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Rule 497(b)
Reg. No. 333-63963
PART A
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[NMT LOGO] NATIONAL MUNICIPAL TRUST
SERIES 193
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National Municipal Trust, Series 193 designated as the National Trust (the
"National Trust" or the "Trust") is composed of interest-bearing municipal bonds
and contracts and funds for the purchase thereof (the "Securities"). The
interest on these bonds, in the opinion of bond counsel to the issuing
governmental authorities is, under existing law, excludable from gross income
for Federal income tax purposes (except in certain instances depending on the
Unit Holder). The Prospectus indicates the extent to which interest income of
the Trust is subject to alternative minimum tax under the Internal Revenue Code
of 1986, as amended. See "Schedule of Portfolio Securities" and "Portfolio
Summary as of Date of Deposit".
96.5% of the aggregate principal amount of the Securities consists of
investment grade state, municipal and public authority debt obligations
("Long-Term Securities") with a dollar weighted average life to maturity of 30.3
years and 3.5% of the aggregate principal amount of the Securities consists of
municipal securities with a dollar weighted average life to maturity of
approximately 1.9 years (the "DSC Payment Securities"), the principal and
interest from which will be used in payment of the deferred sales charge ("DSC")
and organization costs.
The objectives of the Trust are (1) the providing of interest income which,
in the opinion of counsel is, under existing law, excludable from gross income
for Federal income tax purposes (except in certain instances depending on the
Unit Holder) through investment in a fixed portfolio consisting primarily of
investment grade (BBB or Baa or better) long-term state, municipal and public
authority debt obligations, and the conservation of capital and (2) the payment
of the DSC from the interest payments, if any, on, and the principal paid at the
maturity of, the DSC Payment Securities. There is, of course, no guarantee that
the Trust's objectives will be achieved. The value of the Units of the Trust
will fluctuate with the value of the portfolio of underlying Securities. The
Securities in the Trust are not insured by The Prudential Insurance Company of
America.
Minimum Purchase: 1 Unit.
PUBLIC OFFERING PRICE of the Units of the Trust during the initial public
offering period is equal to the aggregate offering side evaluation of the
underlying Securities in the Trust's Portfolio divided by the number of Units
outstanding in such Trust, plus the applicable sales charge as set forth herein
plus cash held by the Trust. (See Part B--"Public Offering of Units--Volume
Discount.")
(continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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SPONSOR: [PRUDENTIAL SECURITIES LOGO]
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PLEASE READ AND RETAIN Prospectus dated
THIS PROSPECTUS FOR FUTURE REFERENCE November 20, 1998
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This Prospectus does not contain all of the information with respect to the
investment company set forth in its registration statement and exhibits relating
thereto which have been filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the Investment Company Act
of 1940, and to which reference is hereby made.
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MONTHLY DISTRIBUTIONS of principal, premium, if any, and interest received
by the Trust will be made on or shortly after the twenty-fifth day of each month
to Unit Holders of record on the tenth day of such month, commencing with the
first distribution on the date indicated herein. In some cases distribution on a
semiannual basis may be available. (See Part B--"Rights of Unit
Holders--Distribution of Interest and Principal"). Alternatively, Unit Holders
may elect to have their distributions reinvested in the Reinvestment Program of
the Sponsor, as, if and when such program is available to Unit Holders. (See
Part B--"Reinvestment Program.")
THE SPONSOR, although not obligated to do so, presently intends to maintain
a secondary market for the Units in the Trust based on the aggregate bid side
evaluation of the underlying Securities, as more fully described under
Part B--"Public Offering of Units--Secondary Market." If such a market is not
maintained, a Unit Holder may be able to dispose of his Units only through
redemption at prices based on the aggregate bid side evaluation of the
underlying Securities. The Sponsor's Repurchase Price, like the Redemption
Price, will reflect the deduction from the value of the underlying Securities of
any unpaid amount of the Deferred Sales Charge and to the extent the entire
Deferred Sales Charge has not been so deducted or paid at the time of redemption
or sale of the Units, the remainder will be deducted from the proceeds of
redemption or sale. (See Part B--"Rights of Unit Holders--
Redemption--Computation of Redemption Price per Unit.")
Subsequent to the Date of Deposit, the Sponsor may deposit additional
Securities in a trust (where additional Units are to be offered to the public).
(See Part B--"The Trust.")
RISK CONSIDERATIONS. 60.9% of the estimated annual income of the Trust is
subject to alternative minimum tax under the Internal Revenue Code of 1986, as
amended. An investment in Units of the Trust should be made with an
understanding of the risks which an investment in fixed rate long-term and
short-term debt obligations may entail, including the risk that the value of the
Units will decline with increases in interest rates. In the event of a default
by the issuer of a DSC Payment Security, other assets of the Trust would be
utilized to pay the deferred sales charge and the sale of Securities other than
the DSC Payment Securities may be required. Subsequent to the Date of Deposit
the ratings of the Securities set forth in Part A--"Schedule of Portfolio
Securities" may decline due to, among other factors, a decline in
creditworthiness of the issuer of said Securities.*
YEAR 2000 PROBLEM--Like other investment companies, financial and business
organizations and individuals around the world, the Trust could be adversely
affected if the computer systems used by the Sponsor or Trustee do not properly
process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Sponsor
and Trustee are taking steps that they believe are reasonably designed to
address the Year 2000 Problem with respect to computer systems that they use. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
The Year 2000 Problem is expected to affect business entities, which may
include issuers of the Trust's Securities, to varying extent and based upon a
number of factors, including, but not limited to, industry sector and level of
technological sophistication. The Sponsor is unable to predict what impact, if
any, the Year 2000 Problem will have on issuers of the Securities contained in
the Trust.
The Securities intended to be used to reimburse the Sponsor for the Trust's
organization costs may decrease in value during the initial offering period. To
the extent the proceeds from the sale of these Securities are insufficient to
repay the Sponsor for the organization costs, the Trustee will sell additional
Securities to allow the full reimbursement of the Sponsor. The net asset value
per Unit will be reduced by the amount of Securities sold.
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
The Portfolio contains 16 issues of Securities of issuers located in 9
states. 4 of the issues (11.71% of the Trust) are general obligations of a
governmental entity and are backed by the general taxing power of the entity.
The remaining issues are payable from the income of specific projects or
authorities and are not supported by the issuer's power to levy taxes. Although
income to pay such Securities may be derived from more than one source, the
primary sources of such income and the percentage of issues deriving income from
such sources are as follows: health and hospital facilities: 23.22%* of the
Trust; housing facilities: 25.85%* of the Trust; water and sewer facilities:
6.12%* of the Trust; transportation facilities: 12.93%* of the Trust; pollution
control bonds: 10.04%* of the Trust; education facilities bonds: 10.17%*. The
Trust is concentrated in housing facilities Securities.
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* Percentages computed on the basis of the aggregate offering price of the
Securities in the Trust on the Date of Deposit.
A-1
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The Portfolio contains Securities representing 25.85%* of the Trust
(single-family housing securities) which are subject to the requirements of
Section 103A of the Internal Revenue Code of 1954, as amended, or Section 143 of
the Internal Revenue Code of 1986, as amended.
6 Securities in the Trust (representing 26.78%* of the Trust) have been
purchased on a "when, as and if issued" or "delayed delivery" basis with
delivery expected to take place 6 to 27 days after the first settlement date for
the purchase of Units. Accordingly, the delivery of such Securities may be
delayed or may not occur. Unit Holders who purchase Units prior to settlement of
such Securities will be "at risk" with respect to such Securities (i.e., they
may derive either gain or loss from changes in the prices of such Securities)
from the date they commit to purchase such Units. However, interest on such
Securities will not begin accruing to the benefit of Unit Holders as tax-exempt
interest until such Securities' date of delivery.
As of the Date of Deposit, 76.3%* of the Securities in the Trust are rated
by Standard & Poor's Corporation (24.0%* being rated AAA, 20.6%* being rated AA,
21.4%* being rated A and 10.30%* being rated BBB) and 23.7% of the Securities in
the Trust are rated by Moody's Investors Service (3.50% being rated Aaa, 10.10%*
being rated A2 and 10.10%* being rated Baa2). For a description of the meaning
of the applicable rating symbols as published by Standard & Poor's and Moody's,
see Part B--"Bond Ratings". It should be emphasized, however, that the ratings
of Standard & Poor's and Moody's represent their opinions as to the quality of
the Securities which they undertake to rate and that these ratings are general
and are not absolute standards of quality.
One of the Securities in the Trust has been issued with an "original issue
discount". (See Part B--"Tax Status".)
Of these original issue discount bonds, approximately 4.83% of the
aggregate principal amount of the Securities in the Trust (although only 1.06%*
of the aggregate offering price of all Securities in the Trust on the Date of
Deposit) are zero coupon bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital appreciation bonds, capital accumulator bonds,
compound interest bonds, and discount maturity payment bonds.)
Alternative Minimum Tax
The Sponsor's affiliate, The Prudential Investment Corporation, estimates
that 60.90% of the estimated annual income per Unit consists of interest on
private activity bonds, which interest is to be treated as a tax preference item
for alternative minimum tax purposes (see "Tax Status" and "Schedule of
Portfolio Securities").
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* Percentages computed on the basis of the aggregate offering price of the
Securities in the Trust on the Date of Deposit.
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SUMMARY OF ESSENTIAL INFORMATION
NATIONAL MUNICIPAL TRUST
SERIES 193
AS OF NOVEMBER 19, 1998+
FACE AMOUNT OF SECURITIES....................................... $ 10,350,000.00
NUMBER OF UNITS................................................. 10,000
FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY EACH
UNIT.......................................................... 1/10,000th
PUBLIC OFFERING PRICE(1)
Aggregate offering side evaluation of Securities in the
Trust..................................................... $ 9,961,612.45
Offering side evaluation per Unit of Securities subject to a
sales charge (excludes DSC Payment Securities)............ $ 961.14
Sales charge of 4.9% (5.152% of Securities subject to a
sales charge)............................................. $ 49.52
Offering side evaluation per Unit of DSC Payment
Securities................................................ $ 33.02
Offering side evaluation of Securities for organization
costs..................................................... $ 2.00
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Aggregate of offering side evaluation plus the total sales
charge++.................................................. $ 1,045.68
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Deferred sales charge....................................... $ 35.27
Up-front sales charge....................................... $ 14.25
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Public Offering Price per Unit (offer side evaluation of
Securities plus Up-front sales charge)+++................. $ 1,010.41
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SPONSOR'S INITIAL REPURCHASE PRICE PER UNIT (based on offering
side evaluation of underlying Securities less the DSC)........ $ 960.89
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REDEMPTION AND SPONSOR'S SECONDARY MARKET REPURCHASE PRICE PER
UNIT (based on bid side evaluation of underlying Securities
less the DSC, $55.66 less than Public Offering Price per Unit;
$6.14 less than Sponsor's Initial Repurchase Price per
Unit)(2)...................................................... $ 954.75
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MINIMUM PRINCIPAL DISTRIBUTION: No distribution need be made from the Principal
Account if the balance therein is less than $5 per Unit.
SPONSOR'S ANNUAL PORTFOLIO SUPERVISION FEE: Maximum $.25 per $1,000 face amount
of underlying Securities.
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO: Face amount of Securities with
offering side evaluation: over par--35%; at par--22%; at a discount from
par--43%
EVALUATOR'S FEE FOR EACH EVALUATION: $10 per evaluation of the portfolio.
EVALUATION TIME: 4:00 P.M. New York time for primary market transactions and
3:30 P.M. New York time for secondary market transactions.
MANDATORY TERMINATION DATE: (5) The Trust will terminate on the date of the
maturity, redemption, sale or other disposition of the last Security held in
the Trust.
MINIMUM VALUE OF TRUST: The Trust may be terminated if the value of the Trust is
less than 40% of the face amount of Securities deposited including
supplemental deposits, if any.
WEIGHTED AVERAGE LIFE TO MATURITY of Long-Term Securities:
30.3 years
MONTHLY
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CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(4)(6)
Estimated Annual Income per Unit*...................... $ 51.23
Less estimated annual expenses per Unit*............... $ 2.00
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Estimated Net Annual Income per Unit................... $ 49.23
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Trustee's Annual Fee (including estimated expenses and
Evaluator's Fee) per $1,000 principal amount of
Securities(7)............................................. $ 1.75
Estimated Organization Costs per $1,000 principal amount of
Securities(7)............................................. $ 2.00
Daily Rate of Income Accrual per Unit(6).................... $0.1368
Estimated Current Return(3)(4)(6)........................... 4.87%
Estimated Long-Term Return(3)............................... 4.81%
First distribution to be paid on December 25, 1998 to
Holders of record on December 10, 1998.................... $ 2.05
CALCULATION OF SECOND AND FOLLOWING DISTRIBUTIONS:
Estimated Net Annual Income per Unit divided by 12..... $ 4.10
Record Dates--tenth day of each month
Distribution Dates--twenty-fifth day of each month
Deferred Sales Charge Deduction Dates: June 1, 1999 in an
amount of $5.88, and in the amount of $2.94 on the first
day of each quarter commencing September 1, 1999 and
ending on December 1, 2001.
(footnotes on next page)
A-3
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(footnotes from previous page)
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* As a result of the "when, as and if issued," or "delayed delivery"
Securities in the Trust, during the first year the Trustee's fee per Unit
will be reduced by $.24, the estimated annual income per Unit will be
$50.99, the estimated annual expenses per Unit will be $1.76, and the net
annual income per Unit will remain the same. The Trustee will be reimbursed
by the Sponsor for the reduction in its fee.
+ The Date of Deposit. The Date of Deposit is the date on which the Indenture
was signed and the deposit of Securities with the Trustee was made.
++ After the initial offering period, Units may be available for purchase from
the Sponsor at a price based upon the bid side evaluation of the Bonds plus
a sales charge as set forth in Part B, "Public Offering of Units--Volume
Discount."
The total sales charge consists, during the initial offering period, of an
Upfront Sales Charge and a Deferred Sales Charge, the total of which equals
4.90% of the aggregate of the offer side evaluation of the Securities
subject to a sales charge plus the total sales charge (5.152% of the offer
side evaluation of the Securities other than the DSC Payment Securities).
The Upfront Sales Charge is computed by deducting the Deferred Sales Charge
from the total sales charge; thus, on the date of the Summary Essential
Information, the Upfront Sales Charge is $14.25 per Unit. The Upfront Sales
Charge is calculated based on the total sales charge at the time of purchase
and added to the net asset value of a Unit and, therefore, may vary based on
changes in the valuation of the Securities. The Upfront Sales Charge will be
reduced on a graduated basis on purchases of 250 Units or more. See
Part B--Public Offering of Units--Volume Discount. The Deferred Sales Charge
is paid through reduction of the net asset value of the Trust by $5.88 per
Unit on June 1, 1999 and $2.94 per Unit quarterly on each Deferred Sales
Charge Deduction Date thereafter commencing September 1, 1999. The total
sales charge consists, after the initial offering period, of a sales charge
based on the bid side evaluation of the Securities subject to a sales charge
calculated as set forth in Part B--Public Offering of Units--Secondary
Market Sales Charge. The Upfront Sales Charge for a secondary market
purchase will equal the difference between such total secondary market sales
charge and any unpaid DSC remaining at the time of purchase. If a Unit
Holder exchanges, redeems or sells his Units to the Sponsor prior to the
last Deferred Sales Charge Deduction Date, the Unit Holder is obligated to
pay any remaining Deferred Sales Charge, the amount of which will reduce the
disposition proceeds.
+++ This Public Offering Price is computed as of the Date of Deposit and may
vary from the Public Offering Price on the date of this Prospectus or any
subsequent date.
(1) No accrued interest will be added to the Public Offering Price in connection
with purchase of Units contracted for on November 20, 1998. With respect to
purchases contracted for after such date, accrued interest on the Securities
other than the DSC Payment Securities from November 25, 1998, the first
expected settlement date, to, but not including the date of settlement
(normally three business days after purchase) will be added to the Public
Offering Price.
(2) Upon redemption the price to be paid will include accrued interest on the
Securities other than the DSC Payment Securities.
(3) The Estimated Current Return is calculated by dividing the Estimated Net
Annual Income (which does not include the income on the DSC Payment
Securities) per Unit by the Public Offering Price per Unit. The Estimated
Net Annual Income per Unit will vary with changes in fees and expenses of
the Trust and with the principal prepayment, redemption, maturity, exchange
or sale of Securities while the Public Offering Price will vary with changes
in the offering price of the underlying Securities; therefore, there is no
assurance that the present Estimated Current Return indicated above will be
realized in the future. The Estimated Long-Term Return is calculated on a
pre-tax basis using a formula which (1) takes into consideration, and
factors in the relative weightings of, the market values, yields (which
takes into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all of the Securities in the Trust
(including the DSC Payment Securities) and (2) takes into account the
expenses and sales charge associated with each Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The after-tax
Estimated Long-Term Return will be lower to the extent of any taxation on
the disposition of Securities. The Estimated Current Return and Estimated
Long-Term Return are expected to differ because the calculation of the
Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculations include
only Net Annual Interest Income and Public Offering Price as of the Date of
Deposit. (A projected cash flow statement as of the Date of Deposit is
available upon request from the Trustee.)
(4) Does not include discount accretion on original issue discount or zero
coupon bonds.
(5) The actual date of termination of the Trust may be considerably earlier.
(See Part B, "Amendment and Termination of the Indenture--Termination.")
(6) In calculating these figures the interest income on the DSC Payment
Securities has not been included.
(7) See Fee Table and Part B, Expenses and Charges--Expenses.
A-4
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FEE TABLE
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Part B--"Public Offering of
Units" and "Expenses and Charges." Although the Trust is a unit investment trust
rather than a mutual fund, this information is presented to permit a comparison
of fees and an understanding of the costs and expenses that you pay.
AS A PERCENTAGE
OF OFFER SIDE
EVALUATION
PLUS TOTAL AMOUNT PER
UNIT HOLDER TRANSACTION EXPENSES SALES CHARGE UNIT
- ---------------------------------------- --------------- ----------
Aggregate Sales Charge Imposed on
Securities subject to a sales
charge................................ 4.90% $ 49.52
Upfront Sales Charge.................... $ 14.25(a)
Deferred Sales Charge................... $ 35.27(b)
ESTIMATED ORGANIZATION COSTS AND
EXPENSES(C)........................... 0.200% $ 2.00
ESTIMATED ANNUAL TRUST OPERATING
EXPENSES
Trustee's Fee......................... 0.175% $ 1.75
Other Operating Expenses (including
Portfolio Supervision, Bookkeeping
and
Administrative Fees)............... 0.025% $ 0.25
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Total.............................. 0.200% $ 2.00
EXAMPLE
CUMULATIVE EXPENSES
PAID FOR PERIOD:
--------------------
1 3
YEAR YEARS
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An investor would pay the following expenses on a
$1,000 investment, assuming the Trust's operating
expense ratio and organization expenses of .4% and a
5% annual return on the investment throughout the
periods and redemption at the end of each time
period............................................... $27.03 $57.83
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The Example assumes reinvestment of all distributions into additional units
of the Trust (a reinvestment option different from that offered by the Trust)
and utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The Example should not be
considered a representation of past or future expenses or annual rate of return;
the actual expenses and annual rate of return may be more or less than those
assumed for purposes of the Example.
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(a) The Upfront Sales Charge is the difference between the total sales charge
and the Deferred Sales Charge.
(b) The DSC will be paid at a rate of $5.88 per Unit for the first such payment
on June 1, 1999 and $2.94 per Unit for each quarterly payment thereafter
commencing September 1, 1999 through December 1, 2001, irrespective of
purchase or redemption price. If a Holder sells, exchanges or redeems Units
before all of these payments have been made, the balance of the Deferred
Sales Charge will be deducted from the Unit proceeds.
(c) Investors will bear all or a portion of the cost of the preparation,
printing and execution of the Indenture, Registration Statement and other
documents relating to the Trust, Federal and State registration fees and
costs, the initial fees and expenses of the Trustee and Evaluator, legal and
auditing expenses and other out of pocket expenses. Estimated organization
costs are included in the Public Offering Price and will be reimbursed to
the Sponsor at the close of the initial offering period.
