MUNICIPAL INVESTMENT TR FD MULTISTATE SER 318 DEF ASSET FDS
497, 2000-01-31
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                             DEFINED ASSET FUNDS--REGISTERED TRADEMARK--
                             -------------------------------
                             ---------------------

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

SPONSORS:
MERRILL LYNCH,
PIERCE, FENNER & SMITH
INCORPORATED               -----------------------------------------------------
SALOMON SMITH BARNEY INC.  The Securities and Exchange Commission has not
PRUDENTIAL SECURITIES      approved or disapproved these Securities or passed
INCORPORATED               upon the adequacy of this prospectus. Any
PAINEWEBBER INCORPORATED   representation to the contrary is a criminal offense.
DEAN WITTER REYNOLDS INC.  Prospectus dated January 31, 2000.

<PAGE>
- --------------------------------------------------------------------------------

Defined Asset Funds--Registered Trademark--
Defined Asset Funds-Registered Trademark- is America's oldest and largest family
of unit investment trusts, with over $160 billion sponsored over the last 28
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:
  - A Disciplined strategy of buying and holding with a long-term view is the
    cornerstone of Defined Asset Funds.
  - Fixed portfolio: Defined Funds follow a buy and hold investment strategy;
    funds are not managed and portfolio changes are limited.
  - Defined Portfolios: We choose the stocks and bonds in advance, so you know
    what you're investing in.
  - Professional research: Our dedicated research team seeks out stocks or bonds
    appropriate for a particular fund's objectives.
  - 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, 1999, THE
EVALUATION DATE.

<TABLE>
<S>                                     <C>
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..........................   16
  Monthly Income......................   16
  Return Figures......................   16
  Records and Reports.................   16
The Risks You Face....................   17
  Interest Rate Risk..................   17
  Call Risk...........................   17
  Reduced Diversification Risk........   17
  Liquidity Risk......................   17
  Concentration Risk..................   17
  State Concentration Risk............   18
  Bond Quality Risk...................   21
  Insurance Related Risk..............   21
  Litigation and Legislation Risks....   21
Selling or Exchanging Units...........   21
  Sponsors' Secondary Market..........   21
  Selling Units to the Trustee........   21
  Exchange Option.....................   23
How The Fund Works....................   23
  Pricing.............................   23
  Evaluations.........................   23
  Income..............................   23
  Expenses............................   24
  Portfolio Changes...................   24
  Fund Termination....................   25
  Certificates........................   25
  Trust Indenture.....................   25
  Legal Opinion.......................   26
  Auditors............................   26
  Sponsors............................   26
  Trustee.............................   27
  Underwriters' and Sponsors'
    Profits...........................   27
  Public Distribution.................   27
  Code of Ethics......................   27
Taxes.................................   27
Supplemental Information..............   30
Financial Statements..................  D-1
</TABLE>

                                       2
<PAGE>
- --------------------------------------------------------------------------------

CALIFORNIA INSURED PORTFOLIO--RISK/RETURN SUMMARY

<TABLE>
<C>  <S>
 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?

  -  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 $4,005,000.
  -  The Fund is a unit investment trust which
     means that, unlike a mutual fund, the
     Portfolio is not managed.
  -  The bonds are rated AAA or Aaa by
     Standard & Poor's, Moody's or Fitch.
  -  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.
  -  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:
</TABLE>

<TABLE>
  / / Hospital/Health Care              18%
<S>                                 <C>
  / / Lease Rental Appropriation        41%
  / / Municipal Water/Sewer
      Utilities                         18%
  / / Special Tax Issues                3%
  / / Municipal Electric Utilities      1%
  / / Tax Allocation                    19%
</TABLE>

<TABLE>
<C>  <S>
 4.  WHAT ARE THE SIGNIFICANT RISKS?

     YOU CAN LOSE MONEY BY INVESTING IN THE
     FUND. THIS CAN HAPPEN FOR VARIOUS
     REASONS, INCLUDING:

  -  Rising interest rates, an issuer's
     worsening financial condition or a drop
     in bond ratings can reduce the price of
     your units.

  -  Because the Fund is concentrated in lease
     rental appropriation bonds, adverse
     developments in this sector may affect
     the value of your units.

  -  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.

  -  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.
</TABLE>

                                       3
<PAGE>

<TABLE>
<C>  <S>
 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.
</TABLE>

<TABLE>
<C>  <S>
     DEFINING YOUR INCOME
</TABLE>

<TABLE>
<C>  <S>                                            <C>
     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:                         $49.20
     THESE FIGURES ARE ESTIMATES DETERMINED ON THE
     EVALUATION DAY; ACTUAL PAYMENTS MAY VARY.
</TABLE>

<TABLE>
<C>  <S>
 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

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

     You will pay an up-front sales fee of 1.125%, as well
     as 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:
</TABLE>

<TABLE>
<CAPTION>
                               YOUR MAXIMUM
                                SALES FEE
          IF YOU INVEST:         WILL BE:
          --------------       ------------
<C>  <S>                       <C>
     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%
</TABLE>

<TABLE>
<C>  <S>
     ESTIMATED ANNUAL FUND OPERATING EXPENSES
</TABLE>

<TABLE>
<CAPTION>
                                                    AMOUNT
                                                   PER UNIT
                                                   --------
<C>  <S>                                          <C>
                                                    $0.71
     Trustee's Fee
                                                    $0.55
     Portfolio Supervision,
     Bookkeeping and
     Administrative Fees
     (including updating
     expenses)
                                                    $0.33
     Evaluator's Fee
                                                    $0.20
     Organization Costs
                                                    $0.36
     Other Operating Expenses
                                                    -----
                                                    $2.15
     TOTAL
</TABLE>

<TABLE>
<C>  <S>
     The Sponsors historically paid organization
     costs and updating expenses.

 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 June 22, 1988 and September
     27, 1996 and were outstanding on December 31,
     1999. 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
     12/31/99.
</TABLE>

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

<TABLE>
 High                    3.14%     6.73%     5.38%     3.54%     7.92%     5.97%
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average                 -3.57      5.28      5.21     -1.71      6.34      5.80
 Low                     -8.58      2.79      5.04     -6.00      3.55      5.63
</TABLE>

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

<TABLE>
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average
 Sales fee               1.96%     5.20%     5.82%
</TABLE>

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

NOTE: ALL RETURNS REPRESENT CHANGES IN UNIT PRICE WITH DISTRIBUTIONS REINVESTED
 INTO THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM.

<TABLE>
<C>  <S>
 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.
</TABLE>

                                       4
<PAGE>

<TABLE>
<C>  <S>
 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             $955.61
     (as of September 30, 1999)

     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.
</TABLE>

<TABLE>
<C>  <S>
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.
</TABLE>

                                       5
<PAGE>
- --------------------------------------------------------------------------------

FLORIDA INSURED PORTFOLIO--RISK/RETURN SUMMARY

<TABLE>
<C>  <S>
 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?

