S>                                          <C>
OPERATIONS:
  Net investment income.......................  $  211,695
  Realized gain on securities sold
    or redeemed...............................         990
  Unrealized appreciation of investments......     196,916
                                               _____________
  Net increase in net assets resulting
    from operations...........................     409,601
                                               _____________
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)......    (190,378)
                                               _____________
  Net capital share transactions..............

DEFERRED SALES CHARGE (Note 5)................     (55,800)

CAPITAL SHARE TRANSACTIONS - Redemptions of
  140 units...................................    (140,121)
                                               _____________
NET INCREASE IN NET ASSETS....................      23,302

NET ASSETS AT BEGINNING OF PERIOD.............   4,669,729
                                               _____________
NET ASSETS AT END OF PERIOD...................  $4,693,031
                                               =============
PER UNIT:
  Income distributions during period..........      $42.35
                                               =============
  Net asset value at end of period............   $1,066.60
                                               =============
TRUST UNITS OUTSTANDING AT END OF PERIOD......       4,400
                                               =============


</TABLE>
             See Notes to Financial Statements.


                                                   D - 4
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


  1.  SIGNIFICANT ACCOUNTING POLICIES

      The Fund is registered under the Investment Company Act of 1940 as
      a Unit Investment Trust. The following is a summary of significant
      accounting policies consistently followed by the Fund in the
      preparation of its financial statements. The policies are in
      conformity with generally accepted accounting principles.

      (a) Securities are stated at value as determined by the Evaluator
          based on bid side evaluations for the securities (see "How to
          Sell Units - Trustee's Redemption of Units" in this Prospectus,
          Part B), except that value on November 1, 1997 was based upon
          offer side evaluations at October 30, 1997, the day prior to the
          Date of Deposit. Cost of securities at November 1, 1997 was also
          based on such offer side evaluations.

      (b) The Fund is not subject to income taxes. Accordingly, no
          provision for such taxes is required.

      (c) Interest income is recorded as earned.

  2.  DISTRIBUTIONS

      A distribution of net investment income is made to Holders each
      month. Receipts other than interest, after deductions for
      redemptions and applicable expenses, are also distributed
      periodically.

  3.  NET CAPITAL
<TABLE>
<S>                                                      <C>
      Cost of 4,400 units at Date of Deposit..............    $4,525,729
                                                           _____________

      Net amount applicable to Holders....................    $4,525,729

      Redemptions of units - net cost of 140 units
        redeemed less redemption amounts..................         3,993
      Realized gain on securities sold or redeemed........           990
      Deferred sales charge...............................      ($55,800)
      Interest income on segregated bonds.................         8,799
      Net unrealized appreciation of investments..........       196,916
                                                           ______________

      Net capital applicable to Holders...................    $4,680,627
                                                           ==============
</TABLE>

  4.  INCOME TAXES

      As of September 30, 1998, net unrealized appreciation of investments,
      based on cost for Federal income tax purposes, aggregated $196,916 of
      which $197,774 related to appreciated securities and $858 related to
      depreciated securities. The cost of investment securities for Federal
      income tax purposes was $4,459,710 at September 30, 1998.




                                                   D - 5
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


  5.  DEFERRED SALES CHARGE

      The sales charges are being paid for with the interest received
      and by periodic sales of these bonds. A deferred sales charge
      of $ 3.75 per unit is charged on a quarterly basis, and paid to the
      sponsors annually by the Trustee on behalf of the Holders, up to an
      aggregate of $ 45.00 per unit over the first three years of the life
      of the Fund. Should a Holder redeem units prior to the third
      anniversary of the Fund, the remaining balance of the deferred sales
      charge will be charged.

  6.  DEFERRED ORGANIZATIONAL COSTS

      Organization costs have been deferred and are being amortized over
      five years.










                                                   D - 6
<PAGE>





MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE CALIFORNIA TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                         Rating                                      Optional
    Portfolio No. and Title of             of           Face                         Redemption
            Securities (4)               Issues(1)      Amount  Coupon Maturities(3) Provisions(3)        Cost(2)       Value(2)
            ______________              _________       ______  ______ _____________ _____________        _______       ________
<S>                                    <C>          <C>        <C>     <C>          <C>           <C>             <C>
 1 State of California Dept. of           AAA       $  700,000   4.750%    2029       12/01/05         $  640,885     $  682,717
   Wtr. Resources, Central Valley                                                     @ 101.000
   Proj. Wtr. Sys. Rev. Bonds,
   Ser. O (MBIA Ins.)

 2 California Hlth. Facs. Fin. Auth.      AAA           20,000   4.000     1999       None                 20,040         20,143
   Ins. Rev. Bonds (Sutter Hlth.)                       30,000   4.150     2000       None                 30,100         30,358
   Ser. 1997 A (FSA Ins.) (6)

 3 California Hlth. Facs. Fin. Auth.,     AAA          700,000   5.250     2027       08/15/07            689,570        716,275
   Ins. Rev. Bonds (Sutter Hlth.),                                                    @ 102.000
   Ser. 1997 A (FSA Ins.)