A-5
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UNDERWRITING ACCOUNT
The names and addresses of the Underwriters and the number of Units to be
sold by each are as follows:
UNITS
--------
NATIONAL
UNDERWRITERS TRUST
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Prudential Securities Incorporated ................................... 6,150
One New York Plaza
New York, New York 10292
William R. Hough & Co. .............................................. 1,250
100 Second Avenue South
St. Petersburg, Florida 33701
Roosevelt & Cross, Inc. ............................................. 500
20 Exchange Place
New York, New York 10005
Samuel A. Ramirez & Co., Inc. ....................................... 300
61 Broadway
New York, New York 10006
Gruntal & Co. Incorporated ........................................... 250
1 Liberty Street
New York, New York 10006
Legg Mason Wood Walker, Inc. ........................................ 250
111 South Calvert Street
Baltimore, Maryland 21203
Peacock, Hislop, Staley & Given, Inc. ............................... 250
122 North Kirkwood Road, Suite 212
St. Louis, Missouri 63122
R. Seelaus & Co., Inc. .............................................. 250
The Atrium at 47 Maple Street
Summit, New Jersey 07901
Stifel, Nicolaus & Company ........................................... 250
500 N. Broadway
St. Louis, Missouri 63102
First Miami Securities, Inc. ........................................ 150
301 Yamoto Road, Suite 2100
Boca Raton, Florida 33431
J.B. Hanauer & Co. .................................................. 100
Gatehall Corporate Center
4 Gatehall Drive
Parsippany, New Jersey 07054
CIBC Oppenheimer & Co., Inc. ........................................ 100
CIBC Oppenheimer Tower
One World Financial Center
New York, New York 10281
Southwest Securities, Incorporated .................................. 100
1201 Elm Street
Dallas, Texas 75270
Wheat First Butcher Singer ........................................... 100
901 E Byrd Street
Richmond, Virginia 23219
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Total................................................................. 10,000
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A-6
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INDEPENDENT AUDITORS' REPORT
TO THE UNIT HOLDERS, SPONSOR AND TRUSTEE
OF THE NATIONAL MUNICIPAL TRUST
SERIES 193
We have audited the accompanying statement of financial condition including
schedule of portfolio securities of the National Municipal Trust Series 193 as
of November 19, 1998. This financial statement is the responsibility of the
Trustee and Sponsor (see note (e) to the statement of financial condition). Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures included
confirmation of an irrevocable letter of credit and contracts for the purchase
of securities, as shown in the statement of financial condition and schedule of
portfolio securities as of November 19, 1998, by correspondence with The Chase
Manhattan Bank, 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial condition of the National Municipal
Trust Series 193 as of November 19, 1998, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
November 19, 1998
New York, New York
A-7
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STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
SERIES 193
AS OF DATE OF DEPOSIT, NOVEMBER 19, 1998
TRUST PROPERTY
Sponsor's Contracts to Purchase underlying Securities
backed by an irrevocable letter of credit(a)(f)...... $ 9,961,612.45
Accrued interest to Date of Deposit of underlying
Securities(a)(b)..................................... 110,760.59
----------------
Total........................................ $ 10,072,373.04
----------------
----------------
LIABILITIES AND INTEREST OF UNIT HOLDERS
Liabilities:
Accrued interest to Date of Deposit of underlying
Securities(a)(b)................................. $ 110,760.59
Payment of deferred portion of sales charges(g)... 352,663.13
Reimbursement to Sponsor for organization
costs(f)......................................... 20,000.00
----------------
Total Liabilities............................ 483,423.72
----------------
Interest of Unit Holders:
Units of fractional undivided interest
outstanding:
Cost to investors(c)......................... $ 10,104,100.00
Less: Gross underwriting commissions(d)...... (495,150.68)
Less: Organization Costs(f).................. (20,000.00)
----------------
Subtotal..................................... 9,588,949.32
----------------
Total........................................ $ 10,072,373.04
----------------
----------------
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(a) The aggregate value of the Securities represented by Contracts to Purchase
listed under "Schedule of Portfolio Securities" included herein and their
cost to the Trust are the same. The value is determined by the Evaluator on
the basis set forth under Part B--"Public Offering of Units--Public Offering
Price." An irrevocable letter of credit covering Series 193 drawn on
Standard Chartered Bank in the amount of $12,000,000.00 has been deposited
with the Trustee. The amount of the letter of credit includes $9,909,242.85
(equal to the Purchase Price to Sponsor) for the purchase of $10,350,000.00
face amount of Securities pursuant to contracts to purchase Securities, plus
$110,760.59 covering accrued interest thereon.
(b) The Trustee will advance $120,331.60 which is an amount equal to the accrued
interest on the underlying Securities to the first expected settlement date
(normally three business days after purchase) and such amount will be
distributed to the Sponsor as the holder of record on such date as set forth
under Part B--"Public Offering of Units--Public Offering Price."
(c) The aggregate Public Offering Price (exclusive of accrued interest) is
computed on the basis set forth under Part B--"Public Offering of
Units--Public Offering Price."
(d) The aggregate sales charge of 4.90% of the aggregate offering side
evaluation of the Securities (other than the DSC Payment Securities) plus
the total sales charge per Unit is computed on the basis set forth under
Part B--"Public Offering of Units--Public Offering Price."
(e) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of the Trust
and is responsible for establishing and maintaining a system of internal
control directly related to, and designed to provide reasonable assurance as
to the integrity and reliability of financial reporting of the Trust. The
Trustee is also responsible for all estimates and accruals reflected in the
Trust's financial statements. The Evaluator determines the price for each
underlying Security included in the Trust's Schedule of Portfolio Securities
on the basis set forth in Part B--"Public Offering of Units--Public Offering
Price." Under the Securities Act of 1933, as amended (the "Act"), the
Sponsor is deemed to be an issuer of the Trust's Units. As such, the Sponsor
has the responsibility of an issuer under the Act with respect to financial
statements of the Trust included in the Registration Statement under the Act
and amendments thereto.
(f) A portion of the Public Offering Price consists of Securities in an amount
sufficient to pay for all or a portion of the costs incurred in establishing
the Trust. The Sponsor will be reimbursed for the organization costs at the
close of the initial offering period.
(g) Represents the aggregate amount of mandatory distributions of $5.88 per Unit
on June 1, 1999 and $2.94 per Unit quarterly from September 1, 1999 to
December 1, 2001. Distributions will be made to an account maintained by the
Trustee from which the deferred sales charge obligation of the investors to
the Sponsor will be satisfied. If Units are redeemed prior to December 1,
2001, the remaining portion of the distribution applicable to such Units
will be transferred to such account on the redemption date.
A-8
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
SERIES 193
ON DATE OF DEPOSIT, NOVEMBER 19, 1998
<TABLE>
<CAPTION>
Portfolio Securities Represented Aggregate Interest Dates of Sinking Fund
No. By Purchase Contracts(4)(5) Rating Principal Rates Maturity Redemptions(6)
- --------- --------------------------------------------------- ------ -------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
1. Chicago School Reform Board of Trustees of the AAA $ 500,000.00 0.000% 12/01/28 NONE
Board of Education of the City of Chicago,
Illinois, Unlimited Tax General Obligation Bonds,
(Dedicated Tax Revenues), Series 1998 B-1.
2. City of Chicago, Chicago Midway Airport, Revenue AAA $ 1,000,000.00 5.125% 1/01/35 1/01/32@100
Bonds, Series 1998A.(7)
3. Massachusetts Health and Educational Facilities A $ 500,000.00 5.300% 11/15/28 NONE
Authority, Revenue Bonds, Vinfen Corporation,
Series 1998 A.
4. Montana Board of Housing, Single Family Mortgage AA $ 1,000,000.00 5.950% 12/01/27 NONE
Bonds, 1997 Series A-1.(7)
5. Montana Higher Education Student Assistance A2* $ 1,000,000.00 5.500% 12/01/31 NONE
Corporation, Subordinate Series 1998-B.(7)**
6. New Mexico Mortgage Finance Authority, Single AAA $ 500,000.00 5.750% 7/01/29 1/01/18@100
Family Mortgage Program Bonds, Series 1997 E-2.(7)
7. New York City, Municipal Water Finance Authority, AAA $ 500,000.00 4.750% 6/15/31 6/15/30@100
Water and Sewer System Revenue Bonds, Fiscal 1998
Series A.
8. The City of New York, General Obligation Bonds, A- $ 850,000.00 5.125% 8/01/25 8/01/23@100
Fiscal 1998 Series H, Current Interest Tax-Exempt
Bonds.
<CAPTION>
Yield to
Optional Cost of Maturity
Portfolio Refunding Securities on Date of
No. Redemptions(2) to Trust(3) Deposit(1)
- --------- -------------- -------------- ----------
<S> <C> <C> <C>
1. NONE $ 105,445.00 5.252%
2. 1/01/09@101 $ 979,790.00 5.250%
3. 11/15/08@101 $ 492,610.00 5.400%
4. 6/01/[email protected] $ 1,056,060.00 5.250%+
5. 12/01/08@101 $ 1,008,740.00 5.400%+
6. 7/01/07@102 $ 520,115.00 5.250%+
7. 6/15/08@101 $ 479,985.00 5.000%
8. 8/01/08@101 $ 840,786.00 5.200%
</TABLE>
A-9
<PAGE>
SCHEDULE OF PORTFOLIO SECURITIES
NATIONAL MUNICIPAL TRUST
SERIES 193 (CONTINUED)
<TABLE>
<CAPTION>
ON DATE OF DEPOSIT, NOVEMBER 19, 1998
Portfolio Securities Represented Aggregate Interest Dates of Sinking Fund
No. By Purchase Contracts(4)(5) Rating Principal Rates Maturity Redemptions(6)
- --------- --------------------------------------------------- ------ -------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
9. Borough of Mount Pleasant Business District BBB $ 1,000,000.00 5.750% 12/01/27 12/01/18@100
Authority, Westmoreland County, Pennsylvania,
Hospital Revenue Bonds, Series of 1997, (Frick
Hospital).
10. School District of Cheltenham Township, Montgomery Aaa* $ 110,000.00 3.500% 11/15/01 NONE
County, Pennsylvania, General Obligation Bonds,
Series A of 1998.(8)**
11. Township of Falls, Bucks County, Pennsylvania, Aaa* $ 130,000.00 3.150% 12/15/99 NONE
Water and Sewer Revenue Bonds, Series
of 1998.(8)**
12. Whitehall-Coplay School District, (Lehigh County, Aaa* $ 110,000.00 3.400% 11/15/00 NONE
Pennsylvania) General Obligation Bonds Series A of
1998.(8)**
13. Brazos River Authority, Pollution Control Revenue Baa2* $ 1,000,000.00 5.550% 6/01/30 NONE
Refunding Bonds, (Texas Utilities Electric Company
Projects,) Series 1995C.(7)
14. City of Houston, Texas, Airport System, Subordinate AAA $ 315,000.00 5.000% 7/01/25 7/01/19@100
Lien Revenue Bonds, Series 1998B, FGIC.(7)**
15. Wisconsin Health & Educational Facilities A- $ 835,000.00 5.000% 8/15/23 8/15/19@100
Authority, Revenue Bonds, Series 1998 (The Howard
Young Medical Center, Inc. Project).
16. Wyoming Community Development Authority, Housing AA $ 1,000,000.00 5.350% 12/01/29 NONE
Revenue Bonds, 1997 Series 5A.(7)**
--------------
$10,350,000.00
--------------
<CAPTION>
Yield to
Optional Cost of Maturity
Portfolio Refunding Securities on Date of
No. Redemptions(2) to Trust(3) Deposit(1)
- --------- -------------- -------------- ----------
<S> <C> <C> <C>
9. 12/01/07@102 $ 1,024,600.00 5.450%+
10. NONE $ 110,000.00 3.500%
11. NONE $ 130,000.00 3.149%
12. NONE $ 110,209.00 3.301%
13. 4/01/08@102 $ 1,000,000.00 5.549%+
14. 7/01/08@100 $ 308,177.10 5.150%
15. 8/15/08@101 $ 795,095.35 5.350%
16. 11/01/[email protected] $ 1,000,000.00 5.349%+
--------------
$ 9,961,612.45
--------------
</TABLE>
A-10
<PAGE>
- -------------
Notes to Portfolio
(1) Yield of Securities was computed on the basis of offering prices on the Date
of Deposit. Evaluation of Securities by the Evaluator is made on the basis
of the current offering side evaluation. The offering side evaluation is
greater than the current bid side evaluation of the Securities, which is the
basis on which Redemption Price per Unit is determined. (See
Part B--"Rights of Unit Holders--Redemption--Computation of Redemption Price
per Unit," herein). The aggregate value based on the bid side evaluation at
the Evaluation Time on the Date of Deposit was $9,920,212.45 which is
$41,400 lower than the aggregate Cost of Securities to Trust based on the
offering side evaluation of the Trust. On such date the bid side evaluation
of the Securities was lower than the offering side evaluation by .40% of the
aggregate face amount of the Securities in the Trust. Yield to Maturity on
Date of Deposit of Securities was computed on the basis of the offering side
evaluation at the Evaluation Time on the Date of Deposit. Percentages in
this column represent Yield to Maturity on Date of Deposit unless followed
by "+" which indicates yield to an earlier redemption date.
(2) There is shown under this heading the year in which each issue of Securities
initially is redeemable by the operation of optional call provisions and the
redemption price for that year; unless otherwise indicated, each issue
continues to be redeemable at declining prices thereafter but not below par.
Securities listed as non-callable, as well as Securities listed as callable,
may also be redeemable at par under certain circumstances from special
redemption payments. Such circumstances include redemptions by issuers
utilizing unexpended bond proceeds, proceeds of condemnation or sale of a
project, insurance proceeds from the destruction of a project or as a result
of other factors. Redemption of a bond at par will result in a loss to Unit
Holders to the extent that the value of the bonds at the time of purchase of
Units plus the sales charge allocated to such bond exceeds the amount paid
upon redemption.
(3) Offering prices of Securities are determined by the Evaluator on the basis
stated under Part B--"Public Offering of Units--Public Offering Price"
herein. The profit to Sponsor on Deposit totals $52,369.60.
(4) The Contracts to purchase Securities were entered into from November 17,
1998 through November 19, 1998 with the final settlement date expected to be
December 22, 1998.
(5) Certain of the Securities may have been purchased from the Sponsor's
proprietary accounts or from affiliates.
(6) There is shown under this heading the first year in which an issue of
Securities is subject to scheduled sinking fund redemption and the
redemption price for that year.
(7) In the opinion of bond counsel to the issuing governmental authorities,
interest payments on these bonds will be a tax preference item for
individuals and corporations for alternative minimum tax purposes. Normally,
the bonds pay interest semiannually. The payment dates can generally be
determined based on the date of maturity, i.e., a bond maturing on
December 1 will pay interest semiannually on June 1 and December 1 (see "Tax
Status").
(8) DSC Payment Security and/or organization cost Security--The interest
payments and principal payments on these Securities will be distributed by
the Trust to the Sponsor in payment of the deferred sales charge and the
organization costs.
* Moody's Investors Service rating.
** Represented by contracts to purchase Securities not expected to be settled by
the first expected settlement date for Units (when, as and if issued or
delayed delivery) with settlement on those Securities expected to take place
in 6 to 27 days after the first expected settlement date for the purchase of
Units.
A-11
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS--PART B:
- --------------------------------------------------------------------------------
NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST
THE TRUST
Each Trust described in Part A is one of a series of similar but separate
unit investment trusts. Unless the context otherwise requires, each trust,
including each trust comprising a Multistate Series, (a "State Trust"),
hereinafter will be referred to as the "Trust" or the "Trusts", and as the
context requires, for an insured Trust, the "Insured Trust." Each Trust was
created under the laws of the State of New York pursuant to a Trust Indenture
and Agreement and a related Reference Trust Agreement dated the Date of Deposit
(collectively, the "Indenture"),* among Prudential Securities Incorporated (the
"Sponsor"), The Chase Manhattan Bank (the "Trustee") and Kenny S&P Evaluation
Services, a division of J.J. Kenny Co., Inc. (the "Evaluator"). On the Date of
Deposit, debt obligations and contracts and funds (represented by irrevocable
letter(s) of credit issued by major commercial bank(s)) for the purchase of such
debt obligations (collectively, the "Securities") were deposited into the Trust
and evaluated at prices equal to the evaluation of such Securities on the
offering side of the market (which evaluation takes into account any insurance
obtained by the issuers or previous owners of the Securities) as determined by
the Evaluator as of the Date of Deposit. The Trustee then immediately delivered
to the Sponsor certificates of beneficial interest (the "Certificates")
representing the units (the "Units") comprising the entire ownership of each
Trust which Units the Sponsor, through this Prospectus, is offering for sale to
the public. The holders of Units (the "Unit Holders" or "Unit Holder", as the
context requires) will have the right to have their Units redeemed at a price
based on the aggregate bid side evaluation of the Securities if they cannot be
sold in the secondary market which the Sponsor, although not obligated to do so,
proposes to maintain. The Sponsor, Prudential Securities Incorporated, is a
wholly-owned, indirect subsidiary of The Prudential Insurance Company of
America. Each Trust has a mandatory termination date set forth under
Part A--"Summary of Essential Information", but may be terminated substantially
prior thereto upon the occurrence of certain events, including a reduction in
the value of the Trust below the value set forth under Part A--"Summary of
Essential Information".
Notwithstanding the availability of the above-mentioned irrevocable
letter(s) of credit, it is expected that the Sponsor will pay for the Securities
as the contracts for their purchase become due. A substantial portion of such
contracts have not become due by the date of this Prospectus. To the extent
Units are sold prior to the settlement of such contracts, the Sponsor will
receive the purchase price on such Units prior to the time at which it pays for
Securities pursuant to such contracts and have the use of such funds during this
period.
During the 90-day period following the first deposit of Securities in the
Trust, the Sponsor may deposit in the Trust additional Securities which are
substantially similar to the initially deposited Securities (including, in each
case, Securities described in purchase contracts, together with cash or a letter
of credit to be used to effectuate their purchase) and cash, if required. Any
deposit made after the close of such 90-day period must exactly replicate the
Securities and any cash (other than cash distributable only to the Sponsor or to
Unit Holders who were Unit Holders prior to the date of deposit of the
additional Securities) held in the Trust immediately prior to the deposit.
Deposits made during the 90-day period following the first deposit of Securities
in the Trust shall similarly replicate as to identity of Security and proportion
of principal amount represented the Securities and any cash (other than cash
distributable only to the Sponsor or to Unit Holders who were Unit Holders prior
to the date of deposit) held in the Trust immediately prior to the deposit,
except that the additional Securities deposited need only be substantially
similar to (rather than identical with) those held in the Trust immediately
prior to the deposit and the proportionality requirements need be met only to
the extent practicable. Among other things, a failure to meet the
proportionality requirements due to establishment by the Sponsor of a minimum
amount of a particular Security to be included in a deposit or the fact that a
Security identical to a Security in the Trust immediately prior to the deposit
is not readily obtainable will be considered as justifying a variation in such
requirements.
The objectives of each Trust are the providing of interest income which, in
the opinion of counsel is, with certain exceptions, exempt from all Federal
income taxes under existing law through investment in a fixed portfolio of
Securities (the "Portfolio") consisting primarily of investment grade long-term
(or intermediate term if so designated in Part A or with maturities as
designated in Part A) state, municipal and public authority ("Issuers") debt
obligations, and the conservation of capital and, for a Trust with a deferred
sales charge ("DSC") feature, the payment of the DSC from the interest payments,
if any, on, and the principal paid at the maturity of the Securities held by the
Trust for purposes of paying the DSC. In addition, in the opinion of counsel,
interest income of each State Trust is exempt, to the extent indicated, from
state and any local income taxes in the State for which such State Trust
- ------------------
* Reference is hereby made to said Indenture and any statements contained herein
are qualified in their entirety by the provisions of said Indenture.
B-1
<PAGE>
is named. The Securities in the Portfolio of each Trust were, as of the Date of
Deposit, rated in the category of BBB or better by Standard & Poor's
Corporation, Baa or better by Moody's Investors Service or BBB or better by
Fitch Investors Service, Inc. or if not rated had comparable credit
characteristics in the opinion of The Prudential Investment Corporation, the
Sponsor's affiliate. There is, of course, no guarantee that the Trust's
objectives will be achieved. Subsequent to the Date of Deposit, a Security in
the Trust may cease to be rated or the rating assigned may be reduced below the
minimum requirements of such Trust for the acquisition of Securities. Although
such events may be considered by the Sponsor in determining whether to direct
the Trustee to dispose of the Security (see "Sponsor--Responsibility", herein),
such events do not automatically require the elimination of such Security from
the Portfolio. An investment in the Trust should be made with an understanding
of the risks which an investment in fixed rate debt obligations may entail,
including the risk that the value of the Units will decline with increases in
interest rates.
On the Date of Deposit, a Unit of the Trust represented the fractional
undivided interest in the Securities and net income of such Trust set forth
under Part A--"Summary of Essential Information" in the ratio of 1 Unit for each
approximately $1,000 face amount of Securities initially deposited in such
Trust. If any Units are redeemed by the Trustee, the face amount of Securities
in the Trust will be reduced by an amount allocable to redeemed Units and the
fractional undivided interest in such Trust represented by each unredeemed Unit
will be increased. Units will remain outstanding until redeemed upon tender to
the Trustee by any Unit Holder (which may include the Sponsor) or until the
termination of the Trust pursuant to the Indenture.