  -  The Fund plans to hold to maturity 9
     long-term tax-exempt municipal bonds, and
     some short-term bonds reserved to pay the
     deferred sales fee, with an aggregate
     face amount of $3,610,000.
  -  The Fund is a unit investment trust which
     means that, unlike a mutual fund, the
     Portfolio is not managed.
  -  The bonds are rated AAA or Aaa by
     Standard & Poor's, Moody's or Fitch.
  -  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.
  -  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:
</TABLE>

<TABLE>
  / / Airports/Ports/Highways           7%
<S>                                 <C>
  / / General Obligation                15%
  / / Hospital/Health Care              29%
  / / Lease Rental Appropriation        15%
  / / Municipal Water/Sewer
  Utilities                             19%
  / / Refunded Bonds                    15%
</TABLE>

<TABLE>
<C>  <S>
 4.  WHAT ARE THE SIGNIFICANT RISKS?

     YOU CAN LOSE MONEY BY INVESTING IN THE
     FUND. THIS CAN HAPPEN FOR VARIOUS
     REASONS, INCLUDING:

  -  Rising interest rates, an issuer's
     worsening financial condition or a drop
     in bond ratings can reduce the price of
     your units.

  -  Because the Fund is concentrated in
     hospital/health care bonds, adverse
     developments in this sector may affect
     the value of your units.

  -  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.

  -  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.
</TABLE>

                                       6
<PAGE>

<TABLE>
<C>  <S>
 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.
</TABLE>

<TABLE>
<C>  <S>
     DEFINING YOUR INCOME
</TABLE>

<TABLE>
<C>  <S>                                            <C>
     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                 $ 4.11
     Annual Income per unit:                         $49.33
     THESE FIGURES ARE ESTIMATES DETERMINED ON THE
     EVALUATION DAY; ACTUAL PAYMENTS MAY VARY.
</TABLE>

<TABLE>
<C>  <S>
 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

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

     You will pay an up-front sales fee of 1.125%, as well
     as 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:
</TABLE>

<TABLE>
<CAPTION>
                               YOUR MAXIMUM
                                SALES FEE
          IF YOU INVEST:         WILL BE:
          --------------       ------------
<C>  <S>                       <C>
     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%
</TABLE>

<TABLE>
<C>  <S>
     ESTIMATED ANNUAL FUND OPERATING EXPENSES
</TABLE>

<TABLE>
<CAPTION>
                                                    AMOUNT
                                                   PER UNIT
                                                   --------
<C>  <S>                                          <C>
                                                    $0.71
     Trustee's Fee
                                                    $0.55
     Portfolio Supervision,
     Bookkeeping and
     Administrative Fees
     (including updating
     expenses)
                                                    $0.36
     Evaluator's Fee
                                                    $0.20
     Organization Costs
                                                    $0.40
     Other Operating Expenses
                                                    -----
                                                    $2.22
     TOTAL
</TABLE>

<TABLE>
<C>  <S>
     The Sponsors historically paid organization
     costs and updating expenses.

 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 August 25, 1988 and
     December 6, 1996 and were outstanding on
     December 31, 1999. 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
     12/31/99.
</TABLE>

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

<TABLE>
 High                    4.18%     6.26%     5.37%     4.34%     7.45%     5.96%
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average                 -3.40      5.16      5.27     -1.58      6.23      5.86
 Low                     -11.09     3.16      5.17     -8.35      3.93      5.76
</TABLE>

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

<TABLE>
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average
 Sales fee               1.93%     5.28%     5.82%
</TABLE>

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

NOTE: ALL RETURNS REPRESENT CHANGES IN UNIT PRICE WITH DISTRIBUTIONS REINVESTED
 INTO THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM.

<TABLE>
<C>  <S>
 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.
</TABLE>

                                       7
<PAGE>

<TABLE>
<C>  <S>
 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                $946.13
     (as of September 30, 1999)

     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.
</TABLE>

<TABLE>
<C>  <S>
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, 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.
</TABLE>

                                       8
<PAGE>
- --------------------------------------------------------------------------------

NEW YORK INSURED PORTFOLIO--RISK/RETURN SUMMARY

<TABLE>
<C>  <S>
 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?

  -  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 $3,970,000.
  -  The Fund is a unit investment trust which
     means that, unlike a mutual fund, the
     Portfolio is not managed.
  -  The bonds are rated AAA or Aaa by
     Standard & Poor's, Moody's or Fitch.
  -  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.
  -  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:
</TABLE>

<TABLE>
  / / Hospital/Health Care              49%
<S>                                 <C>
  / / Lease Rental Appropriation        31%
  / / Special Tax Issues                16%
  / / Municipal Electric Utilities      1%
  / / Transit Authorities               3%
</TABLE>

<TABLE>
<C>  <S>
 4.  WHAT ARE THE SIGNIFICANT RISKS?

     YOU CAN LOSE MONEY BY INVESTING IN THE
     FUND. THIS CAN HAPPEN FOR VARIOUS
     REASONS, INCLUDING:

  -  Rising interest rates, an issuer's
     worsening financial condition or a drop
     in bond ratings can reduce the price of
     your units.

  -  Because the Fund is concentrated in
     hospital/health care and lease rental
     appropriation bonds, adverse developments
     in these sectors may affect the value of
     your units.

  -  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.

  -  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.
</TABLE>

                                       9
<PAGE>

<TABLE>
<C>  <S>
 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.
</TABLE>

<TABLE>
<C>  <S>
     DEFINING YOUR INCOME
</TABLE>

<TABLE>
<C>  <S>                                            <C>
     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                 $ 4.18
     Annual Income per unit:                         $50.23
     THESE FIGURES ARE ESTIMATES DETERMINED ON THE
     EVALUATION DAY; ACTUAL PAYMENTS MAY VARY.
</TABLE>

<TABLE>
<C>  <S>
 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

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

     You will pay an up-front sales fee of 1.125%, as well
     as 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:
</TABLE>

<TABLE>
<CAPTION>
                               YOUR MAXIMUM
                                SALES FEE
          IF YOU INVEST:         WILL BE:
          --------------       ------------
<C>  <S>                       <C>
     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%
</TABLE>

<TABLE>
<C>  <S>
     ESTIMATED ANNUAL FUND OPERATING EXPENSES
</TABLE>

<TABLE>
<CAPTION>
                                                    AMOUNT
                                                   PER UNIT
                                                   --------
<C>  <S>                                          <C>
                                                    $0.71
     Trustee's Fee
                                                    $0.55
     Portfolio Supervision,
     Bookkeeping and
     Administrative Fees
     (including updating
     expenses)
                                                    $0.33
     Evaluator's Fee
                                                    $0.20
     Organization Costs
                                                    $0.38
     Other Operating Expenses
                                                    -----
                                                    $2.17
     TOTAL
</TABLE>

<TABLE>
<C>  <S>
     The Sponsors historically paid organization
     costs and updating expenses.

 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
     October 16, 1996 and were outstanding on
     December 31, 1999. 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
     12/31/99.
</TABLE>

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

<TABLE>
 High                    3.92%     6.86%     5.82%     4.47%     8.06%     6.35%
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average                 -3.75      4.82      5.44     -1.84      5.84      6.03
 Low                     -12.35     3.05      5.21     -9.84      3.83      5.79
</TABLE>

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

<TABLE>
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average
 Sales fee               2.01%     5.02%     5.77%
</TABLE>

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

NOTE: ALL RETURNS REPRESENT CHANGES IN UNIT PRICE WITH DISTRIBUTIONS REINVESTED
 INTO THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM.