 4 Public Wks. Bd of the State of         AAA          700,000   5.250     2021       01/01/06            690,711        716,898
   California, Lease Rev. Bonds                                                       @ 100.000
   (Dept. of Corrections),
   Ser. 1996 A (AMBAC Ins.)

 5 County of Contra Costa, CA, Certs.     AAA          700,000   5.250     2017       02/01/07            700,000        735,875
   of Part. (Cap. Proj. Prog.), Ser.                                                  @ 102.000
   1997 (AMBAC Ins.)

 6 Industry, CA, Urban Dev. Agy. Tax      AAA           20,000   4.250     2001       None                 20,129         20,367
   Alloc. Bonds, (Civic, Rec., and Ind.)
   Ser. 1 (MBIA Ins.) (6)

 7 Los Angeles Cnty., CA, Capital Asset   AAA           30,000   4.900     1998       None                 30,347         30,088
   Leasing Corp., Lease Rev. Bonds,
   (1992 Master Rfdg. Proj.)
   (AMBAC Ins.) (6)

 8 Sulphur Springs, Union Sch. Dist. Los  AAA          700,000   5.375     2022       02/01/07            700,000        731,290
   Angeles Cnty., CA, Certs. of part.,                                                @ 102.000
   (1997 Rfdg and Sch. Imp. Proj.)
   (AMBAC Ins.)

</TABLE>
                                                                 D - 7
<PAGE>

PORTFOLIO OF THE CALIFORNIA TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                         Rating                                      Optional
    Portfolio No. and Title of             of           Face                         Redemption
            Securities (4)               Issues(1)      Amount  Coupon Maturities(3) Provisions(3)        Cost(2)       Value(2)
            ______________              _________       ______  ______ _____________ _____________        _______       ________
<S>                                    <C>          <C>        <C>     <C>          <C>           <C>             <C>
9 Riverside Cnty. Trans. Comm., CA.,      AAA        $  30,000   4.875%    1999       None             $   30,445     $   30,340
  Sales Tax Rev. Bonds, Ser. 1993 A
  (AMBAC Ins.) (6)

10 Indio Pub. Fin. Auth., CA, Tax         AAA          750,000   5.350     2027       08/15/06            750,000        780,900
   Increment Rev. Rfdg. Bonds, Ser.                                                   @ 102.000
   1997 B (MBIA Ins.)

11 Sacramento Area Flood Ctl. Agy., CA,   AAA          100,000   5.375     2020       10/01/05            100,000        104,386
   North Area Local Proj., Cap                                                        @ 102.000
   Assessment dist. No. 2 Bonds, Ser.
   1995 (Financial Guaranty Ins.)

12 Puerto Rico Elec. Pwr. Auth., Pwr.     AAA           55,000   5.700     2000       None                 57,483        56,989
   Rev. Bonds, Ser. R (MBIA Ins.) (6)

                                                  ______________                                   ______________ ______________
TOTAL                                               $4,535,000                                         $4,459,710    $4,656,626
                                                  ==============                                   ============== ==============
See Notes to Portfolios on pages D - 30 and D - 31.


</TABLE>



                                                                 D - 8
<PAGE>


MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (FLORIDA  TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1998

<TABLE>
<S>                                                <C>           <C>
TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $3,714,774)(Note 1)......................                  $3,873,745
  Accrued interest receivable......................                      77,902
  Accrued interest on segregated bonds.............                       2,077
  Deferred organization costs (Note 6).............                       3,026
                                                                   _____________

              Total trust property.................                   3,956,750

LESS LIABILITIES:
  Advance from Trustee.............................   $   38,062
  Deferred sales charge (Note 5)...................        8,676
  Accrued expenses.................................        2,989         49,727
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  3,648 units of fractional undivided
    interest outstanding (Note 3)..................    3,896,097
  Undistributed net investment income..............       10,926
                                                    _____________
                                                                     $3,907,023
                                                                   =============
UNIT VALUE ($3,907,023/3,648 units)................                   $1,071.00
                                                                   =============


</TABLE>
                         See Notes to Financial Statements.


                                                   D - 9
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (FLORIDA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                              November 1,
                                                 1997
                                                  to
                                             September 30,
                                                 1998
                                             _____________
<S>                                        <C>
INVESTMENT INCOME:
  Interest income...........................    $177,703
  Interest income on segregated bonds.......       7,351
  Trustee's fees and expenses...............      (5,674)
  Sponsors' fees............................      (1,531)
  Organization expense......................        (757)
                                             _____________
  Net investment income.....................     177,092
                                             _____________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized gain on securities sold
    or redeemed.............................          42
  Unrealized appreciation of investments....     158,971
                                             _____________

  Net realized and unrealized gain
    investments.............................     159,013
                                             _____________

NET INCREASE IN NET ASSETS RESULTING
  FROM OPERATIONS...........................    $336,105
                                             =============


</TABLE>
             See Notes to Financial Statements.