Certain of the Securities in the Portfolio of the Trust are valued at
prices in excess of prices at which such Securities may be redeemed in the
future. (See Part A--"Schedule of Portfolio Securities" for information relating
to the particular series described therein on the Date of Deposit.) To the
extent that a Security is redeemed (or sold) at a price which is less than the
valuation of such Security on the date a Unit Holder acquired his Units, the
proceeds distributable to such Unit Holder in respect of such redemption (or
sale) will be less than that portion of the purchase price for such Units which
was attributable to such Security (representing a loss of capital to such Unit
Holder). Such proceeds, however, may be more or less than the valuation of such
Security at the time of such redemption (or sale). Similarly, certain of the
Securities in the Trust may be valued at a price in excess of their face value
at maturity (i.e., such Securities were valued at a premium above par). (See
Part A--"Schedule of Portfolio Securities" for information relating to the
particular series described therein on the Date of Deposit.) The proceeds
distributable to a Unit Holder upon the maturity of a Security which was valued
at a premium on the date he acquired his Units will be less than that portion of
the purchase price for such Units which was attributable to such Security
(representing a loss of capital to such Unit Holder).
The Portfolio of the Trust may consist of Securities the current market
value of some of which were below face value. A primary reason for the market
value of such Securities being less than face value at maturity is that the
interest coupons of such Securities are at lower rates than the current market
interest rate for comparably rated debt securities, even though at the time of
the issuance of such Securities the interest coupons thereon generally
represented then prevailing interest rates on comparably rated debt securities
then newly issued. The current yields (coupon interest income as a percentage of
market price, ignoring any original issue discount) of such Securities are lower
than the current yields (computed on the same basis) of comparably rated debt
securities of similar type newly issued at currently prevailing interest rates.
Securities selling at market discounts tend to increase in market value as they
approach maturity when the principal amount is payable. A market discount
tax-exempt Security held to maturity will have a larger portion of its total
return in the form of taxable income or gain and less in the form of tax-exempt
income than a comparable Security bearing interest at current market rates.
Under the provisions of the Internal Revenue Code in effect on the date of this
Prospectus, any gain attributable to market discount will not be recognized
until maturity, redemption or sale of the Securities or Units. The current yield
of such discounted securities carrying the same coupon interest rate and which
are otherwise comparable tends to be higher for securities with longer periods
to maturity than it is for those with shorter periods to maturity because the
market value of such securities with a longer period to maturity tends to be
less than the market value of such a bond with a shorter period to maturity. If
currently prevailing interest rates for newly issued and otherwise comparable
securities increase, the market discount of previously issued bonds will become
deeper and if such currently prevailing interest rates for newly issued
comparable securities decline, the market discount of previously issued
securities will be reduced, other things being equal. Market discount
attributable to interest rate changes does not indicate a lack of market
confidence in the issue.
PORTFOLIO SUMMARY
The Securities in the Portfolio of the Trust consist of Securities issued
by or on behalf of states, counties, municipalities or other political
subdivisions of the United States or issued by or on behalf of the Commonwealth
of Puerto Rico or possessions of the United States, or municipalities or other
political subdivisions thereof. The interest on such Securities is, with certain
exceptions, or upon their delivery will be, in each instance, in the opinion of
recognized bond counsel to the Issuer of such Securities or by ruling of the
Internal Revenue Service, exempt from all Federal income taxes under existing
law (but may be subject to state and local taxation). In the case of State
Trusts, the Securities are obligations of the specified state or counties,
municipalities, authorities or political subdivisions thereof or of the
Commonwealth of Puerto Rico or possessions of the United States, interest on
which will, in the opinion of recognized bond counsel to the issuing
governmental authorities, be exempt under existing law from Federal and the
specified state and local income taxes to the extent indicated. (See "Tax
Status".) Capital gains, if any, will be subject to Federal income tax and,
generally, to state and/or local income taxes.
B-2
<PAGE>
The Portfolio of the Trust may contain Securities that are general
obligations of governmental entities and/or bonds that are guaranteed by
governmental entities. (See Part A--"Portfolio Summary as of Date of Deposit"
for information relating to the particular series described therein.) Such
general obligations and guarantees are backed by the taxing power of the
respective entities. The ability of the issuer of a general obligation bond to
meet its obligation depends largely upon its economic condition. Many issuers
rely upon ad valorem real property taxes as a source of revenue. Proposals in
the form of state legislative or voter initiatives to limit ad valorem real
property taxes have been introduced in various states. It is not presently
possible to predict the impact of these or future proposals, if adopted, on
states, local governments or school districts or on their abilities to make
future payments of their outstanding debt obligations. The remaining issues are
payable from the income of specific projects or authorities and are not
supported by the issuer's power to levy taxes. This latter group of issues
contains Securities that are also supported by the moral obligations of
governmental entities. In the event of a deficiency in the debt service reserve
funds of moral obligation Securities, the governmental entity having the moral
commitment may (but is not legally obligated to) satisfy such deficiency.
However, in the event of a deficiency in the debt service reserve funds of
Securities not backed by such moral obligations, no such moral commitment of a
governmental entity exists.
The Portfolio of the Trust may contain zero coupon bond(s) (including bonds
known as multiplier bonds, money multiplier bonds, capital appreciation bonds,
capital accumulator bonds, compound interest bonds, and discount maturity
payment bonds) or one or more other Securities which were issued with an
"original issue discount". "Original issue discount" bonds are issued at prices
which represent a discount from face amount, principally because such bonds bear
no interest or interest at rates which are lower than currently-prevailing
market rates. (See Part A--"Portfolio Summary as of Date of Deposit" for
information relating to the particular series described therein.) A discounted
bond held to maturity will have a larger portion of its total return in the form
of capital gain and less in the form of tax-exempt income than a comparable bond
bearing interest at current market rates. Zero coupon bonds do not provide for
the payment of any current interest and provide for payment at maturity at face
value unless sooner sold or redeemed. Zero coupon bonds may be subject to more
price volatility than conventional bonds, i.e., the market value of zero coupon
bonds is subject to greater fluctuation in response to changes in interest rates
than is the market value of bonds which pay interest currently. Zero coupon
bonds generally are subject to redemption at compound accreted value based on
par value at maturity. Because the issuer is not obligated to make current
interest payments, zero coupon bonds may be less likely to be redeemed than
coupon bonds issued at a similar interest rate. While some types of zero coupon
bonds, such as multipliers and capital appreciation bonds, define par as the
initial offering price rather than the maturity value, they share the basic zero
coupon bond features of (1) not paying interest on a semi-annual basis and (2)
providing for the reinvestment of the bond's semi-annual earnings at the bond's
stated yield to maturity. In addition, in the event the portfolio is valued at
less than the optional termination value, the Trust may terminate at a time when
the only Securities in the portfolio are zero coupon bonds. The sale of such
zero coupon bonds at such time may result in a loss to Unit Holders.
The Portfolio of the Trust may contain Securities of housing authorities
payable from revenues derived by state housing finance agencies or municipal
housing authorities from repayments on mortgage and home improvement loans made
by such agencies. (See Part A--"Portfolio Summary as of Date of Deposit" for
information relating to the particular series therein.) Since housing authority
obligations, which are not general obligations of a particular state, are
generally supported to a large extent by Federal housing subsidy programs, the
failure of a housing authority to meet the qualifications required for coverage
under the Federal programs, or any legal or administrative determination that
the coverage of such Federal programs is not available to a housing authority,
could result in a decrease or elimination of subsidies available for payment of
principal and interest on such housing authority's obligations. Weaknesses in
Federal housing subsidy programs and their administration may result in a
decrease in subsidies available for payment of principal and interest on housing
authority bonds. Repayment of housing loans and home improvement loans in a
timely manner is dependent on factors affecting the housing market generally and
upon the underwriting and management ability of the individual agencies (i.e.,
the initial soundness of the loan and the effective use of available remedies
should there be a default in loan payments). Economic developments, including
failure or inability to increase rentals, fluctuations in interest rates and
increasing construction and operating costs may also have an adverse impact on
revenues of housing authorities. In the case of some housing authorities,
inability to obtain additional financing could also reduce revenues available to
pay existing obligations.
The Portfolio of the Trust may contain Securities which are subject to the
requirements of Section 103A of the Internal Revenue Code of 1954, as amended,
(the "1954 Code"), or Section 143 of the Internal Revenue Code of 1986, as
amended (the "1986 Code" or the "Code"). Obligations described in Section 103A
or Section 143 are exempt from Federal income taxation if all of the proceeds of
the issue (exclusive of issuance costs and a reasonably required reserve) are
used to make or acquire loans which meet requirements including certain
requirements which must be satisfied after issuance. If proceeds of the issue
are not used to acquire such loans, the issuer may be required to redeem all or
a portion of such issue from such uncommitted proceeds to maintain the issue's
tax exemption. Bond counsel to each such issuer has issued an opinion that the
interest on such Securities was exempt from Federal income tax at the time the
Securities were issued. The failure of the issuers of such Securities to meet
certain ongoing compliance requirements imposed by Sections 103A and 143 could
render the interest on such Securities subject to Federal income taxation,
possibly from the date of their issuance. If interest on such Securities in a
Trust is ultimately deemed to be
B-3
<PAGE>
subject to Federal income taxation, the loss of tax-exempt status can be
expected to adversely affect the market value of such Securities. In this event
and under the terms of the Indenture the Sponsor may direct the sale of such
Securities. The sale of such Securities in such circumstances is likely to
result in a loss to the Trust.
The Portfolio of the Trust may include certain housing authority
obligations whose tax exemption depends upon qualification under
Section 103(b)(4)(A) of the 1954 Code, or Section 142 of the 1986 Code, and
appropriate Treasury Regulations. Both Sections require that specified minimum
percentages of the units in each rental housing project financed by tax-exempt
debt are to be continuously occupied by low or moderate income tenants for
specified periods. Department of the Treasury Regulations issued under Section
103(b)(4)(A) of the 1954 Code provide that in order to prevent possible
retroactive Federal income taxation of interest on such Securities certain
conditions must be met. The regulations provide that such retroactive taxation
will not occur if the issuer corrects any non-compliance occurring after the
issuance of the Securities within a reasonable period after such non-compliance
is first discovered or should have been discovered by the issuer. Department of
Treasury Regulations issued under Section 142 also provide, for bonds issued on
or after May 16, 1997, that no retroactive taxation will generally occur if
certain conditions are met in specified time frames. This rule does not apply to
qualified residential rental project obligations when the net proceeds from
those obligations have been spent. If the interest on any of the Securities in
the Trust that are housing securities should ultimately be deemed to be taxable,
the Sponsor may instruct the Trustee to sell such Securities and, since they
would be sold as taxable securities, it is expected that such Securities would
have to be sold at a substantial discount from the current market price of a
comparable tax-exempt security.
The Portfolio of the Trust may contain Securities which contain provisions
which require the issuer to redeem such obligations at par from unused proceeds
of the issue within a stated period which typically does not exceed three years
from the date of issuance of such Securities. (See Part A--"Portfolio Summary as
of Date of Deposit" for information relating to the particular series described
therein.) In periods in which interest rates decline there may be increased
redemptions of housing securities pursuant to such redemption provisions. Such
an increase in redemptions may occur because conventional mortgage loans may
have become available at interest rates equal to or less than the interest rates
charged on the mortgage loans previously made available from the proceeds of
such housing securities. Therefore, some issuers of such housing securities may
have experienced insufficient demand to complete mortgage loan originations for
all of the money made available from such securities. In addition, mortgage
loans made with the proceeds of housing securities, in general, do not carry
prepayment penalties and therefore certain mortgage loans may be prepaid earlier
than their maturity dates. If the issuers of such housing securities are unable
to or choose not to reloan these monies, they will generally redeem housing
securities in an amount approximately equal to such prepayments. The Sponsor is
unable to predict at this time whether such redemptions will be made at a high
rate. The disposition of such Securities may result in a loss to the Trust.
The Portfolio of the Trust may contain Securities in the hospital
facilities category that are payable from revenues derived from hospitals and
health care facilities which, generally, were constructed or are being
constructed from the proceeds of such Securities. (See Part A--"Portfolio
Summary as of Date of Deposit" for information relating to the particular series
described therein.) The continuing availability of sufficient revenues is
dependent upon several factors affecting all such facilities generally,
including, among other factors, the ability of the facilities to provide the
services required by patients, the capabilities of hospital management,
competition, patient utilization, environmental concerns, uncompensated care,
changes in Medicare and Medicaid reimbursement regulations, the success of
efforts by the states and the Federal government to limit the cost of health
care, changes in contracts between health care institutions and public or
private insurers, the timely completion of the construction of projects and
achieving and maintaining projected rates of utilization. Additionally, a major
portion of hospital revenues typically is derived from Federal or state programs
such as Medicare and Medicaid and from Blue Cross and other insurers. The future
solvency of the Medicare trust fund is periodically subject to question. Changes
in the compensation and reimbursement formulas of these governmental programs or
in the rates of insurers may reduce revenues available for the payment of
principal of, or interest on, hospital revenue bonds. Governmental legislation
or regulations and other factors, such as the inability to obtain sufficient
malpractice insurance, may also adversely impact upon the revenues or costs of
hospitals and may also adversely affect the ratings of hospital revenue bonds
held in the Trust. Future actions by the Federal government with respect to
Medicare and by the Federal and State governments with respect to Medicaid,
reducing the total amount of funds available for either or both of these
programs or changing the reimbursement regulations, or their interpretations,
could adversely affect the amount of reimbursement available to hospital
facilities. A number of additional legislative proposals concerning health care
are typically under review by the United States Congress at any given time.
These proposals span a wide range of topics, including cost control, national
health insurance, incentives for competition in the provision of health care
services, tax incentives and penalties related to health care insurance premiums
and promotion of prepaid health care plans. The Sponsor is unable to predict the
effect of these proposals, if enacted, on any of the Securities in the Portfolio
of the Trust.
The Portfolio of the Trust may contain Securities in the power and electric
facilities category payable from revenues derived from power facilities, which
generally include revenues from the sale of electricity generated and
distributed by power agencies using hydro-electric, nuclear, fossil or other
power sources. (See Part A--"Portfolio Summary as of Date of Deposit" for
information relating to the particular series described therein.) The ability of
the issuers of such Securities to make payments of
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principal of, or interest on, such obligations is dependent, among other things,
upon the continuing ability of such issuers to derive sufficient revenues from
their operations to meet debt service requirements. General problems of the
power and electric utility industry include difficulty in financing large
construction programs during an inflationary period, restrictions on operations
and increased cost and delays attributable to environmental considerations,
uncertain technical and cost factors relating to the construction and operation
of nuclear power generating facilities, the difficulty of the capital markets in
absorbing utility debt and equity securities, the availability of fuel for
electric generation at reasonable prices, the steady rise in fuel costs and the
costs associated with conversion to alternate fuel sources such as coal. Some of
the issuers of Securities in the Portfolio may own or operate nuclear facilities
for electric generation. Additional considerations in the case of such issuers
include the problems associated with the use and disposal of radioactive
materials and wastes, and other problems associated with construction,
licensing, regulation and operation of such facilities. In addition, Federal,
state or municipal governmental authorities may from time to time impose
additional regulations or take other governmental action which might cause
delays in the licensing, construction or operation of nuclear power plants, or
the suspension of operation of such plants which have been or are being financed
by proceeds of certain of the Securities held in the Portfolio of the Trust.
Such delays, suspensions or other action may affect the payment of interest on,
or the repayment of the principal amount of, such Securities. The Clean Air Act
Amendments of 1990 provide for attainment and maintenance of health protective
national ambient air quality standards. The goal of the law is to cut acid rain
pollutants by half, sharply reduce urban smog and eliminate most of the toxic
chemical emissions from industrial plants by the turn of the century. As
enacted, the law affects nearly all electric power facilities that burn oil or
coal. Greenhouse effect bills and hazardous waste bills may further increase the
cost of utility service. The Sponsor is unable to predict the ultimate form that
any such regulations or other governmental action may take or when such
legislation may be enacted or the resulting impact on the Securities in the
Portfolio of the Trust.
The Portfolio of the Trust may contain Securities which are in the
industrial revenue facilities category. (See Part A--"Portfolio Summary as of
Date of Deposit" for information relating to the particular series described
therein.) Industrial Revenue Bonds ("IRBs") are tax-exempt securities issued by
states, municipalities or public authorities to finance the cost of acquiring,
constructing or improving various projects, including pollution control,
environmental improvement, industrial or special airport facilities. IRBs are
payable from the income of specific facilities or from payments made by private
corporations to the state authorities issuing such bonds. (See "Tax Status.")
The Portfolio of the Trust may contain Securities which are in the water
and sewer facilities category. (See Part A--"Portfolio Summary as of Date of
Deposit" for information relating to the particular series described therein.)
Bonds in the water and sewer facilities category include securities issued to
finance public water and sewer projects for water management and supply and
sewer control and securities issued by public issuers on behalf of private
corporations for such projects. These bonds are payable from the income of
specific facilities or from payments made by such private corporations to the
state authorities issuing such bonds. The income of such facilities is generated
from the payment of user fees. The ability of state and local water and sewer
authorities to meet their obligations may be affected by failure of
municipalities to utilize fully the facilities constructed by these authorities,
economic or population decline and resulting decline in revenue from user
charges, rising construction and maintenance costs and delays in construction of
facilities, impact of environmental requirements, the difficulty of obtaining or
discovering new supplies of fresh water, the effect of conservation programs and
the impact of "no growth" zoning ordinances.
The Portfolio of the Trust may contain Securities which are in the revenue
obligations of universities and schools category. (See Part A--"Portfolio
Summary as of Date of Deposit" for information relating to the particular series
described therein.) The ability of universities and schools to meet their
obligations is dependent upon various factors, including the revenues, costs,
and enrollment levels of the institutions. In addition, their ability may be
affected by declines in enrollment and tuition revenue, the availability of
Federal, state and alumni financial support, the method and validity, under
state constitutions, of present systems of financing public education,
fluctuations in interest rates and construction costs, increased maintenance and
energy costs, failure or inability to raise tuition or room charges and adverse
results of endowment fund investments. Studies undertaken by public and private
groups differ with respect to statistics and projections for postsecondary
enrollment at educational institutions in the 1990s.
The Portfolio of the Trust may contain Securities in the pollution control
facilities category. (See Part A--"Portfolio Summary as of Date of Deposit" for
information relating to the particular series described therein.) Bonds in the
pollution control facilities category include securities issued to finance
public water, sewage or solid waste treatment facilities and securities issued
by a public issuer on behalf of a private corporation to provide facilities for
the treatment of air, water and solid waste pollution. These Securities are
payable from the income of specific facilities, state authorities or from
payments made by such private corporations.
The Portfolio of the Trust may contain Securities which are in the
redevelopment facilities category. (See Part A--"Portfolio Summary as of Date of
Deposit" for information relating to the particular series described therein.)
The purpose of redevelopment is to revitalize deteriorated and/or underdeveloped
areas within a community. As new construction progresses, property values
normally increase significantly and the ultimate result is a proportionate
increase in ad valorem property tax revenues. However, if, due to various
economic factors, the assessed valuation is reduced, such reduction may result
in insufficient tax revenues, which
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could in turn impair the ability of the issuer to make payments of principal
and/or interest on the bonds when due. A reduction in property tax rates or
delinquencies in the payment of property taxes could have a similar adverse
effect.
The Portfolio of the Trust may contain Securities in the resource recovery
category. (See Part A--"Portfolio Summary as of Date of Deposit" for information
relating to the particular series described therein.) The issuers of such
Securities are municipalities or agencies or authorities thereof that have
allocated the proceeds of the issue towards the construction and operation of a
resource recovery facility operated by a corporate operator. Payments on the
bonds are dependent upon the creditworthiness of the corporate operator of the
particular project. The operation of such facilities typically depends upon the
delivery thereto of specified quantities of solid waste from which
refuse-derived fuel can be extracted and in turn converted into electricity or
steam by the facility. The operation of the facility may be limited or totally
curtailed from operating because of failure to comply with governmental
regulations concerning the environment, failure to obtain necessary
environmental permits, zoning permits and other municipal ordinances or
inability to maintain or renew such permits because of an inability to comply
with changes in government environmental regulations. If the resource recovery
facility is unable to operate or cannot operate at full capacity, the corporate
operator of such facility will be unable to generate revenues necessary to cover
payments on the resource recovery bonds. Furthermore, the corporate operator's
revenue is typically derived from the sale of the power generated by the
facility to a power agency or company under a power purchase agreement. The
continued flow and level of payments made by the corporate operator might
therefore depend upon the financial condition of the purchaser under such a
power agreement and the operator's continued ability to generate the minimum
amount of power required to be delivered thereunder. Such a purchaser may be
subject to the various general problems and risks associated with the power
industry and the regulatory environment in which it operates. A decline in price
of the extracted materials or the electricity or steam created by the facility
may also result in insufficient revenues generated by the corporate operator as
will an increase in its operating costs. Finally there may be technological
risks that become apparent in the long run that are not presently apparent
because of the relatively short history of these facilities which risks may
involve the successful construction or operation of such facilities.