<TABLE>
<C>  <S>
 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.
</TABLE>

                                       10
<PAGE>

<TABLE>
<C>  <S>
 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               $944.75
     (as of September 30, 1999)

     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.
</TABLE>

<TABLE>
<C>  <S>
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.
</TABLE>

                                       11
<PAGE>
- --------------------------------------------------------------------------------

PENNSYLVANIA PORTFOLIO--RISK/RETURN SUMMARY

<TABLE>
<C>  <S>
 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?

  -  The Fund plans to hold to maturity 7
     long-term tax-exempt municipal bonds, and
     some short-term bonds reserved to pay the
     deferred sales fee, with an aggregate
     face amount of $2,450,000.
  -  The Fund is a unit investment trust which
     means that, unlike a mutual fund, the
     Portfolio is not managed.
  -  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.
  -  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.
  -  85% 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:
</TABLE>

<TABLE>
<CAPTION>
                                 APPROXIMATE
                                  PORTFOLIO
                                 PERCENTAGE
<S>                              <C>
  / / General Obligation             2%
  / / Hospital/Health Care           36%
  / / Municipal Water/Sewer
      Utilities                      44%
  / / Universities/Colleges          18%
</TABLE>

<TABLE>
<C>  <S>
 4.  WHAT ARE THE SIGNIFICANT RISKS?

     YOU CAN LOSE MONEY BY INVESTING IN THE
     FUND. THIS CAN HAPPEN FOR VARIOUS
     REASONS, INCLUDING:

  -  Rising interest rates, an issuer's
     worsening financial condition or a drop
     in bond ratings can reduce the price of
     your units.

  -  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.

  -  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.

  -  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.
</TABLE>

                                       12
<PAGE>

<TABLE>
<C>  <S>
 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.
</TABLE>

<TABLE>
<C>  <S>
     DEFINING YOUR INCOME
</TABLE>

<TABLE>
<C>  <S>                                            <C>
     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                 $ 3.32
     Annual Income per unit:                         $39.94
     THESE FIGURES ARE ESTIMATES DETERMINED ON THE
     EVALUATION DAY; ACTUAL PAYMENTS MAY VARY.
</TABLE>

<TABLE>
<C>  <S>
 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

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

     You will pay an up-front sales fee of 1.125% as well as
     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 be charged 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:
</TABLE>

<TABLE>
<CAPTION>
                               YOUR MAXIMUM
                                SALES FEE
          IF YOU INVEST:         WILL BE:
          --------------       ------------
<C>  <S>                       <C>
     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%
</TABLE>

<TABLE>
<C>  <S>
     ESTIMATED ANNUAL FUND OPERATING EXPENSES
</TABLE>

<TABLE>
<CAPTION>
                                                    AMOUNT
                                                   PER UNIT
                                                   --------
<C>  <S>                                          <C>
                                                    $0.59
     Trustee's Fee
                                                    $0.50
     Portfolio Supervision,
     Bookkeeping and
     Administrative Fees
     (including updating
     expenses)
                                                    $0.45
     Evaluator's Fee
                                                    $0.20
     Organization Costs
                                                    $0.84
     Other Operating Expenses
                                                    -----
                                                    $2.58
     TOTAL
</TABLE>

<TABLE>
<C>  <S>
     The Sponsors historically paid organization
     costs and updating expenses.

 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 May 19, 1988 and
     September 13, 1996 and were outstanding on
     December 31, 1999. 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
     12/31/99.
</TABLE>

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

<TABLE>
 High                    0.92%     6.43%     5.46%     2.00%     7.62%     6.05%
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average                 -3.94      5.10      5.25     -2.10      6.16      5.82
 Low                     -13.31     3.07      5.12     -10.52     3.74      5.71
</TABLE>

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

<TABLE>
 <S>                    <C>       <C>       <C>       <C>       <C>       <C>
 Average
 Sales fee               1.94%     5.22%     5.66%
</TABLE>

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

NOTE: ALL RETURNS REPRESENT CHANGES IN UNIT PRICE WITH DISTRIBUTIONS REINVESTED
 INTO THE MUNICIPAL FUND INVESTMENT ACCUMULATION PROGRAM.

<TABLE>
<C>  <S>
 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.
</TABLE>

                                       13
<PAGE>
<TABLE>
<C>  <S>
 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                   $770.92
     (as of September 30, 1999)

     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.
</TABLE>

                                       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%
<S>                     <C>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                      IS EQUIVALENT TO A TAXABLE YIELD OF

<CAPTION>

TAXABLE INCOME 1999*    TAX-FREE YIELD OF
    SINGLE RETURN         7%        7.5%        8%
<S>                    <C>        <C>        <C>
                       IS EQUIVALENT TO A
                        TAXABLE YIELD OF
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S>                     <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
  $ 25,751- 62,450      $ 43,051-104,050     34.70       6.13       6.89       7.66       8.42       9.19       9.95      10.72
  $ 62,451-130,250      $104,051-158,550     37.42       6.39       7.19       7.99       8.79       9.59      10.39      11.19
  $130,251-283,150      $158,551-283,150     41.95       6.89       7.75       8.61       9.47      10.34      11.20      12.06
OVER $283,151           OVER $283,151        45.22       7.30       8.21       9.13      10.04      10.95      11.87      12.78

<S>                    <C>        <C>
  $      0- 25,750       9.39      10.01
  $ 25,751- 62,450      11.48      12.25
  $ 62,451-130,250      11.98      12.78
  $130,251-283,150      12.92      13.78
OVER $283,151           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%
<S>                     <C>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                      IS EQUIVALENT TO A TAXABLE YIELD OF

<CAPTION>

TAXABLE INCOME 1999*    TAX-FREE YIELD OF
    SINGLE RETURN         6%        6.5%        7%
<S>                    <C>        <C>        <C>
                       IS EQUIVALENT TO A
                        TAXABLE YIELD OF
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S>                     <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
  $ 27,751- 62,450      $ 43,051-104,050     28.00       4.17       4.86       5.56       6.25       6.94       7.64       8.33
  $ 62,451-130,250      $104,051-158,550     31.00       4.35       5.07       5.80       6.52       7.25       7.97       8.70
  $130,251-283,150      $158,551-283,150     36.00       4.69       5.47       6.25       7.03       7.81       8.59       9.38
OVER $283,151           OVER $283,151        39.60       4.97       5.79       6.62       7.45       8.28       9.11       9.93

<S>                    <C>        <C>
  $      0- 25,750       7.65       8.24
  $ 27,751- 62,450       9.03       9.72
  $ 62,451-130,250       9.42      10.14
  $130,251-283,150      10.16      10.94
OVER $283,151           10.76      11.59
</TABLE>

                          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%
<S>                     <C>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                      IS EQUIVALENT TO A TAXABLE YIELD OF

<CAPTION>

TAXABLE INCOME 1999*    TAX-FREE YIELD OF
    SINGLE RETURN         7%        7.5%        8%
<S>                    <C>        <C>        <C>
                       IS EQUIVALENT TO A
                        TAXABLE YIELD OF
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S>                     <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
  $      0-25,750-                           23.63       5.24       5.89       6.55       7.20       7.86       8.51       9.17
  $ 25,751- 62,450      $ 43,051-104,050     35.35       6.19       6.96       7.73       8.51       9.28      10.05      10.83
  $ 62,451-130,250      $104,051-158,550     38.04       6.46       7.26       8.07       8.88       9.68      10.49      11.30
  $130,251-283,150      $158,551-283,150     42.53       6.96       7.83       8.70       9.57      10.44      11.31      12.18
OVER $283,151           OVER $283,151        45.77       7.38       8.30       9.22      10.14      11.06      11.98      12.91