                                                   D - 10

<PAGE>




MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (FLORIDA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                November 1,
                                                   1997
                                                    to
                                               September 30,
                                                   1997
                                               _____________
<S>                                          <C>
OPERATIONS:
  Net investment income.......................  $  177,092
  Realized gain on securities sold
    or redeemed...............................          42
  Unrealized appreciation of investments......     158,971
                                               _____________
  Net increase in net assets resulting
    from operations...........................     336,105
                                               _____________
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)......    (158,477)

DEFERRED SALES CHARGE (Note 5)................     (47,115)

CAPITAL SHARE TRANSACTIONS - Redemptions of
  135 units ..................................    (136,105)
                                               _____________
NET DECREASE IN NET ASSETS....................      (5,592)

NET ASSETS AT BEGINNING OF PERIOD.............   3,912,615
                                               _____________
NET ASSETS AT END OF PERIOD...................  $3,907,023
                                               =============
PER UNIT:
  Income distributions during period..........      $42.28
                                               =============
  Net asset value at end of period............   $1,071.00
                                               =============
TRUST UNITS OUTSTANDING AT END OF PERIOD......       3,648
                                               =============


</TABLE>
             See Notes to Financial Statements.


                                                   D - 11

<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (FLORIDA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


1.  SIGNIFICANT ACCOUNTING POLICIES

    The Fund is registered under the Investment Company Act of 1940 as
    a Unit Investment Trust. The following is a summary of significant
    accounting policies consistently followed by the Fund in the
    preparation of its financial statements. The policies are in
    conformity with generally accepted accounting principles.

    (a) Securities are stated at value as determined by the Evaluator
        based on bid side evaluations fot the securities (see "How to
        Sell Units" in this Propectus, Part B), except that value on
        November 1, 1997 was based upon offer side evaluations at
        October 30, 1997, the day prior to the Date of Deposit. Cost
        of securities at November 1, 1997 was also based on such offer
        side evaluations.

    (b) The Fund is not subject to income taxes. Accordingly, no
        provision for such taxes is required.

    (c) Interest income is recorded as earned.

2.  DISTRIBUTIONS

    A distribution of net investment income is made to Holders each
    month. Receipts other than interest, after deductions for
    redemptions and applicable expenses, are also distributed
    periodically.

3.  NET CAPITAL
<TABLE>
<S>                                                      <C>
      Cost of 3,648 units at Date of Deposit..............    $3,772,990
                                                           ______________
      Net amount applicable to Holders....................     3,772,990
      Redemptions of units - net cost of 135 units
        redeemed less redemption amounts..................         3,858
      Realized gain on securities sold or redeemed........            42
      Interest income on segregated bonds.................         7,351
      Deferred sales charge...............................       (47,115)
      Net unrealized appreciation of investments..........       158,971
                                                           ______________

      Net capital applicable to Holders...................    $3,896,097
                                                           ==============
</TABLE>

4.  INCOME TAXES

    As of September 30, 1998, net unrealized appreciation of investments,
    based on cost for Federal income tax purposes, aggregated $158,971
    of which $159,152 related to appreciated securities and $181 related
    to depreciated securities. The cost of investment securities for
    Federal income tax purposes was $3,714,774 at September 30, 1998.


                                                   D - 12
 <PAGE>




MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (FLORIDA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


5.  DEFERRED SALES CHARGE

    The sales charges are being paid for with the interest received and by
    periodic sales of these bonds. A deferred sales charge of $3.75 per unit
    is charged on a quarterly basis, and paid to the sponsors annually by
    the Trustee on behalf of the Holders, up to an aggregate of $45.00 per
    unit over the first three years of the life of the fund. Should a Holder
    redeem units prior to the third anniversary of the Fund, the remaining
    balance of the defferred sales charge will be charged.

6.  DEFERRED ORGANIZATIONAL COSTS

    Organization costs have been deferred and are being amortized over
    five years.

                                                 D - 13

<PAGE>




MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE FLORIDA TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                        Rating                                        Optional
    Portfolio No. and Title of            of            Face                          Redemption
            Securities(4)               Issues(1)       Amount   Coupon Maturities(3) Provisions(3)        Cost(2)      Value(2)
            _____________               _________       ______   ______ _____________ _____________        _______      ________
<S>                                    <C>        <C>           <C>     <C>         <C>             <C>            <C>
 1 Dade Cnty., FL, Aviation Rev.           AAA      $  250,000    5.125%    2027       10/01/07         $  245,298    $  253,252
   Rfdg. Bonds, Miami Intl. Arpt.                                                      @ 101.500
   (Hub. of the Americas), Ser.
   1997 C (FSA Ins.)

 2 Dade C FL, G.O. Pub. Imp. Bonds,        AAA           5,000    6.000    2000        None                 5,358          5,289
   Ser. CC (AMBAC Ins. )(6)

 3 Dade C FL, Professional Sports          AAA         600,000    5.250    2030        None               590,724        644,952
   Fran. Fac. Tax Rev. Bonds, Ser.
   1995 (MBIA Ins.)

 4 Dade Cnty., FL, Wtr. and Swr.           AAA         600,000    5.250    2026        10/01/07           595,554        619,242
   Sys. Rev. Bonds, Ser. 1997                                                          @ 101.000
  (Financial Guaranty Ins.)

 5 Hospital Bd. of Directors of Lee        AAA         600,000    5.000    2020        04/01/07           580,338        599,214
   Cnty., FL, Hosp. Rev. Bonds                                                         @101.000
   (Lee Mem. Hlth. Sys.), Ser.
   1997 A (MBIA Ins.)