The Portfolio of the Trust may contain Securities of issuers in the
transportation facilities category. Bonds in the transportation facilities
category may be used to finance capital projects in connection with bridges,
highways, airports, tunnels, bus terminals, ports or other property owned by
transportation authorities. These bonds are generally payable from the income of
the specific facilities, existing facilities or future sales of bonds. The risks
of an investment in such bonds include a deterioration of national and regional
economic conditions, including fuel availability and costs, labor and equipment
costs and the nature of governmental regulations with respect to transportation,
commerce, energy, safety and environmental protection. Revenue of toll
facilities may be affected by lower costs of alternative modes of transportation
or construction and operation in its vicinity of another transportation facility
which could alter established transportation patterns. Other risks include
reductions in various Federal programs and a shift in local demographic trends.
The Portfolio of the Trust may contain Securities which are in the special
tax bond category. (See Part A--"Portfolio Summary as of Date of Deposit" for
information relating to the particular series described therein.) Special tax
bonds are payable from and secured by the revenues derived by a municipality
from a particular tax. Special tax bonds are not secured by the general tax
revenues of the municipality and they do not represent general obligations of
the municipality. Therefore, the ability of the issuers of special tax bonds to
pay interest and/or principal on special tax bonds may be adversely affected by
the inability to collect all or part of the special tax due to various factors
including: a general decline in the local economy or population, inability or
failure to pay the special tax, failure to develop property backing certain
special tax bonds for reasons including prohibitions or restraints on
development such as failure to receive regulatory agency approval for
development and fluctuations in the real estate market, a decline in the value
of projects backing certain tax bonds, natural disasters or environmental
hazards.
The Portfolio of the Trust may contain Securities which are in the tax
allocation bond category. (See Part A--"Portfolio Summary as of Date of Deposit"
for information relating to the particular series described therein.) These
Securities are typically secured by incremental tax revenues collected on
property within the areas where redevelopment projects, financed by bond
proceeds are located ("project areas"). Such payments are expected to be made
from projected increases in tax revenues derived from higher assessed values of
property resulting from development in the particular project area and not from
an increase in tax rates. Special risk considerations include: reduction of, or
a less than anticipated increase in, taxable values of property in the project
area, caused either by economic factors beyond the Issuer's control (such as a
relocation out of the project area by one or more major property owners) or by
destruction of property due to natural or other disasters; successful appeals by
property owners of assessed valuations; substantial delinquencies in the payment
of property taxes; or imposition of any constitutional or legislative property
tax rate decrease.
The Portfolio of the Trust may contain Securities secured in whole or in
part by governmental payments, pursuant to a lease agreement, service contract,
installment sale or other agreement. (See Part A--"Portfolio Summary as of Date
of Deposit" for information relating to the particular series described
therein.) A governmental entity that enters into such an agreement cannot
obligate future governments to make payments thereunder, but generally has
covenanted to take such action as is necessary to include all such payments due
under such agreement in its annual budgets and to make the appropriations
therefor. However, a
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budgetary imbalance in future fiscal years could affect the ability and
willingness of the governing legislative body to appropriate, and the
availability of monies to make, the payments provided for under such agreement.
The failure of a governmental entity to meet its obligations under such an
agreement could result in an insufficient amount of funds to cover the debt
service on the Securities.
The Portfolio of the Trust may contain Securities in the certificates of
participation category. (See Part A--"Portfolio Summary as of Date of Deposit"
for information relating to the particular series described therein.) Each
certificate represents an undivided and proportionate interest in lease or
installment purchase payments to be made by governmental entities (which are the
participants) to a third party for the use and possession or acquisition of a
particular project or equipment. Each payment is divided into an interest
portion and a principal portion, the interest portion of which constitutes
tax-exempt interest in the opinion of special counsel retained in connection
with the issue. The third party assigns its rights to the payments to a trustee
for the benefit of the certificate holders. The amounts paid to the trustee by
the participants are used to make the payments of principal and interest due
with respect to the certificates. The obligation of a participant to make the
payments does not constitute an obligation for which the participant is
obligated to levy or pledge any form of taxation.
The Portfolio of the Trust may contain obligations of issuers located in
the Commonwealth of Puerto Rico. (See Part A--"Portfolio Summary as of Date of
Deposit.") The ability of the issuers of such bonds to meet their obligations
may be affected by the economic and social problems facing Puerto Rico.
Unemployment in Puerto Rico remains high by United States standards. The
island's per capita personal income has been lower than in any state of the
United States. Transfer payments from the United States Government under various
social welfare programs (such as food stamps, social security and veterans'
benefits) contribute significantly to personal income.
The economy of Puerto Rico is closely integrated with that of the mainland
United States and is largely dependent for its development on U.S. policies and
programs that could be eliminated by the U.S. Congress. Aid for Puerto Rico's
economy has traditionally depended heavily on Federal programs which may not
always be available. An adverse effect on the Puerto Rican economy could result
from other U.S. policies, including a reduction of tax benefits for distilled
products, further reduction in transfer payment programs such as food stamps,
curtailment of military spending and policies which could lead to a stronger
dollar. Growth in the Puerto Rican economy will depend on several factors
including the state of the U.S. economy.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors, medical
products, textiles and petrochemicals), agriculture (largely sugar), tourism and
the service sector (including finance, insurance, and real estate). Since Puerto
Rico is an island and is heavily dependent upon imports and exports, maritime
and air transportation are of basic importance to its economy. The manufacturing
and service sectors generate the largest portion of gross product. Most of the
island's manufacturing output is shipped to the mainland United States, which is
also the chief source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance, insurance
and real estate components of this sector have recently experienced the most
growth. The level of tourism is affected by various factors, including the
strength of the U.S. dollar. During periods when the dollar is strong, tourism
in foreign countries becomes relatively more attractive.
The government sector of the Commonwealth plays an important role in the
economy of the island. Since World War II, the economic importance of
agriculture for Puerto Rico, particularly in the dominance of sugar production,
has declined. Nevertheless, the Commonwealth-controlled sugar monopoly remains
an important economic factor and is largely dependent upon Federal maintenance
of sugar prices, the discontinuation of which could severely affect Puerto Rican
sugar production.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, prior to 1996, Section 936
of the Internal Revenue Code generally provided deferral of Federal income taxes
for U.S. companies operating on the island until profits are repatriated.
Section 936 was repealed by the Small Business Job Protection Act of 1996. It is
expected that the repeal of Section 936 will have a strongly negative impact on
Puerto Rico's economy.
There have for many years been two major viewpoints in Puerto Rico with
respect to the island's relationship to the United States, one essentially
favoring the existing commonwealth status (but with modifications providing for
greater local autonomy), and the other favoring statehood. A third viewpoint
favors independence from the United States. The Sponsor cannot predict what
effect, if any, a change in the relationship between Puerto Rico and the United
States would have on the issuers' ability to meet their obligations.
Certain Securities in each Trust may be purchased by the Sponsor on a
"when, as and if issued" or delayed delivery basis; that is, they may not yet be
issued by their governmental entities on the Date of Deposit (although such
governmental entities are committed to issue such Securities). Contracts
relating to such "when, as and if issued" Securities may not settle by the first
settlement date for Units.
Moreover, the delivery of such Securities may be delayed or may not occur. Unit
Holders who purchase Units prior to settlement of
such Securities will be "at risk" with respect to these Securities (i.e., they
may derive either gain or loss from changes in the prices
of the Securities) from the date they commit to purchase such Units. Interest on
the Securities begins accruing to the benefit of Unit
Holders as municipal interest on the respective delivery dates of such
Securities. In order to provide level interest payments to Unit
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Holders where the Trust purchases Securities which will settle after the
settlement date for Units, the Trustee will reduce its fee over a period of time
in an amount equal to the amount of interest that would have so accrued on such
Securities between the initial settlement date for the Units and the delivery
date of any such Securities as if such Securities had been delivered prior to
purchase of the Units. The reduction of the Trustee's fee eliminates the
necessity of reducing regular monthly interest distributions until such
Securities are delivered. The Trustee will be reimbursed for the reduction in
its fee by the Sponsor. To the extent that the delivery of such Securities is
delayed beyond their respective expected delivery dates, the Estimated Current
Returns and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Each Trust consists of the Securities (or contracts to purchase such
Securities together with an irrevocable letter or letters of credit for the
purchase of such contracts) listed under Part A--"Schedule of Portfolio
Securities" herein, as long as such Securities may continue to be held from time
to time in the Trust (including certain securities deposited in the Trust in
exchange or substitution for any Securities pursuant to the Indenture) together
with accrued and undistributed interest thereon and undistributed and uninvested
cash realized from the disposition of Securities. BECAUSE CERTAIN OF THE
SECURITIES FROM TIME TO TIME MAY BE REDEEMED OR WILL MATURE IN ACCORDANCE WITH
THEIR TERMS OR MAY BE SOLD UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN, NO
ASSURANCE CAN BE GIVEN THAT THE TRUST WILL RETAIN FOR ANY LENGTH OF TIME ITS
PRESENT SIZE AND COMPOSITION. THE TRUSTEE HAS NOT PARTICIPATED IN THE SELECTION
OF SECURITIES FOR THE TRUST, AND NEITHER THE SPONSOR NOR THE TRUSTEE WILL BE
LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR DEFECT IN ANY SECURITIES.
In the event that any contract for the purchase of any Security fails, the
Sponsor is authorized under the Indenture, subject to the conditions set forth
below, to instruct the Trustee to acquire other securities (the "Replacement
Securities") for inclusion in the portfolio of a Trust. Any Replacement
Securities must be deposited not later than 90 days after the Trust was
established. The cost and aggregate principal amount of the Replacement
Securities may not exceed the cost and aggregate principal amount of the
Securities which they replace. In addition, the Replacement Securities must
(1) be tax-exempt bonds; (2) have a fixed maturity date in the same category as
the Security replaced; (3) be purchased at a price that results in a yield to
maturity and in a current return, in each case as of the execution and delivery
of the Indenture, which is approximately equivalent to the yield to maturity and
current return of the Securities which they replace; (4) be purchased within
twenty days after delivery of notice of the failed contracts; (5) for an Insured
Trust, be insured either by insurance obtained by the issuer or under a
Portfolio Insurance policy obtained by a Trust and be eligible for Permanent
Insurance and not cause the Units of an Insured Trust to cease to be rated AAA
by Standard & Poor's and (6) for a trust which is not an insured trust, be rated
by at least one national rating organization in the same category as the
Security which it replaces or have, in the opinion of the Sponsor's affiliate,
comparable credit characteristics. Whenever a Replacement Security has been
acquired for the Trust, the Trustee will, within five days thereafter, notify
all Unit Holders of the acquisition of the Replacement Security.
In the event a contract to purchase Securities fails and Replacement
Securities are not acquired, the Trustee will, not later than the second Monthly
Distribution Date, distribute to Unit Holders the funds attributable to the
failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Securities, the remaining
moneys will be distributed to Unit Holders not later than the second Monthly
Distribution Date. Moreover, the failed contract will reduce the Estimated Net
Annual Income per Unit, and may lower the Estimated Current Return and Estimated
Long-Term Return.
To the best knowledge of the Sponsor, there was no material litigation
pending as of the Date of Deposit in respect of any Securities which might
reasonably be expected to have a material adverse effect upon the Trust. At any
time after the Date of Deposit, litigation may be initiated on a variety of
grounds with respect to Securities in the Trust. Such litigation may affect the
validity of such Securities or the tax-free nature of the interest thereon.
Although the outcome of litigation of such nature cannot be predicted, opinions
of bond counsel are delivered with respect to each Security on the date of
issuance to the effect that such Security has been validly issued and that the
interest thereon is exempt from Federal income tax under then existing law. If
legal proceedings are instituted after the Date of Deposit seeking, among other
things, to restrain or enjoin the payment of principal or interest on any of the
Securities or attacking their validity or the authorization or existence of the
issuer, the Sponsor may, in accordance with the Indenture, direct the Trustee to
sell such Securities and distribute the proceeds of such sale to Unit Holders.
In addition, other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with respect to
Securities (e.g., state legislative proposals or voter initiatives to limit ad
valorem real property taxes).
Under the Federal Bankruptcy Code, political subdivisions, public agencies
or other instrumentalities of any state (including municipalities) which are
insolvent or unable to meet their debts as they mature and which meet certain
other conditions may file a petition in Federal bankruptcy court. Generally, the
filing of such a petition operates as a stay of any proceeding to enforce a
claim against the debtor. The Federal Bankruptcy Code also requires the debtor
to file a plan for the adjustment of its debts which may modify or alter the
rights of creditors. Under such a plan the Federal bankruptcy court may permit
the debtor to issue certificates of indebtedness which have priority over
existing creditors and which could be secured. Any plan of adjustment confirmed
by the court must be approved by the requisite majorities of creditors of
different classes. If confirmed by the bankruptcy court, the plan
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would be binding upon all creditors affected by it. The Sponsor is unable to
predict the effect these bankruptcy provisions may have on the Trust.
Most of the Securities are subject to redemption prior to their stated
maturity dates pursuant to optional refunding redemption and/or sinking fund
provisions. In general, optional refunding redemption provisions are more likely
to be exercised when the evaluation of a Security is at a premium over par than
when it is at a discount from par. Generally, the evaluation of Securities will
be at a premium over par when market interest rates fall below the coupon rate
on such Securities. In addition, certain Securities may be redeemed in whole or
in part other than by operation of the stated redemption or sinking fund
provisions under certain unusual or extraordinary circumstances specified in the
instruments setting forth the terms and provisions of such Securities. The
redemption of a Security at par may result in a loss to the Trust. See
Part A--"Schedule of Portfolio Securities" for those Securities in the Portfolio
of a Trust which as of the date of such schedule had an offering side evaluation
in excess of par. Certain Securities in the Portfolio may be subject to sinking
fund provisions during the life of a Trust. Such provisions are designed to
redeem a significant portion of an issue of Securities gradually over the life
of such issue. Particular bonds of an issue of Securities to be redeemed are
generally chosen by lot. The "Schedule of Portfolio Securities" herein contains
a listing of the optional refunding and sinking fund redemption provisions, if
any, with respect to each of the Securities.
BECAUSE THE REDEMPTION PRICE AND THE SPONSOR'S REPURCHASE PRICE ARE BASED
ON BID PRICES FOR THE SECURITIES, THEY MAY BE LESS THAN THE PRICE PAID BY A UNIT
HOLDER PURCHASING IN THE PRIMARY MARKET (OFFERING PRICES ARE NORMALLY HIGHER
THAN BID PRICES). DUE TO FLUCTUATIONS IN THE MARKET PRICE OF THE SECURITIES IN
THE PORTFOLIO AND THE FACT THAT THE PUBLIC OFFERING PRICE INCLUDES A SALES
CHARGE, AMONG OTHER FACTORS, THE AMOUNT REALIZED BY A UNIT HOLDER UPON THE
REDEMPTION OR SALE OF UNITS MAY BE LESS THAN THE PRICE PAID FOR SUCH UNITS BY
THE HOLDER. (SEE "RIGHTS OF UNIT HOLDERS--REDEMPTION--COMPUTATION OF REDEMPTION
PRICE PER UNIT", HEREIN.)
Unit Holders of a Trust not designated as Insured should omit the following
and continue with "Objectives and Securities Selection". All of the Securities
in any Series not identified as insured are not insured and the following
section "Insurance on the Securities in the Portfolio of an Insured Trust" is
inapplicable to such Series.
INSURANCE ON THE SECURITIES IN THE PORTFOLIO OF AN INSURED TRUST
Certain of the Securities in an Insured Trust are insured to maturity by
AMBAC, CapMAC, ConnieLee, FSA, MBIA, MBIAC, BIGI+ and/or Financial Guaranty (the
"Insurance Companies") at the cost of the issuer of such Security and the
remainder of the Securities are insured by Financial Guaranty under a Portfolio
Insurance policy obtained by such Insured Trust (see Part A--"Portfolio Summary
as of Date of Deposit" for the percentage of the Securities in a Trust insured
by insurance obtained by the issuer and the percentage for which a Trust
purchased Portfolio Insurance). The respective insurance policies are
noncancellable and, except in the case of any Portfolio Insurance, will continue
in force so long as Securities are outstanding and the insurers remain in
business. The insurance policies guarantee the scheduled payment of principal
and interest on but do not guarantee the market value of the Securities covered
by each policy or the value of the Units. The value of any insurance obtained by
the issuer of a Security is reflected and included in the market value of such
Security. In the event the issuer of an insured Security defaults in payment of
interest or principal the insurance company insuring the Security will be
required to pay to the Trustee any interest or principal payments due. Payment
under the insurance policies is to be made in respect of principal of and
interest on Securities covered thereby which becomes due for payment but is
unpaid. Each such policy provides for payment of the defaulted principal or
interest due to a trustee or paying agent. In turn, such trustee or paying agent
will make payment to the bondholder (in this case, the Trustee) upon
presentation of satisfactory evidence of such bondholder's right to receive such
payment. The single premium for any insurance policy or policies obtained by an
issuer of Securities has been paid in advance by such issuer and any such policy
or policies are noncancellable and will continue in force so long as the
Securities so insured are outstanding. Insurance is not a substitute for the
basic credit of an issuer, but supplements the existing credit and provides
additional security. Contracts to purchase Securities are not covered by
insurance although Securities underlying such contracts are covered by insurance
upon physical delivery to the Trust.
- ------------------
+ Securities originally insured by BIGI have been reinsured by MBIAC pursuant to
reinsurance agreements.
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A description of each of the insurers follows:
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a Wisconsin-domiciled
stock insurance company, regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin. Such regulation, however, is no guarantee
that AMBAC Indemnity will be able to perform on its contracts of insurance in
the event a claim should be made thereunder at some time in the future. AMBAC
Indemnity is licensed to do business in 50 states, the District of Columbia and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$2,060,000,000 (unaudited) and statutory capital of approximately $1,178,000,000
(unaudited) as of June 30, 1994. Statutory capital consists of statutory
contingency reserve and AMBAC Indemnity's policyholders' surplus. AMBAC
Indemnity is a wholly owned subsidiary of AMBAC, Inc., a 100% publicly-held
company. Moody's Investors Service, Inc. and Standard & Poor's Corporation have
both assigned a triple-A claims-paying ability rating to AMBAC Indemnity. The
address of the administrative offices of AMBAC Indemnity is One State Street
Plaza, New York, New York 10004.
Capital Markets Assurance Corporation
Capital Markets Assurance Corporation ("CapMAC") is a New York-domiciled
monoline stock insurance company which engages only in the business of financial
guarantee and surety insurance. CapMAC is licensed in 50 states in addition to
the District of Columbia, the Commonwealth of Puerto Rico and the territory of
Guam. CapMAC insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international markets. CapMAC also
provides financial guarantee reinsurance for structured asset-backed, corporate,
municipal and other financial obligations written by other major insurance
companies. Neither CapMAC Holdings Inc. nor any of its stockholders is obligated
to pay any claims under any surety bond issued by CapMAC or any debts of CapMAC
or to make additional capital contributions. CapMAC is wholly owned by CapMAC
Holdings Inc., a company that is owned by a group of institutional and other
investors, including CapMAC's management and employees. As of December 31, 1993
and 1992, CapMAC had statutory capital and surplus of approximately
$146.4 million and $148.0 million, respectively. CapMAC's claims-paying ability
is rated triple-A by Moody's Investors Service, Inc., Standard & Poor's
Corporation and Duff & Phelps, Inc. The address of CapMAC is 885 Third Avenue,
New York, New York 10022.
Connie Lee Insurance Co.
Connie Lee Insurance Co. ("ConnieLee"), a Wisconsin stock insurance
company, is a wholly owned subsidiary of the College Construction Loan Insurance
Association, an insurance holding company authorized and established by Congress
as a private corporation under the laws of the District of Columbia. The
legislation establishing the company stipulated that it provide a mix of direct
insurance and reinsurance business to issuers incurring debt obligations for an
"educational facilities purpose." The enabling legislation calls for ConnieLee
to provide credit enhancement services to colleges, universities, teaching
hospitals, and other educational institutions. As of June 30, 1994
policyholders' surplus (unaudited) was $105,010,000, stockholders' equity
(unaudited) was $142,913,000 and total assets (unaudited) were $227,149,000.
Standard & Poor's Corporation has rated the claims-paying ability of ConnieLee
"AAA". The address of ConnieLee is 2445 M Street, N.W., Washington, D.C. 20037.
Financial Security Assurance
Financial Security Assurance ("FSA") is a monoline insurance company
incorporated on March 16, 1984 under the laws of the State of New York.