<S>                    <C>        <C>
                         9.82      10.47
  $      0-25,750-       9.82      10.48
  $ 25,751- 62,450      11.60      12.37
  $ 62,451-130,250      12.11      12.91
  $130,251-283,150      13.05      13.92
OVER $283,151           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%
<S>                     <C>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                      IS EQUIVALENT TO A TAXABLE YIELD OF

<CAPTION>

TAXABLE INCOME 1999*    TAX-FREE YIELD OF
    SINGLE RETURN         7%        7.5%        8%
<S>                    <C>        <C>        <C>
                       IS EQUIVALENT TO A
                        TAXABLE YIELD OF
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S>                     <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
  $ 25,751- 62,450      $ 43,051-104,050     32.93       5.96       6.71       7.46       8.20       8.95       9.69      10.44
  $ 62,451-130,250      $104,051-158,550     35.73       6.22       7.00       7.78       8.56       9.34      10.11      10.69
  $130,251-283,150      $158,551-283,150     40.38       6.71       7.55       8.39       9.23      10.06      10.90      11.74
OVER $283,151           OVER $283,151        43.74       7.11       8.00       8.89       9.78      10.66      11.55      12.44

<S>                    <C>        <C>
  $      0- 25,750       9.47      10.10
  $ 25,751- 62,450      11.18      11.93
  $ 62,451-130,250      11.67      12.45
  $130,251-283,150      12.58      13.42
OVER $283,151           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%
<S>                     <C>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                      IS EQUIVALENT TO A TAXABLE YIELD OF

<CAPTION>

TAXABLE INCOME 1999*    TAX-FREE YIELD OF
    SINGLE RETURN         6%        6.5%        7%
<S>                    <C>        <C>        <C>
                       IS EQUIVALENT TO A
                        TAXABLE YIELD OF
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<S>                     <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
  $ 27,751- 62,450      $ 43,051-104,050     30.02       4.29       5.00       5.72       6.43       7.14       7.86       8.57
  $ 62,451-130,250      $104,051-158,550     32.93       4.47       5.22       5.96       6.71       7.46       8.20       8.95
  $130,251-283,150      $158,551-283,150     37.79       4.82       5.63       6.43       7.23       8.04       8.84       9.65
OVER $283,151           OVER $283,151        41.29       5.11       5.96       6.81       7.66       8.52       9.37      10.22

<S>                    <C>        <C>
  $      0- 25,750       7.87     8.47
  $ 27,751- 62,450       9.29      10.00
  $ 62,451-130,250       9.69      10.44
  $130,251-283,150      10.45      11.25
OVER $283,151           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.

                                       15
<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:
  - elimination of one or more bonds from the Fund's portfolio because of calls,
    redemptions or sales;
  - a change in the Fund's expenses; or
  - 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):

<TABLE>
<S>              <C>  <C>
Estimated Annual         Estimated
Interest Income   -   Annual Expenses
- -------------------------------------
             Unit Price
</TABLE>

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:
- - a monthly statement of income payments and any principal payments;
- - a notice from the Trustee when new bonds are deposited in exchange or
  substitution for bonds originally deposited;
- - an annual report on Fund activity; and
- - 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:
- - copies of bond evaluations to enable you to comply with federal and state tax
  reporting requirements; and
- - audited financial statements of the Fund.

You may inspect records of Fund transactions at the Trustee's office during
regular business hours.

                                       16
<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:
  - it no longer needs the money for the original purpose;
  - the project is condemned or sold;
  - the project is destroyed and insurance proceeds are used to redeem the
    bonds;
  - any related credit support expires and is not replaced; or
  - 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 Florida, New York and Pennsylvania
Portfolios' concentrations in hospital and health care bonds.
  - 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;
  - hospitals face increasing competition resulting from hospital mergers and
    affiliations;
  - hospitals need to reduce costs as HMOs increase market penetration and
    hospital supply and drug companies raise prices;
  - hospitals and health care providers are subject to various legal claims by
    patients

                                       17
<PAGE>
    and others and are adversely affected by increasing costs of insurance; and
  - 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;
  - 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
  - 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 California and New York Portfolios'
concentrations in lease rental appropriation. 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:
  - the failure of the government to appropriate funds for the leasing rental
    payments to service the bonds; and
  - 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 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:
  - increases in operating and construction costs; and
  - 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.

  - As a result California experienced a period of sustained budget imbalance.

  - Since that time the California economy has improved markedly and the extreme
    budgetary pressures have begun to lessen. However, the Asian economic crisis
    is expected to continue to have some negative effectt on the State's
    economy.

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:

                                       18
<PAGE>
  - 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.

  - 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 budgetary pressure and
    reduce issuers' ability to pay their debts.

  - 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:

  - Certain provisions of California's Constitution, laws and regulatory system
    contain tax, spending and appropriations limits and prohibit certain new
    taxes.

  - Certain other California laws subject the users of bond proceeds to strict
    rules and limits regarding revenue repayment.

  - 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:

  - 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;

  - 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

  - 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

                                       19
<PAGE>
measures to achieve budget balance. The pressures that contribute to budgetary
problems at both the state and local level include:

  - the high combined state and local tax burden;

  - a decline in manufacturing jobs, leading to above-average unemployment;

  - sensitivity to the financial services industry; and

  - 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 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:

  - aging public facilities that need repair or replacement;

  - welfare and medical costs;

  - expiring labor contracts; and

  - 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:

  - coal, steel, railroads and other heavy industry historically associated with
    the Commonwealth has given way to increased competition from foreign
    producers.

  - agriculture and related industries are still an important part of the
    Commonwealth's economy.

  - 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.

  - 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.

  - Philadelphia has considered significant service cuts and privatization of
    certain services which it has provided to date.

  - In 1991, the Commonwealth created the Pennsylvania Inter-Governmental
    Cooperation Authority ("PICA") which it authorized to issue debt to cover
    Philadelphia's budget shortfalls,

                                       20
<PAGE>
    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.

  - 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 are backed by insurance companies (as shown under Portfolios).
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:
  - limiting real property taxes,
  - reducing tax rates,
  - imposing a flat or other form of tax, or
  - 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:
  - ADDING the value of the bonds, net accrued interest, cash and any other Fund
    assets;
  - 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
  - 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

                                       21
<PAGE>
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
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:
  - if the New York Stock Exchange is closed (other than customary weekend and
    holiday closings);
  - 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
  - for any other period permitted by SEC order.

                                       22
<PAGE>
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:
  - cost of initial preparation of legal documents;
  - federal and state registration fees;
  - initial fees and expenses of the Trustee;
  - initial audit; and
  - legal expenses and other out-of-pocket expenses.

EVALUATIONS

An independent Evaluator values the bonds on each business day (excluding
Saturdays, 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.

                                       23
<PAGE>
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:
  - to reimburse the Trustee for the Fund's operating expenses;
  - for extraordinary services and costs of indemnifying the Trustee and the
    Sponsors;
  - costs of actions taken to protect the Fund and other legal fees and
    expenses;
  - expenses for keeping the Fund's registration statement current; and
  - Fund termination expenses and any governmental charges.