 6 The School Bd. of Leon Cnty., FL,       AAA         535,000    5.125    2022        07/01/07           525,766        541,356
   Certs. of Part. (Master Lease Prog.),                                               @ 101.000
   Ser. 1997 (MBIA Ins.)

 7 The School Bd. of Orange Cnty.,         Aaa(m)      525,000    5.375    2022        08/01/07           528,145        547,995
   FL, Certs. of    Part., Ser.                                                        @ 101.000
   1997 A (MBIA Ins.)

 8 Sarasota Cnty., FL, Pub. Hosp. Bd.,     Aaa(m)      500,000    5.375    2020        10/01/07            501,06        520,015
   Fixed Rate Hosp. Rev. Rfdg. Bonds                                                   @ 101.500
   (Sarasota Mem. Hosp. Proj.),
   Ser. 1997 B (MBIA Ins.)

</TABLE>
                                                                 D - 14
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE FLORIDA TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                        Rating                                        Optional
    Portfolio No. and Title of            of            Face                          Redemption
            Securities(4)               Issues(1)       Amount   Coupon Maturities(3) Provisions(3)        Cost(2)      Value(2)
            _____________               _________       ______   ______ _____________ _____________        _______      ________
<S>                                    <C>        <C>           <C>     <C>         <C>             <C>            <C>
 9 City of Clearwater, FL, Wtr. and        AAA      $   80,000    4.750%   2000        None             $  81,956     $   81,972
   Swr. Rfdg. Rev. Bonds, Ser. 1993
   (AMBAC Ins.)(6)

10 Puerto Rico Pub. Bldgs. Auth.,          AAA          60,000    4.300    1999        None                60,458         60,570
   Govt. Facs. Rev. Bonds, Ser. A
   (AMBAC Ins.)(6)

                                                  ______________                                     ______________ ______________
TOTAL                                               $3,755,000                                         $3,714,774     $3,873,745
                                                  ==============                                     ============== ==============

</TABLE>
        See Notes to Portfolios on pages D - 30 and D - 31.

                                                                 D - 15
<PAGE>



MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (NEW YORK TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1998

<TABLE>
<S>                                                <C>           <C>
TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $4,332,686)(Note 1)......................                  $4,518,589
  Accrued interest receivable......................                      57,647
  Accrued interest on segregated bonds.............                       1,350
  Deferred organization costs (Note 6).............                       3,430
  Cash.............................................                       1,388
                                                                   _____________

              Total trust property.................                   4,582,404

LESS LIABILITIES:
  Accrued expenses.................................                       3,202
                                                                   _____________

NET ASSETS, REPRESENTED BY:
  4,287 units of fractional undivided
    interest outstanding (Note 3)..................    4,564,539
  Undistributed net investment income..............       14,663
                                                    _____________
                                                                     $4,579,202
                                                                   
UNIT VALUE ($4,579,202/4,287 units)................                   $1,068.16
                                                                   


</TABLE>
                         See Notes to Financial Statements.


                                                   D - 16
<PAGE>


MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (NEW YORK TRUST),
DEFINED ASSET FUNDS

STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                                              November 1,
                                                 1997
                                                  to
                                             September 30,
                                                 1998
                                             _____________
<S>                                      <C>
INVESTMENT INCOME:
  Interest income...........................    $206,708
  Interest income on segregated bonds.......      $7,179
  Trustee's fees and expenses...............      (4,439)
  Sponsors' fees............................      (1,808)
  Organization expenses.....................        (857)
                                             _____________
  Net investment income.....................     206,783
                                             _____________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized loss on securities sold
    or redeemed.............................        (419)
  Unrealized appreciation of investments....     185,903
                                             _____________

  Net realized and unrealized gain on
    investments.............................     185,484
                                             _____________

NET INCREASE IN NET ASSETS RESULTING
  FROM OPERATIONS...........................    $392,267
                                             

 </TABLE>
             See Notes to Financial Statements.

                                                   D - 17
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (NEW YORK TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                November 1,
                                                   1997
                                                    to
                                               September 30,
                                                   1997
                                               _____________
<S>                                          <C>
OPERATIONS:
  Net investment income.......................  $  206,783
  Realized loss on securities sold
    or redeemed...............................        (419)
  Unrealized appreciation of investments......     185,903
                                               _____________
  Net increase in net assets resulting
    from operations...........................     392,267
                                               _____________
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)......    (184,941)

DEFERRED SALES CHARGE (Note 5)................     (48,229)
                                               _____________
NET INCREASE IN NET ASSETS....................     159,097

NET ASSETS AT BEGINNING OF PERIOD.............   4,420,105
                                               _____________
NET ASSETS AT END OF PERIOD...................  $4,579,202
                                               
PER UNIT:
  Income distributions during period..........      $43.14
                                               
  Net asset value at end of period............   $1,068.16
                                               
TRUST UNITS OUTSTANDING AT END OF PERIOD......       4,287
                                               


</TABLE>
             See Notes to Financial Statements.