Financial Security is a wholly owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Holdings
is owned approximately 60.5% by U S WEST Capital Corporation ("U S WEST"), 7.6%
by Fund American Enterprises Holdings, Inc. ("Fund American"), and 7.4% by The
Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). U S WEST is a
subsidiary of U S WEST, Inc., which operates businesses involved in
communications, data solutions, marketing services and capital assets, including
the provision of telephone services in 14 states in the western and mid-western
United States. Fund American is a financial services holding company whose
principal operating subsidiary is one of the nation's largest mortgage
servicers. Tokio Marine is a major Japanese property and casualty insurance
company. U S WEST has announced its intention to dispose of its remaining
interest in Holdings as part of its strategic plan to withdraw from businesses
not directly involved in telecommunications. Fund American has certain rights to
acquire additional shares of Holdings from U S WEST and Holdings. No shareholder
of Holdings is obligated to pay any debt of FSA or any claim under any insurance
policy issued by FSA or to make any additional contribution to the capital of
FSA. FSA and its two wholly owned subsidiaries are licensed to engage in
financial guaranty insurance business in all 50 states, the District of
Columbia, Puerto Rico and the United Kingdom.
FSA and its subsidiaries are engaged exclusively in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. FSA and its subsidiaries principally insure
asset-backed, collateralized and
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municipal securities. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in the secondary
market that satisfy Financial Security's underwriting criteria.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by FSA or either of its subsidiaries are reinsured among such
companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis. Such
reinsurance is utilized by FSA as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
FSA's obligations under any financial guaranty insurance policy.
As of June 30, 1994, the unearned premium reserve of FSA was $206,026,000
(unaudited) and its total shareholder's equity was $530,024,000 (unaudited).
FSA's claims-paying ability is rated "Aaa" by Moody's Investors Service, Inc.
and "AAA" by Standard & Poor's Corporation. The principal executive offices of
Financial Security are located at 350 Park Avenue, New York New York 10022.
MBIA
The insurance companies comprising MBIA and their respective percentage
liabilities are as follows: The Aetna Casualty and Surety Company, thirty-three
percent (33%); Fireman's Fund Insurance Company, thirty percent (30%); The
Travelers Indemnity Company, fifteen percent (15%); Cigna Property and Casualty
Company, twelve percent (12%); and The Continental Insurance Company, ten
percent (10%). As a several obligor, each such insurance company will be
obligated only to the extent of its percentage of any claim under the MBIA
policy and will not be obligated to pay any unpaid obligation of any other
member of MBIA. Each insurance company's participation is backed by all of its
assets. However, each insurance company is a multiline insurer involved in
several lines of insurance other than municipal bond insurance, and the assets
of each insurance company also secure all of its other insurance policy and
surety bond obligations. The total New York statutory assets of the
participating insurance companies as of June 30, 1994 was $34,872,354,000, the
statutory liabilities were $28,955,229,000 and policyholder's surplus was
$5,917,125,000. Standard & Poor's Corporation rates all new issues insured by
MBIA "AAA" and Moody's Investors Service rates all bond issues insured by MBIA
"Aaa". The address of MBIA is 113 King Street, Armonk, New York 10504.
MBIAC
MBIAC (The Municipal Bond Investors Assurance Corporation) is the principal
operating subsidiary of MBIA, Inc. Neither MBIA, Inc. nor its shareholders are
obligated to pay the debts of or claims against MBIAC. MBIAC is a limited
liability corporation rather than a several liability association. MBIAC is
domiciled in the State of New York and licensed to do business in all 50 states,
the District of Columbia and the Commonwealth of Puerto Rico.
As of June 30, 1994, MBIAC had admitted assets (unaudited) of
$3.3 billion, total liabilities (unaudited) of $2.2 billion, and total capital
and surplus (unaudited) of $1.1 billion, determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Standard & Poor's Corporation rates all new issues insured by MBIAC
and Moody's Investors Service rates all bond issues insured by MBIAC "AAA" and
"Aaa", respectively. The address of MBIAC is 113 King Street, Armonk, New York
10504.
Portfolio Insurance
In an effort to protect Unit Holders against delay in payment of interest
and against principal loss, insurance ("Portfolio Insurance") is obtained by an
Insured Trust from Financial Guaranty for those Securities not insured by the
issuer, guaranteeing the scheduled payment of interest and principal with
respect to certain of the Securities deposited in and delivered to an Insured
Trust. Any Portfolio Insurance policy obtained by an Insured Trust will be
noncancellable and will continue in force so long as an Insured Trust is in
existence and the securities described in the policy continue to be held by an
Insured Trust (see Part A--"Schedule of Portfolio Securities") and Financial
Guaranty remains in business. As a result of any such Portfolio Insurance and
any Insurance obtained by the issuer from the Insurance Companies the Units of
an Insured Trust were rated AAA by Standard & Poor's Corporation as of the Date
of Deposit. (See "Bond Ratings".) Portfolio Insurance obtained by an Insured
Trust is effective only while the Securities thus insured are held in an Insured
Trust.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If an
issue is accepted for insurance, a noncancellable policy for the scheduled
payment of interest and principal on the Security is issued by the Insurance
Company. A single premium is paid by the issuer for Securities insured by the
issuer. A monthly premium is paid by an Insured Trust for the Portfolio
Insurance obtained by such Insured Trust. Upon the sale of a Security from an
Insured Trust, the Trustee, pursuant to an irrevocable commitment of Financial
Guaranty, has the right to obtain permanent insurance (i.e., insurance to
maturity of the Security regardless of the identity of the holder thereof)
("Permanent Insurance") with respect to such Security upon the payment of a
single predetermined insurance premium from the proceeds of the
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sale of such Security. An Insured Trust will obtain and pay a premium for the
Permanent Insurance upon the sale of a Security if the Sponsor determines that
such sale will result in a net realization greater than would the sale of such
Security without the purchase of such Permanent Insurance. Accordingly, any
Security covered by Portfolio Insurance in an Insured Trust is eligible to be
sold on an insured basis. The premium for any Permanent Insurance with respect
to a Security is determined based upon the insurability of such Security as of
the Date of Deposit and will not be increased or decreased thereafter. Standard
& Poor's Corporation and Moody's Investors Service have rated the claims-paying
ability of Financial Guaranty "AAA" and "Aaa", respectively.
Neither the Public Offering Price nor any evaluation of Units for purposes
of repurchases or redemptions reflects any element of value for any Portfolio
Insurance obtained and any Permanent Insurance obtainable by an Insured Trust
unless a Security is in default in payment of principal or interest or in
significant risk of such default. The value of any Permanent Insurance will be
equal to the difference between (i) the market value of defaulted Securities
assuming the exercise of the right to obtain Permanent Insurance (less the
insurance premium attributable to the purchase of Permanent Insurance) and
(ii) the market value of such defaulted Securities not covered by Permanent
Insurance. In addition, the Evaluator will consider the ability of Financial
Guaranty to meet its commitments under an Insured Trust's insurance policy,
including the commitments to issue Permanent Insurance.
Nonpayment of premiums on a Portfolio Insurance policy obtained by an
Insured Trust will not result in the cancellation of the insurance but will
permit Financial Guaranty to take action against the Insured Trust to recover
premium payments due it. Premium rates for each issue of Securities protected by
Portfolio Insurance obtained by an Insured Trust are fixed for the life of an
Insured Trust.
Under the provisions of a Financial Guaranty insurance policy, Financial
Guaranty unconditionally and irrevocably agrees to pay to Citibank, N.A., or its
successor, as its agent (the "Fiscal Agent"), that portion of the principal of
and interest on a Security which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer of the Security and which has not
been paid by insurance of the Security obtained by the issuer. The term "due for
payment" means, when referring to the principal of a Security, its stated
maturity date or the date on which it shall have been called for mandatory
sinking fund redemption and does not refer to any earlier date on which payment
is due by reason of call for redemption (other than by mandatory sinking fund
redemption), acceleration or other advancement of maturity. When used in
reference to interest on a Security, the term "due for payment" means the stated
date for payment of interest. When, however, the interest on a Security shall
have been determined (as provided in the underlying documentation relating to
such Security) to be subject to Federal income taxation, the term "due for
payment" also means, (i) when referring to the principal of such Security, the
date on which such Security has been called for mandatory redemption as a result
of such determination of taxability, and (ii) when referring to interest on such
Security, the accrued interest at the rate provided in such documentation to the
date on which such Security has been called for such mandatory redemption,
together with any applicable redemption premium.
Financial Guaranty will make any such payments to the Fiscal Agent on the
date such principal or interest becomes due for payment or on the business day
next following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse to the Trustee
the face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer but only upon receipt by the Fiscal
Agent of (i) evidence of the Trustee's right to receive payment of the principal
or interest due for payment and (ii) evidence, including any appropriate
instruments of assignment, that all of the rights to payment of such principal
or interest due for payment shall thereupon vest in Financial Guaranty. Upon any
such disbursement, Financial Guaranty shall become the owner of the Security,
appurtenant coupon or right to payment of principal or interest on such
Security, and shall succeed to all of the Trustee's rights thereunder, including
the right to payment thereof.
In determining whether to insure bonds, Financial Guaranty applies its own
standards which are not necessarily the same as the criteria used in regard to
the selection of bonds by the Sponsor. Financial Guaranty's determination to
issue insurance with respect to a bond is made prior to or on the date of
deposit of a bond in an Insured Trust. Any Portfolio Insurance obtained by an
Insured Trust covers certain Securities deposited in an Insured Trust and
physically delivered to the Trustee or a custodian for an Insured Trust in the
case of bearer bonds or registered in the name of the Trustee or its nominee or
delivered along with an assignment in the case of registered bonds, or
registered in the name of the Trustee or its nominee in the case of Securities
held in book-entry form. Contracts to purchase Securities are not covered by
insurance obtained by an Insured Trust although Securities underlying such
contracts are covered by insurance upon physical delivery to the Trust.
Insurance obtained by an Insured Trust or by the Security issuer does not
guarantee the market value of the Securities or the value of the Units. Any
Portfolio Insurance obtained by an Insured Trust is effective only as to
Securities owned by and held in such Insured Trust. In the event of a sale of
any such Security by the Trustee, the Portfolio Insurance terminates as to such
Security on the date of sale but the Trustee may exercise the right to obtain
Permanent Insurance with respect to the Security upon the payment of an
insurance premium from the proceeds of the sale of such Security. Except as
indicated below, Portfolio Insurance obtained by an Insured Trust has no effect
on the price or redemption value of Units. The Evaluator will attribute a value
to the Portfolio Insurance obtained by an Insured Trust (including the right to
obtain Permanent Insurance) for the purpose of computing
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the price or redemption value of Units only if the Securities covered by such
insurance are in default in payment of principal or interest or, in the
Sponsor's opinion, in significant risk of such default. (See "Public Offering of
Units--Public Offering Price".) Insurance obtained by the issuer of a Security
is effective so long as such Security is outstanding. Such insurance may be
considered to represent an element of market value in regard to the Securities
thus insured.
A contract of Portfolio Insurance relating to an Insured Trust and the
negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Trust. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with a Trust or the Sponsor, except that the
Sponsor has in the past and may from time to time in the future, in the normal
course of its business, participate as sole underwriter or as manager or as a
member of underwriting syndicates in the distribution of new issues of municipal
bonds in which the investors or the affiliates of FGIC Corporation have or will
be participants or for which a policy of insurance guaranteeing the scheduled
payment of interest and principal has been obtained from Financial Guaranty.
Neither an Insured Trust nor the Units nor the Portfolio is insured directly or
indirectly by FGIC Corporation.
The purpose of any Portfolio Insurance obtained by an Insured Trust is to
obtain a higher yield on the Securities in the Portfolio than would be available
if all the Securities in such Portfolio had the Standard & Poor's Corporation
"AAA", Moody's Investors Service "Aaa" and/or Fitch Investors Service, Inc.
"AAA" rating(s) and, at the same time, to have the protection of Portfolio
Insurance with respect to scheduled payment of interest and principal on the
Securities. There is, of course, no certainty that such purpose will be
realized.
Financial Guaranty
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. Financial Guaranty, domiciled in the State of New York,
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984. The Corporation is a
subsidiary of General Electric Capital Corporation. The Corporation and General
Electric Capital Corporation are not obligated to pay the debts of or the claims
against Financial Guaranty.
Financial Guaranty, in addition to providing insurance for the payment of
interest on and principal of municipal bonds and notes held in unit investment
trust portfolios, provides insurance for all or portions of new issues of
municipal bonds and notes and municipal bonds and notes held by mutual funds.
Financial Guaranty expects to provide other forms of financial guaranties in the
future. It is also authorized to write fire, property damage liability,
workmen's compensation and employer's liability and fidelity and surety
insurance. As of March 31, 1998, the total capital and surplus of Financial
Guaranty was $1,267,900,134. Although the Sponsor has not undertaken an
independent investigation of Financial Guaranty, the Sponsor is not aware that
the information herein is inaccurate or incomplete.
Financial Guaranty is currently licensed or otherwise authorized to provide
insurance in 49 states and the District of Columbia, files reports with state
insurance regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty is also subject to regulation by the State of
New York Insurance Department. Such regulation, however, is no guarantee that
Financial Guaranty will be able to perform on its commitments or contracts of
insurance in the event claims should be made thereunder at some time in the
future. Fitch Investors Service, Inc., Standard & Poor's Corporation and Moody's
Investors Service have rated the claims paying ability of Financial Guaranty
"AAA", "AAA" and "Aaa", respectively. The address of Financial Guaranty is 115
Broadway, New York, New York 10006.
The information relating to the above referenced insurers has been
furnished by publicly available sources including the respective issuers. The
financial information contained herein with respect to Financial Guaranty is
unaudited but appears in reports or other materials filed with state insurance
regulatory authorities and is subject to audit and review by such authorities.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such information
subsequent to the date thereof, but the Sponsor is not aware that the
information herein is inaccurate or incomplete.
Because the Securities in an Insured Trust are insured by the Insurance
Companies as to the scheduled payment of principal and interest and on the basis
of the financial condition and the method of operation of the Insurance
Companies, Standard & Poor's Corporation has assigned a "AAA" investment rating
to Units of an Insured Trust. This is the highest rating assigned to securities
by Standard & Poor's Corporation. (See "Bond Ratings.") The obtaining of this
rating by an Insured Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's Corporation or as a guarantee of the
market value of an Insured Trust or the Units. Standard & Poor's Corporation has
indicated that this rating is not a recommendation to buy, hold or sell Units
nor does it take into account the extent to which expenses of an Insured Trust
or sales by an Insured Trust of Securities for less than the purchase price paid
by an Insured Trust will reduce payment to Unit Holders of the interest and
principal required to be paid on the insured Securities. There is no guarantee
that the "AAA" investment rating with respect to the Securities or Units will be
maintained.
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OBJECTIVES AND SECURITIES SELECTION
The objectives of each Trust are the providing of interest income which, in
the opinion of counsel is, under existing law, excludable from gross income for
Federal income tax purposes through investment in a fixed portfolio consisting
primarily of investment grade long-term (or intermediate term if so designated
in Part A or with maturities as designated in Part A) state, municipal and
public authority debt obligations, and the conservation of capital and, in the
case of a Trust with a deferred sales charge feature "DSC", the payment of the
DSC from the interest payments, if any, on, and the principal paid at the
maturity of the Securities deposited to pay the DSC. There is, of course, no
guarantee that a Trust's objectives will be achieved.
The Prudential Insurance Company of America, the indirect parent of the
Sponsor, or a division or subsidiary thereof (collectively, "Prudential") has
selected and negotiated for the Securities purchased by the Sponsor. In
selecting Securities for a Trust, Prudential considered factors established by
the Sponsor including, among others, the following: (a) ratings as of the Date
of Deposit in the category of BBB or better by Standard & Poor's Corporation or
Baa or better by Moody's Investors Service or BBB or better by Fitch Investors
Service, Inc. (see "Bond Ratings") or comparable credit characteristics in the
opinion of Prudential, (b) maturities or mandatory payment dates consistent with
the life and objectives of a Trust, (c) yields of the Securities relative to
other securities of comparable quality and maturity, (d) the availability and
cost of, rating of the claims paying ability of an insurer of, insurance of the
scheduled payment of principal and interest, when due, on the Securities in an
Insured Trust, and (e) diversification of the Securities as to purpose and
location of Issuer (purpose only in the case of State Trusts).
Prudential, for selecting and negotiating the purchase of the Securities,
will receive from the Sponsor a fee based on the face amount of Securities
selected and a portion of the Sponsor's net profit on the Date of Deposit.
The Trust may contain Securities which were acquired through the Sponsor's
participation as sole underwriter or manager or as a member of the underwriting
syndicate for such Securities. (See Part A--"Portfolio Summary.") An underwriter
typically purchases securities, such as the Securities in each Trust, from the
issuer on a negotiated or competitive bid basis in order to market such
securities to investors at a profit.
The yields on Securities of the type deposited in each Trust are dependent
on a variety of factors, including interest rates, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and rating of the issue. The ratings represent the opinions of the
rating organizations as to the quality of the securities which they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, securities with the same maturity,
coupon and rating may have different yields, while securities of the same
maturity and coupon with different ratings may have the same yield.
ESTIMATED ANNUAL INCOME PER UNIT
On the Date of Deposit the Estimated Net Annual Income per Unit of the
Trust was the amount set forth above under Part A--"Summary of Essential
Information." This figure is computed by dividing the aggregate net annual
interest income (i.e., less estimated annual fees and expenses of the Sponsor,
the Trustee, counsel and the Evaluator), ignoring any original issue discount,
by the number of Units outstanding. Thereafter, the net annual interest income
per Unit for the Trust will change whenever Securities mature, are redeemed or
are sold, or as the expenses of the Trust change. The fees of the Trustee, the
Sponsor, counsel and the Evaluator are subject to change without the consent of
Unit Holders, to the extent provided under "Expenses and Charges."
Interest on the Securities, less estimated expenses of the Trust, is
expected to accrue at the daily rate shown under Part A--"Summary of Essential
Information." This rate will change as Securities mature, are redeemed or are
sold, or as the expenses of the Trust change.
The Public Offering Price will vary due to fluctuations in the offering
and/or bid prices of the Securities and the net annual interest income per Unit
may change as Securities mature, are redeemed or are sold or as the expenses of
the Trust change.
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TAX STATUS
In the opinion of bond counsel to the issuing governmental authorities,
interest income on the Securities comprising the Portfolio of the Trust is
(except in certain instances depending upon the Unit Holder, as described below)
exempt from Federal income tax under the provisions of the Internal Revenue Code
as in effect at the date of issuance. In the case of Securities issued at a time
when the 1954 Code was in effect, redesignation of the Code as the Internal
Revenue Code of 1986 (the "Code" or the "1986 Code") has not adversely affected
the exemption from Federal income tax of interest income on such Securities.
Gain (exclusive of any earned original issue discount) realized on sale or
redemption of the Securities or on sale of a Unit is, however, includible in
gross income for Federal income tax purposes and for state and local income tax
purposes generally. (It should be noted in this connection that such gain does
not include any amounts received in respect of accrued interest.) Such gain may
be capital gain or ordinary income and if capital gain may be long or short-term
depending upon the facts and circumstances. Securities selling at market
discount tend to increase in market value as they approach maturity when the
principal amount is payable, thus increasing the potential for taxable gain on
their maturity, redemption or sale.
In the opinion of Messrs. Cahill Gordon & Reindel, special counsel for the
Sponsor, under existing law:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on an underlying Security which is exempt
from Federal income tax under the Code when received by the Trust will
retain its status as tax exempt interest for Federal income tax purposes to
the Unit Holders.
Each Unit Holder will be considered the owner of a pro rata portion of
the Trust's assets under Sections 671-678 of the Code. Each Unit Holder
will be considered to have received a pro rata share of interest derived
from the Trust's assets when it is received by the Trust and each Unit
Holder will have a taxable event when an underlying Security is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Unit Holder redeems or sells Units. The total tax cost of each Unit will
equal the cost of Units (including the up-front sales charge) plus the
portion of the charge for organization expenses and the portion of the
deferred sales charge which are paid from interest on the DSC Payment
Securities. The total tax cost of each Unit to a Unit Holder is allocated
among each of the underlying Securities (in accordance with the proportion
of the Trust's assets comprised by each Security) in order to determine the
Unit Holder's per Unit tax cost for each Security, and the tax cost
reduction requirements of the Code relating to amortization of bond premium
will apply separately to the per Unit tax cost of each Security. Therefore,
under some circumstances a Unit Holder may realize taxable gains when Units
are sold or redeemed for an amount equal to or less than the Unit Holder's
original cost. The relevant tax reporting forms sent to Unit Holders will
reflect the actual amount paid to them net of any deferred sales charge and
organization expenses. Accordingly, Unit Holders should not increase the
total cost for their Units by the amount of the principal of DSC Payment
Securities used to pay a portion of the deferred sales charge and the
charge for organization expenses.