The Sponsors are currently reimbursed up to 55 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. Legal,
typesetting, electronic filing and regulatory filing fees and expenses
associated with updating the Portfolio's registration statement yearly are also
now chargeable to the Portfolio. 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 may affect the
composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of bonds that they did originally.

We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
  - diversity of the portfolio;
  - size of the Fund relative to its original size;
  - ratio of Fund expenses to income;

                                       24
<PAGE>
  - current and long-term returns;
  - degree to which units may be selling at a premium over par; and
  - 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:
  - to cure ambiguities;
  - to correct or supplement any defective or inconsistent provision;
  - to make any amendment required by any governmental agency; or
  - 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:
  - it fails to perform its duties and the Sponsors determine that its
    replacement is in your best interest; or

                                       25
<PAGE>
  - 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 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:
  - remove it and appoint a replacement Sponsor;
  - liquidate the Fund; or
  - 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

                                       26
<PAGE>
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 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.

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 or subject to
special rules. 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 may be taken
into account in determining your preference items for alternative minimum tax
purposes. Neither

                                       27
<PAGE>
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.

GAIN 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, 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 otherwise. 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.

                                       28
<PAGE>
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.

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 at least 90% of the Fund is invested
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

                                       29
<PAGE>
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.

                                       30
<PAGE>

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, 1999 and the related statements of
operations and of changes in net assets for the year ended September
30, 1999 and 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 audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Securities owned at September 30, 1999, 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,
1999 and the results of their operations and changes in their net
assets for the above-stated periods in conformity with generally
accepted accounting principles.


DELOITTE & TOUCHE LLP

New York, N.Y.
December 15, 1999


                                     D - 1
<PAGE>

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

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1999

<TABLE>
<S>                                                <C>           <C>
TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $3,930,271)(Note 1)......................                  $3,734,333
  Accrued interest receivable......................                      40,766
  Accrued interest receivable from segregated bonds                       1,297
  Cash.............................................                       5,311
  Deferred organization costs (Note 6).............                       2,724
                                                                   _____________

              Total trust property.................                   3,784,431

LESS LIABILITY - Accrued expenses..................                       3,051
                                                                   _____________

NET ASSETS, REPRESENTED BY:
  3,951 units of fractional undivided
    interest outstanding (Note 3)..................   $3,769,522
  Undistributed net investment income..............       11,858
                                                    _____________
                                                                     $3,781,380
                                                                   =============
UNIT VALUE ($3,781,380/3,951 units)................                     $957.07
                                                                   =============
</TABLE>

                       See Notes to Financial Statements.


                                     D - 2
<PAGE>

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            November 1,
                                                                  1997
                                              Year Ended            to
                                            September 30, September 30,
                                                    1999          1998
                                             ___________________________
<S>                                          <C>          <C>
INVESTMENT INCOME:
  Interest income...........................     $208,373     $212,555
  Interest income on segregated bonds.......        7,148        8,799
  Trustee's fees and expenses...............       (5,170)      (6,911)
  Sponsors' fees............................       (2,198)      (1,840)
  Organizational expenses...................         (908)        (908)
                                              ___________________________
  Net investment income.....................      207,245      211,695
                                              ___________________________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized gain on securities sold
    or redeemed.............................        7,845          990
  Unrealized appreciation (depreciation)
    of investments..........................     (392,854)     196,916
                                              ___________________________

  Net realized and unrealized gain (loss)
    on investments..........................     (385,009)     197,906
                                             ___________________________

NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS.................    $(177,764)    $409,601
                                             ===========================
</TABLE>

                       See Notes to Financial Statements.


                                     D - 3
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                  November 1,
                                                                        1997
                                                    Year Ended            to
                                                  September 30, September 30,
                                                          1999          1998
                                                  __________________________
<S>                                               <C>          <C>
OPERATIONS:
  Net investment income...........................   $  207,245   $  211,695
  Realized gain on securities sold
    or redeemed...................................        7,845          990
  Unrealized appreciation (depreciation)
    of investments................................     (392,854)     196,916
                                                  __________________________
  Net increase (decrease) in net assets
    resulting from operations.....................     (177,764)     409,601

INCOME DISTRIBUTIONS TO HOLDERS (Note 2)..........     (199,515)    (190,378)

CAPITAL SHARE TRANSACTIONS - Redemptions of 449
  and 140 units, respectively.....................     (459,953)    (140,121)

DEFERRED SALES CHARGE (Note 5)....................      (74,419)     (55,800)
                                                  __________________________
NET INCREASE (DECREASE) IN NET ASSETS.............     (911,651)      23,302

NET ASSETS AT BEGINNING OF PERIOD.................    4,693,031    4,669,729
                                                  __________________________
NET ASSETS AT END OF PERIOD.......................   $3,781,380   $4,693,031
                                                  ==========================
PER UNIT:
  Income distributions during period..............       $49.17       $42.35
                                                  ==========================
  Net asset value at end of period................      $957.07    $1,066.60
                                                  ==========================
TRUST UNITS OUTSTANDING AT END OF PERIOD..........        3,951        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, 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

      Cost of 3,951 units at Date of Deposit..............    $4,063,899
      Redemptions of units - net cost of 589 units
        redeemed less redemption amounts..................         6,998
      Realized gain on securities sold or redeemed........         8,835
      Interest income on segregated bonds.................        15,947
      Deferred sales charge...............................      (130,219)
      Net unrealized depreciation of investments..........      (195,938)
                                                           ______________

      Net capital applicable to Holders...................    $3,769,522
                                                           ==============

  4.  INCOME TAXES

      As of September 30, 1999, net unrealized depreciation of investments,
      based on cost for Federal income tax purposes, aggregated $195,938 of
      which $60 related to appreciated securities and $195,998 related to
      depreciated securities. The cost of investment securities for Federal
      income tax purposes was $3,930,271 at September 30, 1999.


                                     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 $ 45.00 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 $ 3.75 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

      Organizational 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, 1999
<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 Wtr.       AAA       $  700,000   4.750%   2029       12/01/05         $  640,885    $  592,305
   Resources, Central Valley Proj.                                                    @ 101.000
   Wtr. Sys. Rev. Bonds, Ser. O
   (MBIA Ins.)

 2 California Hlth. Facs. Fin Auth.,       AAA           30,000   4.150    2000       None                 30,100        30,156
   Ins. Rev. Bonds (Sutter Hlth.)
   Ser. 1997 A (FSA Ins.)(6)

 3 California Hlth. Facs. Fin. Auth.,      AAA          700,000   5.250    2027       08/15/07            689,570       647,059
   Ins. Rev. Bonds (Sutter Hlth.),                                                    @ 102.000
   Ser. 1997 A (FSA Ins.)

 4 Public Wks. Bd of the State of          AAA          595,000   5.250    2021       01/01/06            587,104       562,198
   California, Lease Rev. Bonds (Dept.                                                @ 100.000
   of Corrections), Ser. 1996 A
   (AMBAC Ins.)

 5 County of Contra Costa, CA, Certs.      AAA          425,000   5.250    2017       02/01/07            425,000       411,345
   of Part. (Cap. Proj. Prog.),                                                       @ 102.000
   Ser. 1997 (AMBAC Ins.)