                                                   D - 18
 <PAGE>



MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (NEW YORK TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


1.  SIGNIFICANT ACCOUNTING POLICIES

    The Fund is registered under the Investment Company Act of 1940 as
    a Unit Investment Trust. The following is a summary of significant
    accounting policies consistently followed by the Fund in the
    preparation of its financial statements. The policies are in
    conformity with generally accepted accounting principles.

    (a) Securities are stated at value as determined by the Evaluator
        based on bid side evaluations for the securities (see "How to
        Sell Units - Trustee's Redemption of Units" in the Prospectus,
        Part B), except that value on November 1, 1997 was based upon
        offer side evaluations at October 30, 1997, the day prior to the
        Date of Deposit. Cost of securities at November 1, 1997 was also
        based on such offer side evaluations.

    (b) The Fund is not subject to income taxes. Accordingly, no
        provision for such taxes is required.

    (c) Interest income is recorded as earned.

2.  DISTRIBUTIONS

    A distribution of net investment income is made to Holders each
    month. Receipts other than interest, after deductions for
    redemptions and applicable expenses, are also distributed
    periodically.

3.  NET CAPITAL
<TABLE>
<S>                                                      <C>
      Cost of 4,287 units at Date of Deposit..............    $4,420,105
      Realized loss on securities sold or redeemed........          (419)
      Deferred sales charge...............................       (48,229)
      Interest Income on segregated bonds.................         7,179
      Net unrealized appreciation of investments..........       185,903
                                                           ______________

      Net capital applicable to Holders...................    $4,564,539
                                                           
</TABLE>

4.  INCOME TAXES

    As of September 30, 1998, net unrealized appreciation of investments,
    based on cost for Federal income tax purposes, aggregated $185,903 of
    which $186,409 related to appreciated securities and $506 related to
    depreciated securities. The cost of investment securities for Federal
    income tax purposes was $4,332,686 at September 30, 1998.


                                                   D - 19
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (NEW YORK TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


5.  DEFERRED SALES CHARGE

    The sales charges are being paid for with the interest received
    and by periodic sales of these bonds. A deferred sales charge
    of $3.75 per unit is charged on a quarterly basis, and paid to the
    sponsors annually by the Trustee on behalf of the Holders, up to an
    aggregate of $ 45.00 per unit over the first three years of the life
    of the Fund. Should a Holder redeem units prior to the third
    anniversary of the Fund, the remaining balance of the deferred sales
    charge will be charged.

6.  DEFERRED ORGANIZATION COSTS

    Organization costs have been deferred and are being amortized over
    five years.



                                                   D - 20
<PAGE>



MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE NEW YORK TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                           Rating                                       Optional
    Portfolio No. and Title of               of            Face                         Redemption
            Securities(4)                  Issues(1)       Amount  Coupon Maturities(3) Provisions(3)        Cost(2)      Value(2)
            _____________                  _________       ______  ______ _____________ _____________       _______      ________
<S>                                      <C>       <C>           <C>       <C>        <C>            <C>           <C>
 1 New York Local Gov't Asst. Corp.          AAA       $  650,000   5.000%   2023       04/01/04       $  618,553      $  650,000
   (Pub. Benefit Corp. of the State of                                                  @ 100.000
   NY), Ser. 1993D (MBIA Ins.)

 2 New York State Urban Dev. Corp.,          AAA          300,000   5.500    2025       01/01/05          302,121         316,449
   Corr. Cap. Fac. Rev. Bonds, Ser. 5                                                   @ 102.000
   (MBIA Ins.)

 3 New York State Urban Dev. Corp.,          AAA          400,000   5.375    2025       01/01/06          400,744         416,992
   Corr. Cap. Facs. Rev. Bonds, Ser 6                                                   @ 102.000
   (AMBAC Ins.)

 4 Dormitory Auth. of the State of New       AAA          550,000   5.125    2027       01/01/08          535,645         556,292
   York, City Univ. Sys. Consol., Third                                                 @ 102.000
   General Resolution Rev. Bonds, Ser.
   1997-1 (MBIA Ins.)

 5 Dormitory Auth. of the State of New       AAA           30,000   4.250    1999       None               30,229          30,200
   York, Ins. Rev. Bonds (853 Schools
   Program Issue) (The Children's Home
   of Kingston), Ser. 1997 B
   (AMBAC Ins.)

 6 Dormitory Auth. of the State of New       AAA          600,000   5.375    2026       02/15/06          600,000         621,180
   York, Mental Hlth. Facs. Imp., Rev.                                                  @ 102.000
   Bonds, Ser. 1996 B (FSA Ins.)

 7 Dormitory Auth. of the State of New       AAA          650,000   5.375    2032       08/01/04          647,413         671,255
   York, Millard Fillmore Hosp., FHA-                                                   @ 105.000
   Ins. Mtge. Hosp. Rev. Bonds, Ser.
   1997 (AMBAC Ins.)

 8 Dormitory Auth. of the State of New       AAA           35,000   4.125    2001       None               34,851          35,329
   York, Vassar Brothers Hosp., Ins.
   Rev. Bonds, Ser. 1997
   (FSA Ins.)