When a contract to acquire an underlying Security is settled after the
Unit Holder's settlement date for a Unit, the Unit Holder's proportionate
share of the interest accrued on the underlying Security on the Security
settlement date will exceed the portion of the purchase price that was
allocable to interest accrued on the Unit settlement date. A Unit Holder
will not be subject to Federal income tax on the Unit Holder's
proportionate share of the interest which accrues during the period between
the Unit settlement date and the Security settlement date either when such
interest is received by the Trust or when it is distributed to the Unit
Holder.
Under the income tax laws of the State and City of New York, the
income of the Trust will be treated as the income of its Unit Holders.
If the proceeds received by the Trust upon the sale or redemption of an
underlying Security exceed a Unit Holder's adjusted tax cost allocable to the
Security disposed of, that Unit Holder will realize a taxable gain to the extent
of such excess. Conversely, if the proceeds received by the Trust upon the sale
or redemption of an underlying Security are less than a Unit Holder's adjusted
tax cost allocable to the Security disposed of, that Unit Holder will realize a
loss for tax purposes to the extent of such difference.
Any gain recognized on a sale or exchange of a Unit Holder's pro rata
interest in a Security, and not constituting a realization of accrued "market
discount," and any loss will be a capital gain or loss, except in the case of a
dealer or financial institution. Gain realized on the disposition of the
interest of a Unit Holder in a market discount Security is treated as ordinary
income to the extent the gain does not exceed the accrued market discount. A
Unit Holder has an interest in a market discount Security in a case in which the
tax cost for the Unit Holder's pro rata interest in the Security is less than
the stated redemption price thereof at maturity (or the issue price plus
original issue discount accrued up to the acquisition date, in the case of an
original issue discount Security). If the market discount is less than .25% of
the stated redemption price of the Security at maturity multiplied by the number
of complete years to maturity, the market discount shall be considered to be
zero. Under the Code, capital gain of individuals, estates and trusts from the
disposition of a Unit Holder's pro rata interest in a Security when the Unit
Holder has held his or her Units, and the Trust has held the Security, for more
than 1 year, will be subject to a maximum nominal rate of 20%. Such capital gain
may, however, result in a disallowance of itemized deductions and/or affect a
personal exemption phase-out.
Opinions relating to the validity of the underlying Securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuing governmental authorities. It is the view of The
Prudential Investment Corporation, which is an affiliate of the Sponsor, that
interest on the Securities will not be a tax preference item unless otherwise
indicated on
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the "Schedule of Portfolio Securities" as Securities the interest on which is in
the opinion of bond counsel, treated as a tax preference item for alternative
minimum tax purposes. See "Schedule of Portfolio Securities." Neither the
Sponsor nor its counsel have made any review of proceedings relating to the
issuance of underlying Securities or the bases for bond counsel's opinions or
the view of The Prudential Investment Corporation, the Sponsor's affiliate. The
Sponsor and its counsel are, however, aware of nothing which would indicate to
the contrary.
Furthermore, exemption of interest on a Security from regular income tax
requires that the issuer of the Security (or other user of the Security
proceeds) meet certain ongoing compliance requirements. Failure to meet these
requirements could result in loss of the exemption and such loss of exemption
could apply retroactively from the date of issuance. A Security may provide that
if a loss of exemption is determined to have occurred, the Security is
immediately due and payable; and, in the case of a secured Security, that the
security can be reached if the Security is not then paid. If such a loss of
exemption were to occur and the Security did not contain such an acceleration
clause, or if the acceleration did not in fact result in payment of the
Security, the affected Security would likely be sold as a taxable bond. Sale of
a Security as a taxable bond would likely result in a realization of proceeds
less than the cost of the Security.
In the case of certain of the underlying Securities comprising the
Portfolio of the Trust, the opinions of bond counsel indicate that although
interest on such underlying Securities is generally exempt from Federal income
tax, such underlying Securities are "industrial development bonds" under the
1954 Code or "private activity bonds" under the 1986 Code as those terms are
defined in the relevant Code provisions, and interest on such underlying
Securities will not be exempt from Federal income tax for any period during
which such underlying Securities are held by a "substantial user" of the
facilities financed by the proceeds of such underlying Securities (or a "related
person" to such a "substantial user"). In the opinion of Messrs. Cahill Gordon &
Reindel, interest attributable to such underlying Securities (although not
subject to Federal income tax to the Trust), if received by the Trust for the
account of a Unit Holder who is such a "substantial user" or "related person,"
will be taxable (i.e., not tax exempt) to the same extent as if such underlying
Securities were held directly by the Unit Holder as owner. No investigation as
to the users or of the facilities financed by the underlying Securities has been
made by the Sponsor or its counsel. Investors should consult their tax counsel
for advice with respect to the effect of these provisions on their particular
tax situations.
In the case of an Insured Trust, assuming that the insurance policies and
any related agreements described in "Insurance on the Securities in the
Portfolio of an Insured Trust" have been validly issued, are of standard form
with respect to subrogation and do not relieve the issuer of the Security of its
obligations thereunder, and provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer of the Securities,
rather than the insurer, will pay debt service on the Securities, Messrs. Cahill
Gordon & Reindel are of the opinion that proceeds received under the insurance
policies representing matured interest on a defaulted obligation will be
excludable from Federal gross income if, and to the same extent, such interest
would have been so excludable if paid by the issuer of such defaulted
obligation.
Persons in receipt of Social Security benefits should be aware that a
portion of such Social Security benefits may be includible in gross income. For
a taxpayer whose modified adjusted gross income plus one-half of his or her
Social Security benefits does not exceed $34,000 ($44,000 for married taxpayers
filing a joint return), the includible amount is the lesser of (i) one-half of
the Social Security benefits or (ii) one-half of the amount by which the sum of
"modified adjusted gross income" plus one-half of the Social Security benefits
exceeds $25,000 in the case of unmarried taxpayers and $32,000 in the case of
married taxpayers filing a joint return. All other taxpayers receiving Social
Security benefits are required to include up to 85% of their Social Security
benefits in income.
Modified adjusted gross income is adjusted gross income determined without
regard to certain otherwise allowable deductions and exclusions from gross
income, plus tax exempt interest on municipal obligations including interest on
the Securities. To the extent that Social Security benefits are includible in
gross income they will be treated as any other item of gross income and
therefore may be taxable.
Investors should also consult their tax counsel for advice with respect to
the effect, if any, on the tax cost of Units to a Unit Holder in cases in which
a contract to acquire a Security is settled after the settlement date for such
Units and the Unit Holder's proportionate share of the interest accrued on the
underlying Security on the Security settlement date will exceed the portion of
the purchase price allocable to interest accrued on the Unit settlement date. In
such cases, the Unit Holder may have an adjustment to tax basis for interest
accruing on such Securities during the interval between purchase of Units and
delivery of Securities.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER ANY OTHER FEDERAL TAX
LAW OR UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY. THE LAWS OF THE
SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH OBLIGATIONS. (See
"Rights of Unit Holders--Reports and Records.")
State risk factors, including opinions of special State counsels with
respect to certain state tax aspects of an investment in Units of a State Trust
are discussed in Part C, if applicable.
The Portfolio of the Trust may contain zero coupon bond(s) or one or more
other Securities which were originally issued at a discount ("original issue
discount"). In general, original issue discount can be defined as the difference
between the price at which a Security was issued and its stated redemption price
at maturity. If the original issue discount is less than .25% of the stated
redemption price of the Security at maturity multiplied by the number of
complete years to maturity, the original issue discount
B-16
<PAGE>
shall be considered to be zero. In the case of a Security issued before
September 4, 1982, original issue discount is deemed to accrue (be "earned") as
tax-exempt interest ratably over the period from the date of issuance of the
Security to the date of maturity and is apportioned among the original holder of
the obligation and subsequent purchasers in accordance with a ratio the
numerator of which is the number of calendar days the obligation was owned by
the holder and the denominator of which is the total number of calendar days
from the date of issuance of the obligation to its date of maturity. Gain or
loss upon the disposition of an original issue discount Security in a Portfolio
is measured by the difference between the amount realized upon disposition of
and the amount paid for such obligation. A holder is entitled, however, to
exclude from gross income that portion of such gain attributable to accrued
interest and the "earned" portion of original issue discount.
In the case of a Security issued after September 3, 1982, original issue
discount is deemed to accrue on a constant interest method which corresponds, in
general, to the economic accrual of interest (adjusted to eliminate
proportionately on an elapsed-time basis any excess of the amount paid for the
Security over the sum of the issue price and the accrued original issue discount
on the acquisition date). The tax basis in the Security is increased by the
amount of original issue discount that is deemed to accrue while the Security is
held. The difference between the amount realized on a disposition of the
Security (ex currently accrued interest) and the adjusted tax basis of the
Security will give rise to taxable gain or deductible loss upon a disposition of
the Security by the Trust (or a sale or redemption of Units by a Unit Holder).
The Code provides, generally, that adjustments to taxable income to produce
alternative minimum taxable income for corporations will include 75% of the
amount by which adjusted current earnings (which would include tax-exempt
interest) of the taxpayer exceeds the alternative minimum taxable income of the
taxpayer before any amount is added to alternative minimum taxable income
because of this adjustment.
For Federal income tax purposes, Trust expenses allocable to producing or
collecting Trust interest income are not deductible because the interest income
derived by the Trust is exempt from Federal income tax. A state or local income
tax may provide for a deduction for the portion of such Trust expenses
attributable to the production or collection of income derived by the Trust and
taxed by the state or locality. The effect on any such deductions of the Code
rules whereby investment expenses and other miscellaneous deductions are
deductible only to the extent in excess of 2% of adjusted gross income would
depend upon the law of the particular state or locality involved.
The Code also imposed an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined without
regard to any alternative tax net operating loss deduction) of a corporation in
excess of $2,000,000 for each taxable year beginning before January 1, 1996. The
Clinton Administration has proposed to reinstate the environmental tax, most
recently in its 1999 budget proposal, which was released on February 2, 1998, to
taxable years after December 31, 1997 and before January 1, 2009. The Clinton
Administration also included a general proposal for reinstatement of the
environmental tax in an October 11, 1998 proposal related to funding school
construction costs. The environmental tax was an excise tax and was deductible
for United States Federal income tax purposes (but not for purposes of the
environmental tax itself). Although the environmental tax was based on
alternative minimum taxable income, the environmental tax had to be paid in
addition to any Federal income taxes payable by the corporation.
From time to time proposals have been introduced before Congress the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on securities similar to the Securities in the Trust or to require
treatment of such interest as a "tax preference" for alternative minimum tax
purposes, and it can be expected that similar proposals may be introduced in the
future. The Trust and the Sponsor cannot predict what legislation, if any, in
respect of the tax status of interest on Securities may be proposed by the
Executive Branch or by members of Congress, nor can they predict which
proposals, if any, might be enacted or whether any legislation if enacted would
apply to the Securities in the Trust. At any time Congress may have under
consideration various proposals to revise the tax system in the United States
including current proposals to impose a flat tax system. Any flat tax system may
have the effect of reducing or eliminating the benefit presently received in
connection with the receipt of interest on municipal debt obligations as
compared to the receipt of interest on other obligations. Moreover, a flat tax
system, if implemented, may have an adverse effect on the value of the
Securities held in the portfolio of the Trust. The Sponsor cannot predict
whether a flat tax or similar system will be enacted nor can it predict the
impact any such system would have on the portfolio of the Trust.
In addition, investors should be aware that no deduction is allowed for
Federal income tax purposes for interest on indebtedness incurred or continued
to purchase or carry Units in the Trust. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of the Units.
All taxpayers are required to report for informational purposes on their
Federal income tax returns the amount of tax-exempt interest they receive.
Investors should consult their own tax advisors with respect to the
applicability of the foregoing general comments to their own particular
situations and as respects state and local tax consequences of an investment in
Units.
B-17
<PAGE>
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE
The Public Offering Price of Units during the initial public offering
period is computed by adding to the aggregate offering price of the Securities
in a Trust, any money in the Principal Account other than money required to
redeem tendered Units, dividing such sum by the number of Units outstanding, and
then adding a sales charge of 4.75% of the Public Offering Price (in the case of
a Trust with a DSC feature, 4.9% of the offering price of the Securities subject
to a sales charge plus the total sales charge (5.152% of the offering side
evaluation of such Securities)) in the case of a trust composed of long term
securities (4.987% of the net amount invested) or a sales charge of 3.00% of the
Public Offering Price in the case of an Intermediate Term Trust (3.093% of the
net amount invested) or such other sales charge as is designated in Part A. For
purchases settling after the first settlement date (including purchases of Units
created after the initial date of deposit) a proportionate share of accrued and
undistributed interest on the Securities from such date to the settlement date
for Units is also added to the Public Offering Price. After the initial public
offering period the Public Offering Price of the Units will be determined by
adding to the Evaluator's determination of the aggregate bid price of the
Securities per Unit a sales charge as set forth under Secondary Market Sales
Charge herein. A proportionate share of accrued and undistributed interest on
the Securities (other than DSC Payment Securities) to the settlement date for
Units purchased and of cash on hand in the Trust is also added to the Public
Offering Price.
The Public Offering Price on the date of this Prospectus or any subsequent
date may vary from the Public Offering Price set forth in the Part A--"Summary
of Essential Information" in accordance with fluctuations in the evaluation of
the underlying Securities in the Trust.
The aggregate bid or offering prices of the Securities in the Trust, as is
appropriate, shall be determined for the Trust by the Evaluator as of the
Evaluation Time, in the following manner: (a) on the basis of current bid or
offering prices for the Securities as obtained from investment dealers or
brokers (including the Sponsor) who customarily deal in securities comparable to
those held in the Trust, (b) if there is no market for such securities and bid
or offering prices are not available, on the basis of prices for comparable
securities, (c) by determining the value of the Securities on the bid or
offering side of the market by appraisal, or (d) by any combination of the
above. Unless a Security covered by Portfolio Insurance is in default in payment
of principal or interest or in significant risk of such default, the Evaluator
will not attribute any value to the Portfolio Insurance obtained by an Insured
Trust or to an Insured Trust's right to secure Permanent Insurance with respect
to such Security in the event of a sale of such Security. The value of insurance
to maturity obtained by the issuer of a Security or by the Sponsor on the Date
of Deposit is reflected and included in the market value of such Security. With
respect to the initial evaluation of the offering prices of Securities which at
the Date of Deposit were subject to syndicate offering period pricing
restrictions, it is the practice of the Evaluator to determine such evaluation
on the basis of the syndicate offering price, unless factors cause the Evaluator
to conclude that such syndicate offering price does not then accurately reflect
the free market value of such Securities, in which case the Evaluator will also
take into account the other criteria described above for the purpose of making
its determination. The Public Offering Price will be effective for all sales of
Units made during the preceding 24-hour period. Following the initial public
offering period, determinations of the aggregate bid price of the Securities,
for purposes of secondary market transactions by the Sponsor and redemptions by
the Trustee, will be made each business day as of the Evaluation Time, effective
for all sales or redemptions made subsequent to the last preceding
determination. (See "Rights of Unit Holders--Redemption".) The difference
between the bid and offering prices of the Securities may be expected to average
approximately 1 1/2% of principal amount. In the case of actively traded
securities, the difference may be as little as 1/2 of 1%, and in the case of
inactively traded securities such difference will usually not exceed 3%. The
price at which Units may be repurchased by the Sponsor in the secondary market
could be less than the price paid by the Unit Holder and such repurchase price
will be reduced by any unpaid DSC. On the Date of Deposit the aggregate current
offering price of such Securities per Unit exceeded the bid price of such
Securities per Unit by the amount set forth under "Summary of Essential
Information". For information relating to the calculation of the Redemption
Price, which, like the Public Offering Price in the secondary market, is based
upon the aggregate bid price of the underlying Securities and which may be
expected to be less than the aggregate offering price, see "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit".
In an effort to reduce the amount of accrued interest which investors would
have to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to the Trust the amount of accrued interest due on the Securities to the
first expected settlement date for Units. This accrued interest amount will be
paid to the Sponsor as the holder of record of all Units on such date.
Consequently, when the Sponsor sells Units of the Trust, the amount of accrued
interest to be added to the Public Offering Price of the Units purchased by an
investor will include only accrued interest from the settlement date for Units
purchased on the date of this Prospectus to, but not including, the date of
settlement of the investor's purchase (normally three business days after
purchase), less any distributions from the Interest Account. The Trustee will
recover its advancements to the Trust (without interest or other cost to the
Trust) from interest received on the Securities deposited in the Trust.
On the Date of Deposit, the Public Offering Price per Unit and the
Sponsor's Initial Repurchase Price per Unit (based on the offering side
evaluation of the Securities in a Trust) each exceeded the Redemption and
Sponsor's Secondary Market Repurchase Price per Unit (based upon the bid side
evaluation of the Securities in a Trust) by the amounts set forth in
Part A--"Summary of Essential Information," herein.
B-18
<PAGE>
PUBLIC DISTRIBUTION
During the initial public offering period, Units will be distributed to the
public by the Sponsor and through dealers at the Public Offering Price,
calculated on each business day, plus accrued interest. The initial public
offering period is 30 days, unless all Units are sold prior thereto whereupon
the initial public offering period will terminate. The initial public offering
period may be extended by the Sponsor for up to four successive 30-day periods
as long as Units remain unsold. Upon the termination of the initial public
offering period, unsold Units or Units acquired by the Sponsor in the secondary
market referred to below may be offered to the public by this Prospectus at the
then current Public Offering Price, plus accrued interest.
The underwriters of the Units are listed in Part A--"Underwriting Account."
It is the Underwriters' intention to qualify Units for sale in the states and to
effect a public distribution of the Units solely through their own
organizations. However, Units may be sold through dealers who are members of the
National Association of Securities Dealers, Inc. at prices which represent a
concession or agency commission per Unit. Sales to dealers will initially be
made at prices which include a concession per Unit as set forth below, but
subject to change from time to time at the discretion of the Sponsor. The
Sponsor reserves the right to reject, in whole or in part, any order for the
purchase of Units.
The dealer concession will be $31 per Unit in the primary market. The
dealer concession per Unit in the secondary market will generally be 65% of the
sales charge per Unit. Sales to dealers utilizing the services of Wexford
Clearing Services Corporation will be made at prices which include a concession
of 70% of the total sales charge per Unit. However, the Sponsor may negotiate a
different concession (either higher or lower) with dealers on a case-by-case
basis. In addition to such discounts, the Sponsor may, from time to time, pay or
allow an additional discount in the form of cash or other compensation to
dealers who underwrite additional Units of a Trust or who sell, during a
specified time period, a minimum dollar amount of Units of a Trust and other
unit investment trusts underwritten by the Sponsor.
Sales will be made only with respect to whole Units, and the Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units.
In addition, sales of Units may be made pursuant to distribution
arrangements with certain banks which are acting as agents for their customers.
These banks are making Units of the Trust available to their customers on an
agency basis. A portion of the sales charge paid by these customers is retained
by or remitted to the banks in amounts comparable to the aforementioned dealers'
concessions. The Glass-Steagall Act prohibits banks from underwriting certain
securities, including Units of the Trust; however, this Act does permit certain
agency transactions, and banking regulators have not indicated that these
particular agency transactions are impermissible under this Act. In certain
states, any bank making Units available must be registered as a broker-dealer in
that state.
SECONDARY MARKET
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units of each Trust and to continuously offer to
repurchase Units from Unit Holders at the applicable Sponsor's Repurchase Price.
(See Part A--"Summary of Essential Information.") During the initial offering
period the Sponsor's Repurchase Price is computed by adding to the aggregate of
the offering prices of the Securities in a Trust, any money in the Principal
Account other than money required to redeem tendered Units, plus accrued
interest, deducting therefrom expenses of the Trust, Trustee, Evaluator, Sponsor
and counsel, and taxes and any unpaid DSC, if any, and then dividing the
resulting sum by the number of Units outstanding, as of the date of such
computation. Following the initial public offering period, the Sponsor, although
it is not obligated to do so, presently intends to maintain a market for the
Units of the Trust at prices based upon each Unit's pro rata share of the
aggregate value of the Securities determined (by the Evaluator) on the basis of
the bid side of the market less any unpaid DSC. Any Units repurchased by the
Sponsor at the Sponsor's Repurchase Price may be reoffered to the public by the
Sponsor at the then current Public Offering Price, plus accrued interest. Any
profit or loss resulting from the resale of such Units will belong to the
Sponsor.
If the supply of Units exceeds demand (or for any other business reason),
the Sponsor may, at any time, occasionally, from time to time, or permanently,
discontinue the repurchase of Units. In such event, Unit Holders (including the
Sponsor) may redeem their Units through the Trustee at the Redemption Price,
which is based upon the aggregate bid price of the Securities and which may be
expected to be less than the aggregate offering price. (See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit.") If the Sponsor
repurchases Units in the secondary market at the "Redemption Price," it may
reoffer these Units in the secondary market at the "Public Offering Price," or
the Sponsor may tender Units so purchased to the Trustee for redemption. In no
event will the price offered by the Sponsor for the repurchase of Units be less
than the current Redemption Price for those Units. (See "Rights of Unit
Holders--Redemption.")