 6 Industry, CA, Urban Dev. Agy. Tax       AAA           20,000   4.250    2001       None                 20,129        20,133
   Alloc. Bonds, (Civic, Rec., and
   Ind.) Ser. 1 (MBIA Ins.)(6)

 7 Sulphur Springs, Union Sch. Dist.       AAA          630,000   5.375    2022       02/01/07            630,000       606,570
   Los Angeles Cnty., CA, Certs. of                                                   @ 102.000
   Part., (1997 Rfdg and Sch. Imp.
   Proj.) (AMBAC Ins.)

 8 Indio Pub. Fin. Auth., CA, Tax          AAA          750,000   5.350    2027       08/15/06            750,000       712,305
   Increment Rev. Rfdg. Bonds, Ser.                                                   @ 102.000
   1997 B (MBIA Ins.)

</TABLE>


                                     D - 7
<PAGE>

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

PORTFOLIO OF THE CALIFORNIA TRUST (INSURED)
AS OF SEPTEMBER 30, 1999

<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 Sacramento Area Flood Ctl. Agy.,        AAA       $  100,000   5.375%   2020       10/01/05         $  100,000     $  96,405
   CA, North Area Local Proj., Cap                                                    @ 102.000
   Assessment dist. No. 2 Bonds, Ser.
   1995 (Financial Guaranty Ins.)

10 Puerto Rico Elec. Pwr. Auth., Pwr.      AAA           55,000   5.700    2000       None                 57,483        55,857
   Rev. Bonds, Ser. R (MBIA Ins.)(6)

                                                   ______________                                    ______________ ____________
TOTAL                                                $4,005,000                                        $3,930,271    $3,734,333
                                                   ==============                                    ============== ============
</TABLE>

                     See Notes to Portfolios on Page D - 29.


                                     D - 8
<PAGE>

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

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1999

TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $3,571,124)(Note 1)......................                  $3,338,777
  Accrued interest receivable......................                      75,714
  Accrued interest receivable on segregated bonds..                       1,432
  Deferred organization costs (Note 6).............                       2,269
                                                                   _____________

              Total trust property.................                   3,418,192

  Advance from Trustee.............................   $   29,445
  Accrued expenses.................................        2,740         32,185
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  3,568 units of fractional undivided
    interest outstanding (Note 3)..................    3,374,459
  Undistributed net investment income..............       11,548
                                                    _____________
                                                                     $3,386,007
                                                                   =============
UNIT VALUE ($3,386,007/3,568 units)................                     $948.99
                                                                   =============

                       See Notes to Financial Statements.


                                     D - 9
<PAGE>

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

STATEMENTS OF OPERATIONS

                                                            November 1,
                                                                  1997
                                              Year Ended            to
                                            September 30, September 30,
                                                    1999          1998
                                             ___________________________
INVESTMENT INCOME:
  Interest income...........................    $ 187,306      $177,703
  Interest income on segregated bonds.......        6,065         7,351
  Trustee's fees and expenses...............       (4,761)       (5,674)
  Sponsors' fees............................       (1,962)       (1,531)
  Organizational expenses...................         (757)         (757)
                                              ___________________________
  Net investment income.....................      185,891       177,092
                                              ___________________________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized gain (loss) on securities
    sold or redeemed........................       (1,773)           42
  Unrealized appreciation (depreciation)
    of investments..........................     (391,318)      158,971
                                              ___________________________

  Net realized and unrealized gain (loss)
    on investments..........................     (393,091)      159,013
                                             ___________________________

NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS.................    $(207,200)     $336,105
                                             ===========================

                       See Notes to Financial Statements.


                                     D - 10
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS

                                                                 November 1,
                                                                       1997
                                                   Year Ended            to
                                                 September 30, September 30,
                                                         1999          1998
                                                  __________________________
OPERATIONS:
  Net investment income...........................   $  185,891   $  177,092
  Realized gain (loss) on securities
    sold or redeemed..............................       (1,773)          42
  Unrealized appreciation (depreciation)
    of investments................................     (391,318)     158,971
                                                  __________________________
  Net increase (decrease) in net assets
    resulting from operations.....................     (207,200)     336,105

INCOME DISTRIBUTIONS TO HOLDERS (Note 2)..........     (179,102)    (158,477)

CAPITAL SHARE TRANSACTIONS - Redemptions of 80
  and 135 units, respectively.....................      (78,494)    (136,105)

DEFERRED SALES CHARGE (Note 5)....................      (56,220)     (47,115)
                                                   __________________________
NET DECREASE IN NET ASSETS........................     (521,016)      (5,592)

NET ASSETS AT BEGINNING OF PERIOD.................    3,907,023    3,912,615
                                                   __________________________
NET ASSETS AT END OF PERIOD.......................   $3,386,007   $3,907,023
                                                   ==========================
PER UNIT:
  Income distributions during period..............       $49.31       $42.28
                                                   ==========================
  Net asset value at end of period................      $948.99    $1,071.00
                                                   ==========================
TRUST UNITS OUTSTANDING AT END OF PERIOD..........        3,568        3,648
                                                   ==========================

                       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 for the securities, 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

      Cost of 3,568 units at Date of Deposit..............    $3,690,249
      Redemptions of units - net cost of 215 units
        redeemed less redemption amounts..................         8,207
      Realized loss on securities sold or redeemed........        (1,731)
      Interest income on segregated bonds.................        13,416
      Deferred sales charge...............................      (103,335)
      Unrealized depreciation of investments..............      (232,347)
                                                           ______________

      Net capital applicable to Holders...................    $3,374,459
                                                           ==============

  4.  INCOME TAXES

      As of September 30, 1999, unrealized depreciation of investments, based
      on cost for Federal income tax purposes, aggregated $232,347 all of
      which related to depreciated securities. The cost of investment
      securities for Federal income tax purposes was $3,571,124 at September
      30, 1999.


                                     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 $ 45.00 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 $ 3.75 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

      Organizational 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, 1999

<TABLE>
<CAPTION>
                                          Rating                                      Optional
    Portfolio No. and Title of             of             Face                        Redemption
            Securities(5)                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. Rfdg.     AAA       $  250,000   5.125%   2027       10/01/07         $  245,298    $  226,453
   Bonds, Miami Intl. Arpt. (Hub.                                                     @ 101.500
   of the Americas), Ser. 1997 C
   (FSA Ins.)

 2 Dade Cnty., FL, G.O. Pub. Imp.          AAA            5,000   6.600    2000       None                  5,358         5,136
   Bonds, Ser. CC (AMBAC Ins.)(6)

 3 Dade Cnty., FL, Professional Sports     AAA          550,000   5.250    2030       None                541,497       512,144
   Fran. Fac. Tax Rev. Bonds, Ser.
   1995 (MBIA Ins.)

 4 Dade Cnty., FL, Wtr. and Swr. Sys.      AAA          600,000   5.250    2026       10/01/07            595,554       556,794
   Rev. Bonds, Ser. 1997 (Financial                                                   @ 101.000
   Guaranty Ins.)

 5 Hospital Bd. of Directors of Lee        AAA          565,000   5.000    2020       04/01/07            546,485       498,855
   Cnty., FL, Hosp. Rev. Bonds (Lee                                                   @ 101.000
   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       488,380
   Certs. of Part. (Master Lease                                                      @ 101.000
   Prog.), Ser. 1997 (MBIA Ins.)