</TABLE>
                                                                 D - 21
<PAGE>




MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE NEW YORK TRUST (INSURED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                           Rating                                       Optional
    Portfolio No. and Title of               of            Face                         Redemption
            Securities(4)                  Issues(1)       Amount  Coupon Maturities(3) Provisions(3)        Cost(2)      Value(2)
            _____________                  _________       ______  ______ _____________ _____________       _______      ________
<S>                                      <C>       <C>           <C>       <C>        <C>            <C>            <C>
 9 New York State Dormitory Authority,       AAA       $  700,000   5.375%   2025       01/01/08       $  692,482      $  728,441
   Vassar Brothers Hospital Issue,                                                      @ 102.000
   Revenue Bonds (FSA Ins.)

10 Metropolitan Trans., Auth., NY,           AAA          400,000   5.500    2022       07/01/07          403,396         425,676
   Commuter Fac. Rev. Bonds, Ser. 1997                                                  @ 101.000
   C-1 (MBIA Ins.)

11 Northeastern Clinton Central Sch.         AAA           25,000   4.800    1999       None               25,446          25,329
   Dist. At Champlain, Clinton Cnty.,
   Ny, Sch. Dist. Serial Bonds, Ser.
   1997 (Financial Guaranty Ins.) (6)

12 Puerto Rico Elec. Pwr. Auth., Pwr.        AAA           40,000   5.700    2000       None               41,806          41,446
   Rev. Bonds, Ser. R (MBIA Ins.) (6)

                                                    ______________                                   ______________ ______________
TOTAL                                                  $4,380,000                                      $4,332,686      $4,518,589
                                                                                        
</TABLE>
        See Notes to Portfolios on Pages D - 31 and D - 32.
                                                                 D - 22
<PAGE>









MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA TRUST),
DEFINED ASSET FUNDS

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1998

<TABLE>
<S>                                                <C>           <C>
TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $3,292,172)(Note 1)......................                  $3,419,113
  Securities matured
    (cost $35,046)(Note 5).........................                      35,000
  Accrued interest receivable......................                      45,063
  Accrued interest on segregated bonds.............                       2,191
  Deferred organization costs (Note 7).............                       2,622
                                                                   _____________

              Total trust property.................                   3,503,989

LESS LIABILITIES:
  Advance from Trustee.............................    $   4,447
  Deferred sales charge payable....................       35,000
  Accrued expenses.................................        2,815         42,262
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  3,277 units of fractional undivided
    interest outstanding (Note 3)..................    3,449,403
  Undistributed net investment income..............       12,324
                                                    _____________
                                                                     $3,461,727
                                                                   =============
UNIT VALUE ($3,461,727/3,277 units)................                   $1,056.37
                                                                   =============


</TABLE>
                         See Notes to Financial Statements.


                                                   D - 23
<PAGE>



MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA TRUST),
DEFINED ASSET FUNDS

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              November 1,
                                                 1997
                                                  to
                                             September 30,
                                                 1998
                                             _____________
<S>                                        <C>
INVESTMENT INCOME:
  Interest income...........................    $159,042
  Interest income on Segregated Bonds.......       5,156
  Trustee's fees and expenses...............      (3,130)
  Sponsors' fees............................      (1,333)
  Organization expenses.....................        (655)
                                             _____________
  Net investment income.....................     159,080
                                             _____________

UNREALIZED APPRECIATION OF INVESTMENTS......     126,895
                                             _____________

NET INCREASE IN NET ASSETS RESULTING
  FROM OPERATIONS...........................    $285,975
                                             =============


</TABLE>
             See Notes to Financial Statements.



                                                   D - 24
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA TRUST),
DEFINED ASSET FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                November 1,
                                                   1997
                                                    to
                                               September 30,
                                                   1997
                                               _____________
<S>                                          <C>
OPERATIONS:
  Net investment income.......................  $  159,080
  Unrealized appreciation of investments......     126,895
                                               _____________
  Net increase in net assets resulting
    from operations...........................     285,975
                                               _____________
INCOME DISTRIBUTIONS TO HOLDERS (Note 2)......    (141,600)

DEFERRED SALES CHARGE (Note 6)................     (36,866)
                                               _____________
NET INCREASE IN NET ASSETS....................     107,509

NET ASSETS AT BEGINNING OF PERIOD.............   3,354,218
                                               _____________
NET ASSETS AT END OF PERIOD...................  $3,461,727
                                               =============
PER UNIT:
  Income distributions during period..........      $43.21
                                               =============
  Net asset value at end of period............   $1,056.37
                                               =============
TRUST UNITS OUTSTANDING AT END OF PERIOD......       3,277
                                               =============


</TABLE>
             See Notes to Financial Statements.

                                                   D - 25
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


1.  SIGNIFICANT ACCOUNTING POLICIES

    The Fund is registered under the Investment Company Act of 1940 as
    a Unit Investment Trust. The following is a summary of significant
    accounting policies consistently followed by the Fund in the
    preparation of its financial statements. The policies are in
    conformity with generally accepted accounting principles.

    (a) Securties are stated at value as determined by the evalulator
        base on bid side evaluation for securities (see "How to
        Sell Units - Trustee's Redemption of Units" in this Prospectus,
        Part B), except that value on November 1, 1997 was based upon
        offer side evaluation at October 30, 1997, the day prior to the
        Date of deposit. Cost of securities at November 1, 1997 was also
        based on such offer side evaluations.