SPONSOR'S AND UNDERWRITERS' PROFITS
The Sponsor receives a sales charge as set forth in the table below in the
primary market and in the secondary market. On the sale of Units to dealers, the
Sponsor will retain the difference between the dealer concession and the sales
charge. (See "Public Distribution," herein.) For their services, the
Underwriters receive a concession as provided in the Agreement Among
Underwriters.
The Sponsor may have also realized a book profit (or a loss) on the deposit
of the Securities in the Trust representing the difference between the cost of
the Securities to the Sponsor and the cost of the Securities to such Trust. (For
a description of such profit (or loss) and the amount of such difference, see
Part A--"Schedule of Portfolio Securities.") The Sponsor may realize
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<PAGE>
profits or sustain losses in respect of Securities which were acquired from the
Sponsor or from underwriting syndicates of which it was a member. (See
Part A--"Portfolio Summary as of Date of Deposit.") An underwriter or
underwriting syndicate purchases bonds from the issuer on a negotiated or
competitive bid basis as principal with the motive of marketing such bonds to
investors at a profit. In addition, the Sponsor may realize profits (or sustain
losses) due to daily fluctuations in the offering prices of the Securities in
the Trust and thus in the Public Offering Price of Units received by the
Sponsor. Cash, if any, received by the Sponsor from the Unit Holders prior to
the settlement date for purchase of Units may be used in the Sponsor's business
to the extent permitted by applicable regulations and may be of benefit to the
Sponsor.
The Sponsor may also realize profits (or sustain losses) while maintaining
a secondary market in the Units, in the amount of any difference between the
prices at which the Sponsor buys Units (based on the bid side evaluation of the
Securities in a Trust) and the prices at which the Sponsor resells such Units or
the prices at which the Sponsor redeems such Units (also based on the bid side
evaluation of the Securities in the Trust), as the case may be.
VOLUME DISCOUNT
Although under no obligation to do so, the Sponsor intends to permit volume
purchasers of Units to purchase Units at a reduced sales charge. The Sponsor may
at any time change the amount by which the sales charge is reduced, or
discontinue the discount altogether.
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of Units in the primary market as set
forth below:
PRIMARY MARKET SALES CHARGE
-----------------------------
PERCENT OF PERCENT OF
PUBLIC OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED
- ------------------------------ --------------- ----------
Less than 100 Units........... 4.75% 4.987%
100-249 Units................. 4.25% 4.439%
250-499 Units................. 4.00% 4.167%
500-749 Units................. 3.50% 3.627%
750-999 Units................. 3.25% 3.359%
1,000 Units or more........... 3.00% 3.093%
TRUST SUBJECT TO DSC(1)
- ------------------------------
Less than 250 Units........... 4.90%(a) 5.152%(b)
250 or more Units............. 3.90%(a) 4.058%(b)
- ------------------
(1) Units subject to DSC: (a) Percent of the offer side evaluation of the
Securities on which a sales charge is imposed plus the total sales charge.
(b) Percent of the offering side evaluation of the Securities on which a
sales charge is imposed. The up-front sales charge will equal the difference
between the amount of the total sales charge and any unpaid DSC. The total
sales charge will not be less than the DSC.
SECONDARY MARKET SALES CHARGE
The sales charge per Unit in the secondary market will be computed by
multiplying the Evaluator's determination of the bid side evaluation of each
Security by a sales charge determined in accordance with the table set forth
below based upon the number of years remaining to the maturity of each such
Security, totalling all such calculations, and dividing this total by the number
of Units then outstanding. In calculating the date of maturity, a Security will
be considered to mature on its stated maturity date unless: (a) the Security has
been called for redemption or funds or securities have been placed in escrow to
redeem it on an earlier call date, in which case the call date will be deemed
the date on which such Security matures; or (b) the Security is subject to a
mandatory tender, in which case the mandatory tender date will be deemed the
date on which such Security matures.
(AS PERCENT (AS PERCENT
OF BID SIDE OF PUBLIC
TIME TO MATURITY EVALUATION) OFFERING PRICE)(2)
- ------------------------------ ----------- ------------------
Less than six months.......... 0% 0%
Six months to 1 year.......... 0.756% 0.75%
Over 1 year to 2 years........ 1.523% 1.50%
Over 2 years to 4 years....... 2.564% 2.50%
Over 4 years to 8 years....... 3.627% 3.50%
Over 8 years to 15 years...... 4.712% 4.50%
Over 15 years................. 5.820% 5.50%
- ------------------
(2) Units subject to DSC: Percent of the bid side evaluation of the Securities
on which a sales charge is imposed plus the total sales charge. The up-front
sales charge will equal the difference between the amount of the total
secondary market sales charge and any unpaid DSC remaining and, therefore,
as the amount of the unpaid DSC declines, the amount of the up-front sales
charge will increase.
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<PAGE>
The sales charge per Unit will be reduced pursuant to the following
graduated scale for sales to any person of at least 100 Units in the secondary
market.
NUMBER OF UNITS % OF SALES CHARGE
- ------------------------------ -----------------
Less than 100 Units........... 100%
100-249 Units................. 90%
250-499 Units................. 80%
500-749 Units................. 75%
750-999 Units................. 70%
1,000 Units or More........... 65%
The respective reduced sales charges as shown on each of the above charts
will apply to all purchases of Units in any fourteen day period by the same
person in the amounts stated herein, and for this purpose, purchases of Units of
the Trust will be aggregated with concurrent purchases of Units of any other
trust that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse, in the name of a
purchaser's child under the age of 21 or in the name of an entity controlled by
the purchaser are deemed for the purposes hereof to be acquired by the
purchaser. The reduced sales charges are also applicable to a trustee or other
fiduciary purchasing Units for a single trust estate or single fiduciary
account.
EMPLOYEE DISCOUNT
The Sponsor intends to permit employees of Prudential Securities
Incorporated and its subsidiaries and affiliates to purchase Units of the Trust
at a price equal to the offering side evaluation of the Securities in the Trust
divided by the number of Units outstanding plus a reduced sales charge of $5.00
per Unit (or in the case of Units subject to DSC, the remaining DSC), subject to
a limit of 5% of the Units of a Trust at the discretion of the Sponsor.
EXCHANGE OPTION
Unit Holders may elect to exchange any or all of their Units of this series
of the National Municipal Trust for units of one or more of any other series in
the Prudential Securities Incorporated family of unit investment trusts or
certain additional trusts that may from time to time be made available for such
exchange by the Sponsor (collectively referred to as the "Exchange Trusts").
Such units may be acquired at prices based on reduced sales charges per unit.
The purpose of such reduced sales charges is to permit the Sponsor to pass on to
the Unit Holder who wishes to exchange Units the cost savings resulting from
such exchange of Units. The cost savings result from reductions in time and
expense related to advice, financial planning and operational expense required
for the Exchange Option. Exchange Trusts may have different investment
objectives; a Unit Holder should read the prospectus for the applicable Exchange
Trust carefully to determine the investment objective prior to the exercise of
this option.
This option will be available provided that units of the applicable
Exchange Trust are available for sale and are lawfully qualified for sale in the
jurisdiction in which the Unit Holder resides. There is no assurance that a
market for units will in fact exist on any given date on which a Unit Holder
wishes to sell or exchange his units; thus there is no assurance that the
Exchange Option will be available to any Unit Holder. The Sponsor reserves the
right to modify, suspend or terminate this option at any time without further
notice to Unit Holders (in the case of Units subject to a DSC, sixty days'
notice will be given prior to the date of the termination of, or material
amendment to, the Exchange Option except that no notice need be given under
certain circumstances). In the event the Exchange Option is not available to a
Unit Holder at the time he wishes to exercise it, the Unit Holder will be
immediately notified and no action will be taken with respect to his units
without further instruction from the Unit Holder.
Exchanges will be effected in whole units only. If the proceeds from the
Units being surrendered are less than the cost of a whole number of units being
acquired, the exchanging Unit Holder will be permitted to add cash in an amount
to round up to the next highest number of whole units. When units held for less
than five months are exchanged for units with a higher regular sales charge, the
sales charge will be the greater of (a) the reduced sales charge or (b) the
difference between the sales charge paid in acquiring the units being exchanged
and the regular sales charge for the quantity of units being acquired,
determined as of the date of the exchange.
To exercise the Exchange Option, a Unit Holder should notify the Sponsor of
his desire to use the proceeds from the sale of his Units to purchase units of
one or more of the Exchange Trusts. If units of the applicable outstanding
series of the Exchange Trust are at that time available for sale, the Unit
Holder may select the series or group of series for which he desires his Units
to be exchanged. The Unit Holder will be provided with a current prospectus or
prospectuses relating to each series in which he indicates interest.
Units of the Exchange Trust trading in the secondary market maintained by
the Sponsor, if so maintained, will be sold to the Unit Holder at a price equal
to the aggregate bid side evaluation per unit of the securities in that
portfolio plus accrued interest and the applicable sales charge of $15* per
unit. Excess proceeds not used to acquire whole units will be paid to the
exchanging Unit Holder. Owners of units of any registered unit investment trust
other than National Municipal Trust which was initially offered at a minimum
applicable sales charge of 3.0% of the public offering price exclusive of any
applicable sales charge discounts may elect to apply the cash proceeds of sale
or redemption of those units directly to acquire units of any Exchange Trust
trading in the secondary market at the reduced sales charge of $20* per Unit,
subject to the terms and conditions applicable to the Exchange
- ------------------
* In the case of Units subject to a DSC, the exchange sales charge will be the
remaining DSC if greater than the applicable reduced sales charge ($15, $20 or
$25) or if the remaining DSC is less than the applicable reduced sales charge,
the Unit will be subject to the remaining DSC and the sales charge payable at
the time of the exchange will be the difference between the amount of the
reduced sales charge and the remaining DSC.
B-21
<PAGE>
Option. Units of any Exchange Trust acquired during the initial offering period
for such Units will be sold at a price equal to the offering side evaluation per
unit of the securities in the portfolio plus accrued interest plus a reduced
sales charge of $25* per unit.
To exercise this option, the owner should notify his retail broker. He will
be given a prospectus of each series in which he indicates interest of which
units are available. The Sponsor reserves the right to modify, suspend or
terminate the option at any time without further notice, including the right to
increase the reduced sales charge applicable to this option (but not in excess
of $5 more per unit than the corresponding fee then charged for a unit of an
Exchange Trust which is being exchanged). For example, assume that a Unit
Holder, who has three units of a Trust with a 4.75% sales charge and a current
price of $1,100 per unit, sells his units and exchanges the proceeds for units
of a series of an Exchange Trust with a current price of $950 per unit and an
ordinary sales charge of 4.75%. The proceeds from the Unit Holder's units will
aggregate $3,300. Since only whole units of an Exchange Trust may be purchased
under the Exchange Option, the Holder would be able to acquire four units in the
Exchange Trust for a total cost of $3,860 ($3,800 for units and $60 for the $15
per unit sales charge) by adding an extra $560 in cash. Were the Unit Holder to
acquire the same number of units at the same time in the regular secondary
market maintained by the Sponsor, the price would be $3,989.50 [$3,800 for the
units and $189.50 for the 4.75% sales charge (4.987% of the net amount
invested)].
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange Option will constitute a
"taxable event" under the Code, i.e., a Unit Holder will recognize gain or loss
at the time of exchange, except that upon an exchange of Units of this series of
the National Municipal Trust for units of any other series of Exchange Trusts
which are grantor trusts for U.S. federal income tax purposes the Internal
Revenue Service may seek to disallow any loss incurred upon such exchange to the
extent that the underlying securities in each trust are substantially identical
and the purchase of Units of an Exchange Trust takes place less than thirty-one
days after the sale of the Units. Unit Holders are urged to consult their own
tax advisors as to the tax consequences to them of exchanging Units in
particular cases.
REINVESTMENT PROGRAM
Distributions of interest and principal, if any, are made to Unit Holders
monthly or semiannually. A Unit Holder will have the option of either receiving
his monthly or semiannual income check from the Trustee or reinvesting the
distribution in an open-end diversified management investment company offered by
the Sponsor or by one of the Underwriters whose investment objective is to
attain for investors the highest level of current income that is exempt from
Federal income taxes, consistent with liquidity and the preservation of capital.
Participation in any such fund is conditioned on such fund's lawful
qualification for sale in the jurisdiction in which the Unit Holder resides.
There can be no assurance, however, that such qualification will be obtained.
Upon enrollment in the reinvestment program, the Trustee will direct monthly or
semiannual interest distributions and principal distributions, if any, to the
designated fund. This Reinvestment Program does not involve insured securities.
The appropriate prospectus will be sent to the Unit Holder. A Unit Holder's
election to participate in this reinvestment program will apply to all Units of
the Trust owned by such Unit Holder. The Unit Holder should read the prospectus
for the fund carefully before deciding to participate. The Sponsor may terminate
or modify the reinvestment program at any time without further notice to Unit
Holders.
EXPENSES AND CHARGES
ORGANIZATION COSTS
All or a portion of the organizational expenses and charges incurred in
connection with the establishment of the Trust including the cost of the
preparation, printing and execution of the Indenture, the Certificates,
Registration Statement and other documents relating to the Trust, Federal and
State registration fees and costs, the initial fees and expenses of the Trustee,
and legal and auditing expenses and other out-of-pocket expenses will be borne
by the Unit Holders. Advertising and selling expenses will be paid by the
Sponsor and the Underwriters, if any, at no cost to the Trust.
TRUST FEES AND EXPENSES
The Portfolio supervision fee (the "Supervision Fee") which is earned for
Portfolio supervisory services, is based upon the aggregate face amount of
Securities in the Trust at the beginning of each calendar year.
The Supervision Fee, which is not to exceed the amount (set forth in
Part A--"Summary of Essential Information") per $1,000 face amount of Securities
in the Trust, may exceed the actual costs of providing Portfolio supervisory
services for such Trust, but at no time will the total amount the Sponsor and/or
an affiliate thereof receive for Portfolio supervisory services rendered to all
series of National Municipal Trust and Prudential Unit Trusts in any calendar
year exceed the aggregate cost to it of supplying such services in such year.
For a description of the Portfolio supervisory services to be provided by the
Sponsor and/or an affiliate thereof, see "Sponsor--Responsibility." The
Supervision Fee will be paid to the Sponsor by the Trust. The Prudential
Insurance Company of America, the indirect parent of the Sponsor, or a division
or subsidiary thereof, has agreed to advise the Sponsor regarding the Sponsor's
Portfolio supervisory services and will be compensated by the Sponsor for such
advisory services.
For its service as Trustee under the Indenture, the Trustee receives an
annual fee in the amount set forth under Part A--"Summary of Essential
Information."
For each evaluation of the Securities in a Trust, the Evaluator will
receive a fee in the amount set forth under Part A--"Summary of Essential
Information."
If actual expenses exceed the estimated amounts, such excess will be borne
by the Trust.
B-22
<PAGE>
AUTHORIZATION FOR REINVESTMENT
NATIONAL MUNICIPAL TRUST SERIES 193
I hereby elect to participate in the Reinvestment Program to the extent
indicated below and do authorize The Chase Manhattan Bank, Trustee, to direct
distributions as indicated below to the Prudential Tax Free Money Fund, Inc.
where such amounts shall immediately be invested into shares of the fund.
The foregoing authorization is subject in all respects to the terms and
conditions of participation set forth in the National Municipal Trust prospectus
and shall remain in effect until such time as I notify The Chase Manhattan Bank
to the contrary in writing.
(fold here)
- --------------------------------------------------------------------------------
Soc. Sec./Tax I.D. No.: ___________________________
Please reinvest all NMT series which
Series h I/we own
Please list below the specific series
h I/we wish to reinvest
------------------------------------
------------------------------------
------------------------------------
Check One h Reinvest Interest
h Reinvest Principal
h Reinvest Both Interest and Principal
Exact registration as it
appears on your Units:
Street address:
City, State, Zip Code:
Unit Holder Signature(s): Date:
(all joint holders must sign)
<PAGE>
REINVESTMENT ADDRESS
--------------------
THE CHASE MANHATTAN BANK
ATTN: DIVIDEND REINVESTMENT--DEPT. A
P.O. BOX 834
NEW YORK, N.Y. 10003
<PAGE>
The Supervision Fee accrues quarterly but is paid annually, and the
Trustee's fees and the Trust expenses and the Evaluator's fees are payable
monthly on or before each Distribution Date from the Interest Account, to the
extent funds are available, and thereafter from the Principal Account. Any of
such fees may be increased without approval of the Unit Holders in proportion to
increases under the classification "All Services Less Rent" in the Consumer
Price Index published by the United States Department of Labor. The Trustee also
receives benefits to the extent that it holds funds on deposit in various
non-interest bearing accounts created under the Indenture.
OTHER CHARGES
The following additional charges are or may be incurred by the Trust as
more fully described in the Indenture: (a) fees of the Trustee for extraordinary
services, (b) expenses of the Trustee (including legal and auditing expenses)
and of counsel designated by the Sponsor, (c) various governmental charges,
(d) expenses and costs of any action taken by the Trustee to protect a Trust and
the rights and interests of the Unit Holders, (e) indemnification of the Trustee
for any losses, liabilities or expenses incurred by it in the administration of
a Trust without gross negligence, bad faith, willful misfeasance or willful
misconduct on its part or reckless disregard of its obligations and duties, (f)
indemnification of the Sponsor for any losses, liabilities and expenses incurred
in acting as Sponsor or Depositor under the Indenture without gross negligence,
bad faith, willful misfeasance or willful misconduct or reckless disregard of
its obligations and duties, (g) expenditures incurred in contacting Unit Holders
upon termination of the Trust and (h) to the extent then lawful, expenses
(including legal, auditing and printing expenses) of maintaining registration or
qualification of the Units and/or the Trust under Federal or state securities
laws so long as the Sponsor is maintaining a market for the Units.
The fees and expenses set forth herein for the Trust are payable out of
such Trust and when so paid by or owing to the Trustee are secured by a lien on
such Trust. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by a Trust, the Trustee has the
power to sell Securities to pay such amounts. To the extent Securities are sold,
the size of such Trust will be reduced and the proportions of the types of
Securities will change. Such sales might be required at a time when Securities
would not otherwise be sold and might result in lower prices than might
otherwise be realized. Moreover, due to the minimum principal amount in which
Securities may be required to be sold, the proceeds of such sales may exceed the
amount necessary for the payment of such fees and expenses.
RIGHTS OF UNIT HOLDERS
CERTIFICATES
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsor. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit Holder may be required to pay $2.00 per certificate reissued or
transferred, and will be required to pay any governmental charge that may be
imposed in connection with each such transfer or interchange. For new
certificates issued to replace destroyed, stolen or lost certificates, the Unit
Holder must furnish indemnity satisfactory to the Trustee and must pay such
expenses as the Trustee may incur. Mutilated Certificates should be surrendered
to the Trustee for replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest and principal received by the Trust will be distributed on each
Distribution Date on a pro rata basis to Unit Holders of record as of the
preceding Record Date unless distributed to the Sponsor in payment of the DSC.
All distributions will be net of applicable expenses, funds required for the
redemption of Units and, if applicable, reimbursements to the Trustee for
interest payments advanced to Unit Holders on previous monthly Distribution
Dates. (See "Summary of Essential Information," "Expenses and Charges" and
"Rights of Unit Holders--Redemption.")
The Trustee will credit to the Interest Account all interest received by
the Trust, including that part of the proceeds of any disposition of Securities
which represents accrued interest. Other receipts will be credited to the
Principal Account. The pro rata share of the Interest Account and the pro rata
share of cash in the Principal Account represented by each Unit will be computed
by the Trustee each month as of the Record Date. (See "Summary of Essential
Information" in Part A.) Proceeds received from the disposition of any of the
Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account and will not be
distributed until the following Distribution Date. The distribution to Unit
Holders as of each Record Date will be made on the following Distribution Date
or shortly thereafter and shall consist of an amount substantially equal to
one-twelfth of such Unit Holders' pro rata share of the estimated annual income
to be credited to the Interest Account after deducting estimated expenses (the
"Interest Distribution") plus such Unit Holders' pro rata share of the cash
balance in the Principal Account computed as of the close of business on the
preceding Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units. No distribution need be
made from the Principal Account if the balance therein is less than an amount
sufficient to distribute $5.00
B-23
<PAGE>
per Unit. The Interest Distribution per Unit initially will be in the amount
shown under "Summary of Essential Information" in Part A and will change as the
income and expenses of the Trust change and as Securities are exchanged,
redeemed, paid down or sold.