 7 The School Bd. of Orange Cnty.,         Aaa(m)       525,000   5.375    2022       08/01/07            528,145       502,672
   FL, Certs. of Part., Ser. 1997                                                     @ 101.000
   A (MBIA Ins.)

 8 Sarasota Cnty., FL, Pub. Hosp. Bd.,     Aaa(m)       500,000   5.375    2020       10/01/07            501,065       467,485
   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, 1999

<TABLE>
<CAPTION>
                                          Rating                                      Optional
    Portfolio No. and Title of             of             Face                        Redemption
            Securities(5)                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    $   80,858
   Swr. Rfdg. Rev. Bonds, Ser. 1993
   (AMBAC Ins.)(6)
                                                   ______________                                    ______________ ____________
TOTAL                                                $3,610,000                                        $3,571,124    $3,338,777
                                                   ==============                                    ============== ============
</TABLE>

                     See Notes to Portfolios on Page D - 29.


                                     D - 15
<PAGE>

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

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1999

TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $3,920,055)(Note 1)......................                  $3,673,796
  Accrued interest receivable......................                      52,783
  Accrued interest receivable on segregated bonds..                         931
  Deferred organization costs (Note 6).............                       2,573
                                                                   _____________

              Total trust property.................                   3,730,083

LESS LIABILITIES:
  Deferred sales charge (Note 5)...................   $    2,484
  Advance from Trustee.............................        6,215
  Accrued expenses.................................        3,007         11,706
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  3,932 units of fractional undivided
    interest outstanding (Note 3)..................    3,703,920
  Undistributed net investment income..............       14,457
                                                    _____________
                                                                     $3,718,377
                                                                   =============
UNIT VALUE ($3,718,377/3,932 units)................                     $945.67
                                                                   =============

                       See Notes to Financial Statements.


                                     D - 16
<PAGE>

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

STATEMENTS OF OPERATIONS


                                                            November 1,
                                                                  1997
                                              Year Ended            to
                                            September 30, September 30,
                                                    1999          1998
                                             ___________________________
INVESTMENT INCOME:
  Interest income...........................     $216,150      $206,708
  Interest income on segregated bonds.......        5,780         7,179
  Trustee's fees and expenses...............       (5,073)       (4,439)
  Sponsors' fees............................       (2,234)       (1,808)
  Organizational expenses...................         (857)         (857)
                                              ___________________________
  Net investment income.....................      213,766       206,783
                                              ___________________________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized gain (loss) on securities
    sold or redeemed........................        5,800          (419)
  Unrealized appreciation (depreciation)
    of investments..........................     (432,162)      185,903
                                              ___________________________

  Net realized and unrealized gain (loss)
    on investments..........................     (426,362)      185,484
                                             ___________________________

NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS.................    $(212,596)     $392,267
                                             ===========================

                        See Notes to Financial Statements.


                                     D - 17
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS

                                                               November 1,
                                                                     1997
                                                 Year Ended            to
                                               September 30, September 30,
                                                      1999           1998
                                               __________________________
OPERATIONS:
  Net investment income.......................    $  213,766   $  206,783
  Realized gain (loss) on securities
    sold or redeemed..........................         5,800         (419)
  Unrealized appreciation (depreciation)
    of investments............................      (432,162)     185,903
                                               __________________________
  Net increase (decrease) in net assets
    resulting from operations.................      (212,596)     392,267
                                               __________________________

DISTRIBUTIONS TO HOLDERS (Note 2):
  Income......................................      (207,480)    (184,941)
  Principal...................................        (7,845)
                                               __________________________
  Total distributions.........................      (215,325)    (184,941)
                                               __________________________
CAPITAL SHARE TRANSACTIONS - Redemptions of 355
   units......................................      (361,943)
                                               __________________________

DEFERRED SALES CHARGE (Note 5)................       (70,961)     (48,229)
                                               __________________________
NET INCREASE (DECREASE) IN NET ASSETS.........      (860,825)     159,097

NET ASSETS AT BEGINNING OF PERIOD.............     4,579,202    4,420,105
                                               __________________________
NET ASSETS AT END OF PERIOD...................    $3,718,377   $4,579,202
                                               ==========================
PER UNIT:
  Income distributions during period..........        $50.32       $43.14
                                               ==========================
  Principal distributions during period.......         $1.83
                                               ==========================
  Net asset value at end of period............       $945.67    $1,068.16
                                               ==========================
TRUST UNITS OUTSTANDING AT END OF PERIOD......         3,932        4,287
                                               ==========================

                       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, 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

      Cost of 3,932 units at Date of Deposit..............    $4,054,083
      Redemptions of units - net cost of 355 units
        redeemed less redemption amounts..................         4,791
      Realized gain on securities sold or redeemed........         5,381
      Interest income on segregated bonds.................        12,959
      Deferred sales charge...............................      (119,190)
      Principal distributions.............................        (7,845)
      Net unrealized depreciation of investments..........      (246,259)
                                                           ______________

      Net capital applicable to Holders...................    $3,703,920
                                                           ==============

  4.  INCOME TAXES

      As of September 30, 1999, net unrealized depreciation of investments,
      based on cost for Federal income tax purposes, aggregated $246,259 of
      which $74 related to appreciated securities and $246,333 related to
      depreciated securities. The cost of investment securities for Federal
      income tax purposes was $3,920,055 at September 30, 1999.


                                     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 ORGANIZATIONAL COSTS

      Organizational 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, 1999

<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    $  578,396
   (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       287,349
   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       376,056
   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       492,915
   York, City Univ. Sys. Consol.,                                                     @ 102.000
   Third General Resolution Rev.
   Bonds, Ser. 1997-1 (MBIA Ins.)

 5 Dormitory Auth. of the State of         AAA          600,000   5.375    2026       02/15/06            600,000       561,120
   New York, Mental Hlth. Facs. Imp.,                                                 @ 102.000
   Rev. Bonds, Ser. 1996 B (FSA Ins.)

 6 Dormitory Auth. of the State of New     AAA          650,000   5.375    2032       08/01/04            647,413       601,634
   York, Millard Fillmore Hosp.,                                                      @ 105.000
   FHA- Ins. Mtge. Hosp. Rev. Bonds,
   Ser. 1997 (AMBAC Ins.)

 7 Dormitory Auth. of the State of New     AAA           35,000   4.125    2001       None                 34,851        34,925
   York, Vassar Brothers Hosp., Ins.
   Rev. Bonds, Ser. 1997 (FSA Ins.)(6)

 8 New York State Dormitory Authority,     AAA          645,000   5.375    2025       01/01/08            638,073       604,430
   Vassar Brothers Hospital Issue,                                                    @ 102.000
   Revenue Bonds (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, 1999

<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 Metropolitan Trans., Auth., NY,         AAA       $  100,000   5.500%   2022       07/01/07         $  100,849    $   96,348
   Commuter Fac. Rev. Bonds, Ser. 1997                                                @ 101.000
   C-1 (MBIA Ins.)

10 Puerto Rico Elec. Pwr. Auth., Pwr.      AAA           40,000   5.700    2000       None                 41,806        40,623
   Rev. Bonds, Ser. R (MBIA Ins.)(6)
                                                   ______________                                    ______________ _____________
TOTAL                                                $3,970,000                                        $3,920,055    $3,673,796
                                                   ==============                                    ============== =============
</TABLE>

                     See Notes to Portfolios on Page D - 29.