    (b) The Fund is not subject to income taxes. Accordingly, no
        provision for such taxes is required.

    (c) Interest income is recorded as earned.

2.  DISTRIBUTIONS

    A distribution of net investment income is made to Holders each
    month. Receipts other than interest, after deductions for
    redemptions and applicable expenses, are also distributed
    periodically.

3.  NET CAPITAL
<TABLE>
<S>                                                      <C>
      Cost of 3,277 units at Date of Deposit..............    $3,354,218
      Interest income on Segregated Bonds.................         5,156
      Deferred Sales Charge...............................       (36,866)
      Net unrealized appreciation of investments..........       126,895
                                                           ______________

      Net capital applicable to Holders...................    $3,449,403
                                                           ==============
</TABLE>

4.  INCOME TAXES

    As of September 30, 1998, net unrealized appreciation of investments,
    based on cost for Federal income tax purposes, aggregated $126,895, of
    which $126,941 related to appreciated securities ands $46 related to
    depreciated securities. The cost of investment securities for Federal
    income tax purposes was $3,327,218 at September 30, 1998.



                                                   D - 26
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA TRUST),
DEFINED ASSET FUNDS


NOTES TO FINANCIAL STATEMENTS


5.  SECURITIES MATURED

    $35,000 face amount of Belle Vernon Area Sch. Dist. (Fayette and
    Westmoreland Ctys., PA), G.O. Bonds (Financial Guaranty Ins.) Ser.
    1997 B matured on 10/01/98. Such securities are valued at the amount
    of the proceeds subsequently received.

6.  DEFERRED SALES CHARGE

    The sales charges are being paid for with the interest received
    and by periodic sales of these bonds. A deferred sales charge
    of $3.75 per unit is charged on a quarterly basis, and paid to the
    sponsors annually by the Trustee on behalf of the Holders, up to an
    aggregate of $45.00 per unit over the first three years of the life
    of the Fund. Should a Holder redeem units prior to the third
    anniversary of the Fund, the remaining balance of the deferred sales
    charge will be charged.

7.  DEFERRED ORGANIZATION COSTS

    Organization costs have been deferred and are being amortized over
    five years.

                                                 D - 27
<PAGE>


MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE PENNSYLVANIA TRUST
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                           Rating                                       Optional
    Portfolio No. and Title of               of            Face                         Redemption
            Securities                     Issues(1)       Amount  Coupon Maturities(3) Provisions(3)         Cost(2)      Value(2)
            __________                     _________       ______  ______ _____________ _____________         _______      ________
<S>                                     <C>          <C>         <C>     <C>         <C>             <C>           <C>
 1 Pennsylvania Higher Educl. Fac.          AA         $  550,000   5.500%   2022       03/15/07           $  551,958    $  572,616
   Auth., Univ. Rev. Bonds (The Univ.                                                   @ 100.000
   of the Arts), Ser 1997 (Asset
   Guranty Ins.) (5)

 2 Allegheny Cnty., PA, Hosp. Dev.          A3(m)         550,000   5.750    2027       05/15/07              556,924       578,088
   Auth., Hosp. Rev. Bonds (St. Francis                                                 @ 102.000
   Med. Ctr. Proj.), Ser.
   1997

 3 The Mun. Swr. and Wtr. Auth. of          Aaa(m)         55,000   4.050    1999       None                   55,000       55,424
   Cranberry Twp., Butler Cnty., PA,
   Swr. and Wtr. Rev. Bonds, Ser.
   1997 (MBIA Ins.) (5) (6)

4 The Mun. Swr. and Wtr. Auth. of           Aaa(m)        550,000   5.125    2026       12/01/07              524,810       554,565
  Cranberry Twp., Butler Cnty., PA,                                                     @ 100.000
  Swr. and Wtr. Rev. Bonds, Ser.
  1997 (MBIA Ins.) (5)

 5 Borough of Dormont, Allegheny Cnty.,     AAA            50,000   4.100    2000       None                   50,141        50,529
   Pa, G.O. Bonds Ser. 1997
   (FSA Ins.) (5)

 6 Doylestown Hospital Authority, PA,       AAA           500,000   5.000    2023       07/01/04              475,685       492,975
   Hosp. Rev. Bonds Ser. 1993A (AMBAC                                                   @ 102.000
   Ins.) (5)

 7 The Hospital and Higher Educ.            A-            550,000   5.500    2027       11/15/07              542,031       561,088
   Facs. Auth. of Philadelphia, PA,                                                     @ 101.000
   Hosp. Rev. Bonds (Temple Univ.
   Hosp.), Ser. 1997


</TABLE>
                                                                 D - 28
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318
DEFINED ASSET FUNDS

PORTFOLIO OF THE PENNSYLVANIA TRUST
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                           Rating                                       Optional
    Portfolio No. and Title of               of            Face                         Redemption
            Securities                     Issues(1)       Amount  Coupon Maturities(3) Provisions(3)         Cost(2)      Value(2)
            __________                     _________       ______  ______ _____________ _____________         _______      ________
<S>                                     <C>          <C>         <C>     <C>         <C>             <C>           <C>
 8 City of Philadelphia, PA, Wtr. and       AAA        $  550,000   5.125%   2027       08/01/07           $  535,623    $  553,828
   Wastewater Rev. Bonds Ser. 1997 A                                                    @ 102.000
   (AMBAC Ins.) (5)


                                                    ______________                                     ______________ ______________
TOTAL                                                  $3,355,000                                         $3,292,172    $3,419,113
                                                    ==============                                     ============== ==============
        See Notes to Portfolios on Pages D - 30 and D - 31.