                                     D - 22
<PAGE>

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

STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1999

TRUST PROPERTY:
  Investment in marketable securities - at value
    (cost $2,384,312)(Note 1)......................                  $2,198,743
  Accrued interest receivable......................                      28,521
  Accrued interest receivable segregated bonds.....                       1,517
  Cash.............................................                       6,328
  Deferred organization costs (Note 6).............                       1,967
                                                                   _____________

              Total trust property.................                   2,237,076

LESS LIABILITIES:
  Deferred sales charge (Note 5)...................  $    13,757
  Accrued expenses.................................        4,075         17,832
                                                    _____________  _____________

NET ASSETS, REPRESENTED BY:
  2,883 units of fractional undivided
    interest outstanding (Note 3)..................    2,210,011
  Undistributed net investment income..............        9,233
                                                    _____________
                                                                     $2,219,244
                                                                   =============
UNIT VALUE ($2,219,244/2,883 units)................                     $769.77
                                                                   =============

                       See Notes to Financial Statements.


                                     D - 23
<PAGE>

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

STATEMENTS OF OPERATIONS

                                                            November 1,
                                                                  1997
                                              Year Ended            to
                                            September 30, September 30,
                                                    1999          1998
                                             ___________________________
INVESTMENT INCOME:
  Interest income...........................     $153,629      $159,042
  Interest income on segregated bonds.......        4,277         5,156
  Trustee's fees and expenses...............       (4,434)       (3,130)
  Sponsors' fees............................       (2,839)       (1,333)
  Organizational expenses...................         (655)         (655)
                                              ___________________________
  Net investment income.....................      149,978       159,080
                                              ___________________________

REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS:
  Realized loss on securities
     sold or redeemed.......................      (49,970)
  Unrealized appreciation (depreciation)
    of investments..........................     (312,464)      126,895
                                              ___________________________

  Net realized and unrealized gain (loss)
    on investments..........................     (362,434)      126,895
                                             ___________________________

NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS.................    $(212,456)     $285,975
                                             ===========================

                       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

                                                               November 1,
                                                                     1997
                                                 Year Ended            to
                                               September 30, September 30,
                                                      1999          1998
                                               __________________________
OPERATIONS:
  Net investment income.......................  $  149,978    $  159,080
  Realized loss on securities
    sold or redeemed..........................     (49,970)
  Unrealized appreciation (depreciation)
    of investments............................    (312,464)      126,895
                                               __________________________
  Net increase (decrease) in net assets
    resulting from operations.................    (212,456)      285,975
                                               __________________________

DISTRIBUTIONS TO HOLDERS (Note 2):
  Income......................................    (148,012)     (141,600)
  Principal...................................    (501,835)
                                               __________________________
  Total distributions.........................    (649,847)     (141,600)
                                               __________________________
CAPITAL SHARE TRANSACTIONS - Redemptions of 394
    units, respectively.......................    (323,637)

DEFERRED SALES CHARGE (Note 5)................     (56,543)      (36,866)
                                               __________________________
NET INCREASE (DECREASE) IN NET ASSETS.........  (1,242,483)      107,509

NET ASSETS AT BEGINNING OF PERIOD.............   3,461,727     3,354,218
                                               __________________________
NET ASSETS AT END OF PERIOD...................  $2,219,244    $3,461,727
                                               ==========================
PER UNIT:
  Income distributions during period..........      $46.29        $43.21
                                               ==========================
  Principal distributions during period.......     $156.53
                                               ==========================
  Net asset value at end of period............     $769.77     $1,056.37
                                               ==========================
TRUST UNITS OUTSTANDING AT END OF PERIOD......       2,883         3,277
                                               ==========================

                       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) Securities are stated at value as determined by the Evaluator
          based on bid side evaluations for the securities, 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

      Cost of 2,883 units at Date of Deposit..............    $2,950,934
      Redemptions of units - net cost of 394 units
        redeemed less redemption amounts..................        80,427
      Realized loss on securities sold or redeemed........       (49,970)
      Interest income on segregated bonds.................         9,433
      Deferred sales charge...............................       (93,409)
      Principal distributions.............................      (501,835)
      Net unrealized depreciation of investments..........      (185,569)
                                                           ______________

      Net capital applicable to Holders...................    $2,210,011
                                                           ==============

  4.  INCOME TAXES

      As of September 30, 1999, net unrealized depreciation of investments,
      based on cost for Federal income tax purposes, aggregated $185,569, of
      which $32 related to appreciated securities and $185,601 related to
      depreciated securities. The cost of investment securities for Federal
      income tax purposes was $2,384,312 at September 30, 1999.


                                     D - 26
<PAGE>

MUNICIPAL INVESTMENT TRUST FUND,
MULTISTATE SERIES - 318 (PENNSYLVANIA 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

      Organizational 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, 1999

<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        $  445,000   5.500%   2022       03/15/07         $  446,584    $  416,173
   Auth., Univ. Rev. Bonds (The Univ.                                                 @ 100.000
   of the Arts), Ser 1997 (Asset
   Guaranty Ins.)(5)

 2 The Mun. Swr. and Wtr. Auth. of         Aaa(m)        55,000   4.050    1999       None                 55,000        55,032
   Cranberry Twp., Butler Cnty., PA,
   Swr. and Wtr. Rev. Bonds, Ser. 1997
   (MBIA Ins.)(5)(6)

 3 The Mun. Swr. and Wtr. Auth. of         Aaa(m)       550,000   5.125    2026       12/01/07            524,810       492,729
   Cranberry Twp., Butler Cnty., PA,                                                  @ 100.000
   Swr. and Wtr. Rev. Bonds, Ser. 1997
   (MBIA Ins.)(5)

 4 Borough of Dormont, Allegheny           AAA           50,000   4.100    2000       None                 50,141        50,120
   Cnty., Pa, G.O. Bonds  Ser. 1997
   (FSA Ins.)(5)(6)

 5 Doylestown Hospital Authority, PA,      AAA          500,000   5.000    2023       07/01/04            475,685       436,515
   Hosp. Rev. Bonds Ser. 1993A                                                        @ 102.000
   (AMBAC Ins.)(5)

 6 The Hospital and Higher Educ. Facs.     BBB+         370,000   5.500    2027       11/15/07            364,639       318,651
   Auth. of Philadelphia, PA, Hosp.                                                   @ 101.000
   Rev. Bonds (Temple Univ. Hosp.),
   Ser. 1997

 7 City of Philadelphia, PA, Wtr. and      AAA          480,000   5.125    2027       08/01/07            467,453       429,523
   Wastewater Rev. Bonds  Ser. 1997 A                                                 @ 102.000
   (AMBAC Ins.)(5)

                                                   ______________                                   ______________ _____________
TOTAL                                                $2,450,000                                        $2,384,312    $2,198,743
                                                   ==============                                   ============== =============
</TABLE>

                     See Notes to Portfolios on Page D - 29.


                                     D - 28
<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, 1999

   (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 the 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.

   (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 - 29


<PAGE>

DEFINED ASSET FUNDS--REGISTERED TRADEMARK--

<TABLE>
<S>                                      <C>
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:
                                         - Securities Act of 1933 (file no.
                                         333-33843) and
                                         - 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--1/00
</TABLE>



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