</TABLE>
                                                                 D - 29
<PAGE>




MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA, FLORIDA, NEW YORK AND PENNSYLVANIA TRUSTS)
DEFINED ASSET FUNDS


NOTES TO PORTFOLIOS
AS OF SEPTEMBER 30, 1998

(1) The ratings of the bonds are by Standard & Poor's Ratings
    Group, or by Moody's Investors Service, Inc. if followed by
    "(m)", or by Fitch Investors Service, Inc. if followed by
    "(f)"; "NR" indicates that this bond is not currently rated by
    any of the above-mentioned rating services. These ratings have
    been furnished by an independent evaluator but not confirmed with
    the rating agencies.

(2) See Notes to Financial Statements.

(3) Optional redemption provisions, which may be exercised in whole
    or in part, are initially at prices of par plus a premium, then
    subsequently at prices declining to par. Certain securities may
    provide for redemption at par prior or in addition to any
    optional or mandatory redemption dates or maturity, for
    example, through the operation of a maintenance and replacement
    fund, if proceeds are not able to be used as contemplated, the
    project is condemned or sold or the project is destroyed and
    insurance proceeds are used to redeem the securities. Many of
    the securities are also subject to mandatory sinking fund
    redemption commencing on dates which may be prior to the date
    on which securities may be optionally redeemed. Sinking fund
    redemptions are at par and redeem only part of the issue. Some
    of the securities have mandatory sinking funds which contain
    optional provisions permitting the issuer to increase the
    principal amount of securities called on a mandatory redemption
    date. The sinking fund redemptions with optional provisions
    may, and optional refunding redemptions generally will, occur
    at times when the redeemed securities have an offering side
    evaluation which represents a premium over par. To the extent
    that the securities were acquired at a price higher than the
    redemption price, this will represent a loss of capital when
    compared with the Public Offering Price of the Units when
    acquired. Distributions will generally be reduced by the amount
    of the income which would otherwise have been paid with respect
    to redeemed securities and there will be distributed to Holders
    any principal amount and premium received on such redemption
    after satisfying any redemption requests for Units received by
    the Fund. The estimated current return may be affected by
    redemptions.

(4) All Securities are insured either on an individual basis or by
    portfolio insurance, by a municipal bond insurance company
    which has been assigned "AAA" claims paying ability by
    Standard & Poor's. Accordingly, Standard & Poor's has assigned
    "AAA" ratings to the Securities. Securities covered by
    portfolio insurance are rated "AAA" only as long as they
    remain in this Trust.

(5) Insured by the indicated municipal bond insurance company.


                                                   D - 30
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (CALIFORNIA, FLORIDA, NEW YORK AND PENNSYLVANIA TRUSTS)
DEFINED ASSET FUNDS


NOTES TO PORTFOLIOS
AS OF SEPTEMBER 30, 1998

(6) It is anticipated that interest and principal received from
    these bonds will be applied to the payment of the Trust's
    deferred sales charges.

                                                D - 31





<PAGE>
                             Defined
                             Asset FundsSM
 

HAVE QUESTIONS ?                         MUNICIPAL INVESTMENT TRUST FUND
Request the most                         MULTISTATE SERIES--318
recent free Information                  (A Unit Investment Trust)
Supplement that gives more               ---------------------------------------
details about the Fund,                  This Prospectus does not contain
by calling:                              complete information about the
The Bank of New York                     investment company filed with the
1-800-221-7771                           Securities and Exchange Commission in
                                         Washington, D.C. under the:
                                         o Securities Act of 1933 (file no.
                                         333-33843) and
                                         o Investment Company Act of 1940 (file
                                         no. 811-1777).
                                         TO OBTAIN COPIES AT PRESCRIBED RATES--
                                         WRITE: Public Reference Section of the
                                         Commission
                                         450 Fifth Street, N.W., Washington,
                                         D.C. 20549-6009
                                         CALL: 1-800-SEC-0330.
                                         VISIT: http://www.sec.gov.
                                         ---------------------------------------
                                         No person is authorized to give any
                                         information or representations about
                                         this Fund not contained in this
                                         Prospectus or the Information
                                         Supplement, and you should not rely on
                                         any other information.
                                         ---------------------------------------
                                         When units of this Fund are no longer
                                         available, this Prospectus may be used
                                         as a preliminary prospectus for a
                                         future series, but some of the
                                         information in this Prospectus will be
                                         changed for that series.
                                         Units of any future series may not be
                                         sold nor may offers to buy be accepted
                                         until that series has become effective
                                         with the Securities and Exchange
                                         Commission. No units can be sold in any
                                         State where a sale would be illegal.

 
                                                     11335--12/98
<PAGE>


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