Normally, interest on the Securities in the Portfolio is paid on a
semiannual basis. Because interest is not received by a Trust at a constant rate
throughout the year, any Monthly Interest Distribution may be more or less than
the amount credited to the Interest Account as of the Record Date. In order to
eliminate fluctuations in monthly interest distributions resulting from such
variances the Trustee is required by the Indenture to advance such amounts as
may be necessary to provide monthly interest distributions of approximately
equal amounts. The Trustee will be reimbursed, without interest, for any such
advance from funds available from the Interest Account on the next ensuing
Record Date or Record Dates, as the case may be. If all or a portion of the
Securities for which advances have been made subsequently fail to pay interest
when due, the Trustee may recoup advances made by it in anticipation of receipt
of interest payments on such Securities by reducing the amount otherwise
distributable per Unit with respect to one or more Monthly Interest
Distributions. If units are redeemed subsequent to such advances by the Trustee,
but prior to receipt by the Trustee of actual notice of such failure to pay
interest, the amount of which was so advanced by the Trustee, each remaining
Unit Holder will be subject to a greater pro rata reduction in his Monthly
Interest Distribution than would have occurred absent such redemptions. Funds
which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to Unit Holders and
are available for use by The Chase Manhattan Bank, pursuant to normal banking
procedures. In addition, because of the varying interest payment dates of the
Securities comprising the Trust's Portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit Holders. This excess accrued but undistributed amount
(the "accrued interest carryover") will be added to the value of the Units on
any purchase after the date of the Prospectus. If a Unit Holder sells all or a
portion of his Units a portion of his sale proceeds will be allocable to his
proportionate share of the accrued interest. Similarly, if a Unit Holder redeems
all or a portion of his Units, the Redemption Price per Unit which he is
entitled to receive from the Trustee will include accrued interest. (See "Rights
of Unit Holders--Redemption--Computation of Redemption Price per Unit.")
Purchasers of Units who desire to receive distributions on a semi-annual
basis (if available) may elect to do so at the time of purchase during the
initial public offering period. Those indicating no choice will be deemed to
have chosen the monthly distribution plan. All Unit Holders, however, purchasing
Units during the initial public offering period and prior to the first Record
Date will receive the first distribution of interest. Thereafter, record dates
for monthly distributions will be the tenth day of each month, and record dates
for semi-annual distributions will be the tenth day of July and January.
The plan of distribution selected by a Unit Holder will remain in effect
until changed. Unit Holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. In November of each year, the Trustee will furnish each Unit Holder a
card to be returned to the Trustee by December 20 of such year if the Unit
Holder desires to change such Unit Holder's plan of distribution. Unit Holders
desiring to change the plan of distribution in which they are participating may
so indicate on the card and return same, together with their Certificate to the
Trustee. If the card and Certificate are returned to the Trustee, the change
will become effective on December 21 of such year for the ensuing twelve months.
If the card and Certificate are not returned to the Trustee, the Unit Holder
will be deemed to have elected to continue with the same plan for the following
twelve months.
As of the tenth day of each month the Trustee will deduct from the Interest
Account and, to the extent funds are not sufficient therein, from the Principal
Account, amounts necessary to pay the expenses of the Trust. (See "Expenses and
Charges.") The Trustee may also withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part of
a Trust's assets for purposes of determining the amount of distributions until
such time as the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units by the Trustee. (See "Rights of Unit Holders--Redemption.")
The Trustee is also entitled to withdraw from the Interest Account, and, to the
extent funds are not sufficient therein, from the Principal Account, on one or
more record dates as may be appropriate, amounts sufficient to recoup advances
which the Trustee has made in anticipation of the receipt by the Trust of
interest in respect of Securities which subsequently fail to pay interest when
due.
In an effort to reduce the amount of accrued interest which investors would
have to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to the Trust the amount of accrued interest due on the Securities
through the first expected settlement date. This accrued interest amount will be
paid to the Sponsor as the holder of record of all Units on such date.
Consequently, when the Sponsor sells Units after the date of the Prospectus, the
amount of accrued interest to be added to the Public Offering Price of the Units
purchased by an investor will include only accrued interest from the first
expected settlement date to, but not including, the date of settlement of the
investor's purchase (normally three business days after purchase), less any
distributions from the Interest Account. Since a person who contracts to
purchase Units on the date of the prospectus will settle such purchase on the
first expected settlement date of the Units, no accrued interest will be added
to the Public Offering Price. The Trustee will recover its advancements to the
Trust (without interest or other cost to the Trust) from interest received on
the Securities deposited in the Trust.
B-24
<PAGE>
REPORTS AND RECORDS
The Trustee shall furnish Unit Holders in connection with each distribution
a statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. In the event that the Issuer of any of the Securities fails to make
payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be distributed as a distribution, the
Trustee will, with the first such distribution following such failure, set forth
in an accompanying statement, the Issuer and the Securities, the amount of the
reduction in the distribution per Unit resulting from such failure, the
percentage of the aggregate face amount of Securities which such Security
represents and, to the extent then determined, information regarding any
disposition or legal action with respect to such Security. Within a reasonable
time after the end of each calendar year, the Trustee will furnish to each
person who at any time during the calendar year was a Unit Holder of record, a
statement showing: (1) as to the Interest Account: interest received (including
amounts representing interest received upon any disposition of Securities), and,
if the Issuers of the Securities are located in different states or possessions
or in the Commonwealth of Puerto Rico, the percentage of such interest by such
states or other jurisdictions, deductions for payment of applicable taxes and
for fees and expenses of the Trust, deferred sales charge, redemptions of Units,
and the balance remaining after such distributions and deductions, expressed
both as a total dollar amount and as a dollar amount representing the pro rata
share of each Unit outstanding on the last business day of such calendar year;
(2) as to the Principal Account: the dates of disposition of any Securities and
the net proceeds received therefrom (excluding any portion representing interest
and any premium paid to obtain Permanent Insurance), deductions for payments of
applicable taxes and for fees and expenses of the Trust and redemptions of
Units, deferred sales charge, and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (3) a list of the Securities held and the number of
Units outstanding on the last business day of such calendar year; (4) the
Redemption Price per Unit based upon the last computation thereof made during
such calendar year; and (5) amounts actually distributed during such calendar
year from the Interest Account and from the Principal Account, separately
stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year. The accounts of the Trust shall be audited not less
frequently than annually by independent certified public accountants designated
by the Sponsor, and the report of such accountants will be furnished by the
Trustee to Unit Holders upon request. The Trustee shall keep available for
inspection by Unit Holders at all reasonable times during usual business hours,
books of record and account of its transactions as Trustee including records of
the names and addresses of Unit Holders, certificates issued or held, a current
list of Securities in the portfolio and a copy of the Indenture.
REDEMPTION
Tender of Units
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 4 New York Plaza, New York, New York 10004, upon payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions without
the necessity of certificate presentation will be effected for record Unit
Holders for whom Certificates have not been issued. Unit Holders must sign
exactly as their names appear on the face of the Certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member firm
of either the New York, Midwest or Pacific Stock Exchanges. In certain instances
the Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within three business days following such tender, or if the third business
day is not a business day, on the first business day prior thereto, the Unit
Holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the "Summary of Essential Information" in Part A on the date of tender.
(See "Redemption--Computation of Redemption Price per Unit.") The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time, the date of
tender is the first day after such date on which the New York Stock Exchange is
open for trading, and such Units will be deemed to have been tendered to the
Trustee on such day for redemption at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the size
and diversity of the Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or trading on that Exchange is restricted or during which (as
determined by the Securities and Exchange Commission by rule or regulation) an
emergency exists as a result of which disposal or evaluation of the underlying
Securities is not reasonably practicable, or for such
B-25
<PAGE>
other periods as the Securities and Exchange Commission has by order permitted.
The Trustee is not liable to any person or in any way for any loss or damage
that may result from any such suspension or postponement.
Computation of Redemption Price per Unit
The Redemption Price per Unit ("Redemption Price") of the Trust is
determined by the Trustee on the basis of the bid prices of the Securities in
the Trust (or contracts for Securities to be acquired by the Trust) as of the
Evaluation Time on the date any such determination is made. The Redemption Price
per Unit is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in the Trust (or contracts for securities to
be acquired by the Trust) on the bid side of the market (determined by the
Evaluator as set forth below), (2) cash on hand in the Trust, and accrued and
unpaid interest on the Securities as of the date of computation, less
(a) amounts representing taxes or governmental charges payable out of the Trust,
(b) the accrued expenses of the Trust, (c) any unpaid DSC and (d) cash held for
distribution to Unit Holders of record as of a date prior to the evaluation.
Accrued interest payable in respect of the Units from the date of tender to, but
not including, the third business day thereafter also comprises a part of the
Redemption Price per Unit. The Evaluator may determine the value of the
Securities in the Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the basis
of current bid prices for comparable securities, (3) by appraisal, or (4) by any
combination of the above. In determining the Redemption Price per Unit no value
will be attributed to the Portfolio Insurance obtained by an Insured Trust on a
Security or to an Insured Trust's right to obtain Permanent Insurance on such
Security in the event of its sale of such Security, unless such Security is in
default in payment of principal or interest or in significant risk of such
default. Securities insured under a policy obtained by the issuer thereof or by
the Sponsor on the Date of Deposit are entitled to the benefits of such
insurance at all times and such benefits are reflected and included in the
market value of such Securities. (See "The Trust--Insurance on the Securities in
the Portfolio of an Insured Trust.")
Purchase by the Sponsor of Units Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any tender of
Units for redemption. So long as the Sponsor is maintaining a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit Holder in
an amount not less than the Redemption Price not later than the day on which the
Units would otherwise have been redeemed by the Trustee. (See "Public Offering
of Units--Secondary Market.") Units held by the Sponsor may be tendered to the
Trustee for redemption as any other Units.
The price of any Units resold by the Sponsor will be the Public Offering
Price determined in the manner provided in this Prospectus. (See "Public
Offering of Units--Public Offering Price.") Any profit resulting from the resale
of such Units will belong to the Sponsor which likewise will bear any loss
resulting from a lower Public Offering or Redemption Price subsequent to its
acquisition of such Units. (See "Public Offering of Units--Profit of Sponsor.")
SPONSOR
Prudential Securities Incorporated is a Delaware corporation and is engaged
in the underwriting, securities and commodities brokerage business and is a
member of the New York Stock Exchange, Inc., other major securities exchanges
and commodity exchanges and the National Association of Securities Dealers, Inc.
Prudential Securities Incorporated, a wholly-owned subsidiary of Prudential
Securities Group Inc. and an indirect wholly-owned subsidiary of The Prudential
Insurance Company of America, is engaged in the investment advisory business.
Prudential Securities Incorporated has acted as principal underwriter and
managing underwriter of other investment companies. In addition to participating
as a member of various selling groups or as an agent of other investment
companies, Prudential Securities Incorporated executes orders on behalf of
investment companies for the purchase and sale of securities of such companies
and sells securities to such companies in its capacity as a broker or dealer in
securities.
Prudential Securities is distributor for series of Prudential Government
Securities Trust, The Blackrock Government Income Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc., Prudential Allocation Fund, Prudential California
Municipal Fund, Prudential Distressed Securities Fund, Inc., Prudential
Diversified Bond Fund, Inc., Prudential Dryden Fund, Prudential Emerging Growth
Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc., The
Global Government Plus Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Global Natural Resources Fund, Inc., The Global Total Return
Fund, Inc., Prudential Government Income Fund, Prudential High Yield Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Intermediate
Global Income Fund, Inc., Prudential Jennison Series Fund, Inc., Prudential
MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc., Prudential
MultiSector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
Series Fund, Prudential Naitonal Municipals Fund, Inc., Prudential Pacific
Growth Fund, Inc., Prudential Small Companies Fund, Inc., Prudential Special
Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc., and Prudential World
Fund, Inc.
B-26
<PAGE>
LIMITATIONS ON LIABILITY
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Indenture, but will be under no liability to Unit
Holders for taking any action or refraining from any action in good faith or for
errors in judgment or liable or responsible in any way for depreciation or loss
incurred by reason of the sale of any Securities, except in case of its own
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. (See "Sponsor--Responsibility.")
RESPONSIBILITY
The Trust is a unit investment trust and is not actively managed. The
Indenture, however, permits the Sponsor to direct the Trustee to dispose of any
Security in the Trust upon the happening of certain events including the payment
of the DSC, including without limitation, the following:
1. Default in the payment of principal or interest on any Security
when due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin the
payment of any Security or attacking its validity,
3. A breach of covenant or warranty which could adversely affect the
payment of debt service on the Security,
4. Default in the payment of principal or interest on any other
outstanding obligations of the Issuer of any Security,
5. In the case of a Security that is a revenue bond, a fall in
revenues, based upon official reports, substantially below the
estimated revenues calculated to be necessary to pay principal and
interest,
6. A decline in market price to such an extent, or such other market
or credit factor, as in the opinion of the Sponsor would make
retention of a Security detrimental to the Trust and to the
interests of the Unit Holders,
7. Refunding or refinancing of the Security, as set forth in the
Indenture, or
8. The loss of Federal income tax exemption with respect to interest
on the Security and,
in the case of an Insured Trust, a determination by the Sponsor that any
insurance that may be applicable to the Security cannot be relied upon to
maintain the interests of such Insured Trust to at least as great an extent as
such disposition. An Insured Trust will obtain and pay a premium for the
Permanent Insurance upon the sale of a Security if the Sponsor determines that
such sale and payment of premium will result in a net realization of such
Insured Trust greater than would the sale of such Security without the purchase
of such Permanent Insurance.
The Sponsor and/or an affiliate thereof intend to continuously monitor
developments affecting the Securities in each Trust in order to determine
whether the Trustee should be directed to dispose of any such Securities.
It is the responsibility of the Sponsor to instruct the Trustee to reject
any offer made by an Issuer of any of the Securities to issue new obligations in
exchange and substitution for any Security pursuant to a refunding or
refinancing plan, except that the Sponsor may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsor
may deem proper if the Issuer is in default with respect to such Security or in
the judgment of the Sponsor the Issuer will probably default in respect to such
Security in the foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Indenture to the same extent
as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for any of the underlying
Securities, the Trustee is required to give notice thereof to each Unit Holder,
identifying the Securities eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited and any
additional Securities supplementally deposited in the Trust (see "The Trust"
herein), and/or a Replacement Security is prohibited.
RESIGNATION
If at any time the Sponsor shall resign under the Indenture or shall fail
to perform or be incapable of performing its duties thereunder or shall become
bankrupt or if its affairs are taken over by public authorities, the Indenture
directs the Trustee to either (1) appoint a successor Sponsor or Sponsors at
rates of compensation deemed reasonable by the Trustee not exceeding amounts
prescribed by the Securities and Exchange Commission, or (2) terminate the
Trust. The Trustee will promptly notify Unit Holders of any such action.
TRUSTEE
The Trustee is The Chase Manhattan Bank, a New York Bank with its principal
executive office located at 270 Park Avenue, New York, New York 10017 and its
unit investment trust office at 4 New York Plaza, New York, New York 10004. The
Trustee is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System. In connection with the storage and handling of
certain Securities deposited in a
B-27
<PAGE>
Trust, the Trustee may use the services of the Depository Trust Company. These
services may include safekeeping of the Securities and coupon-clipping, computer
book-entry transfer and institutional delivery services. The Depository Trust
Company is a limited purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System and a clearing
agency registered under the Securities Exchange Act of 1934.
LIMITATIONS ON LIABILITY
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
Certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In addition, the Indenture provides that the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future laws of the United States or any other authority having
jurisdiction.
RESPONSIBILITY
For information relating to the responsibilities of the Trustee under the
Indenture, reference is made to the material set forth under "Rights of Unit
Holders" and "Sponsor--Resignation."
RESIGNATION
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove the Trustee and appoint a successor
as provided in the Indenture. The Sponsor may also remove the Trustee in the
event that the Sponsor determines that the Trustee has materially failed to
perform its duties under the Indenture and the interest of Unit Holders has been
substantially impaired as a result, and such failure has continued for a period
of sixty days following the Trustee's receipt of notice of such determination by
the Sponsor. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If upon resignation of a
trustee no successor has been appointed or, if appointed, has not accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of J.J. Kenny
Co., Inc., with main offices located at 65 Broadway, New York, New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and Unit Holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Indenture shall be made in good faith
upon the basis of the best information available to it, provided, however, that
the Evaluator shall be under no liability to the Trustee, the Sponsor, or Unit
Holders for errors in judgment. This provision shall not protect the Evaluator
in cases of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
RESPONSIBILITY
The Indenture requires the Evaluator to evaluate the Securities in a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering or bid prices as
appropriate, see "Public Offering of Units--Public Offering Price."
RESIGNATION
The Evaluator may resign or may be removed by the Sponsor, and in such
event, the Sponsor is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall become effective upon the
acceptance of appointment by a successor evaluator. If upon resignation of the
Evaluator no successor has accepted appointment within thirty days after notice
of resignation, the Evaluator may apply to a court of competent jurisdiction for
the appointment of a successor.
B-28
<PAGE>
AMENDMENT AND TERMINATION OF THE INDENTURE
AMENDMENT
The Sponsor and the Trustee have the power to amend the Indenture without
the consent of any of the Unit Holders when such an amendment is: (1) to cure
any ambiguity or to correct or supplement any provision of the Indenture which
may be defective or inconsistent with any other provision contained therein, or
(2) to make such other provisions as shall not adversely affect the interests of
the Unit Holders; provided, that the Indenture may also be amended by the
Sponsor and the Trustee (or the performance of any of the provisions of the
Indenture may be waived) with the consent of Unit Holders owning 51% of the
Units of the Trust at the time outstanding for the purposes of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of Unit Holders. In no
event, however, shall the Indenture be amended to increase the number of Units
issuable thereunder, to permit the deposit or acquisition of securities or other
property either in addition to or in substitution for any of the Securities
initially deposited in the Trust, except for the substitution of certain
refunding securities for such Securities as initially provided in the Indenture,
or to provide the Trustee with the power to engage in business or investment
activities not specifically authorized in the Indenture as originally adopted or
so as to adversely affect the characterization of the Trust as a grantor trust
for federal income tax purposes. In the event of any amendment, the Trustee is
obligated to notify promptly all Unit Holders of the substance of such
amendment.
TERMINATION
The Trust may be terminated at any time by the consent of the holders of
51% of the Units or by the Trustee upon the direction of the Sponsor when the
value of the Trust as shown on the last business day of June or December in any
year is less than 40% of the principal amount of the Securities initially
deposited therein supplemented by the deposit of additional Securities, if any.
However, in no event may the Trust continue beyond the Mandatory Termination
Date set forth under "Summary of Essential Information in Part A." In the event
of termination, written notice thereof will be sent by the Trustee to all Unit
Holders. Within a reasonable period after termination, the Trustee will sell any
Securities remaining in a Trust, and, after paying all expenses and charges
incurred by a Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts. The sale of Securities in the
Trust upon termination may result in a lower amount than might otherwise be
realized if such sale were not required at such time. For this reason, among
others, the amount realized by a Unit Holder upon termination may be less than
the principal amount of Securities represented by the Units held by such Unit
Holder.
B-29
<PAGE>
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby have been
passed upon by Messrs. Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005, as special
counsel for the Sponsor.
AUDITORS
The financial statements of the Trusts included in this Prospectus have
been audited by Deloitte & Touche LLP, certified public accountants, as stated
in their report appearing herein, and are included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
BOND RATINGS+
ALL RATINGS EXCEPT THOSE IDENTIFIED OTHERWISE ARE BY STANDARD & POOR'S
CORPORATION.
STANDARD & POOR'S CORPORATION
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse affects of
changes in circumstances and economic conditions than bonds in higher-rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally
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+ As described by the rating agencies.
B-30
<PAGE>
regarded as eligible for bank investment. In addition, the Legal Investment Laws
of various states impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance companies
and fiduciaries generally.
Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
MOODY'S INVESTORS SERVICE
A brief description of the applicable Moody's Investors Service's rating
symbols and their meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. Aa bonds are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Those municipal bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1 and Baa1. In addition, Moody's applies numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category. Although Industrial Revenue Bonds and Environmental
Control Revenue Bonds are tax-exempt issues, they are included in the corporate
bond rating system.
Conditional ratings, indicated by "Con" are given to bonds for which the
security depends upon the completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. A parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
FITCH INVESTORS SERVICE, INC.
A brief description of the applicable Fitch Investors Service, Inc. rating
symbols and their meanings is as follows:
AAA--Bonds which are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds which are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong although not quite as strong as bonds rated AAA.
A--Bonds which are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds which are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that these bonds will fall
below investment grade is higher than for bonds with higher ratings.
- ------------------
NR--Not rated (credit characteristics comparable to A or better (BBB or better
in the case of an insured trust) in the opinion of the Sponsor's affiliate on
the Date of Deposit).
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<PAGE>
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", "DDD", "DD" or "D" categories.
Conditional--A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
FEDERAL TAX-FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns equivalent
to specified tax-exempt bond yields for an individual calendar year investor.
The table is computed on the theory that the taxpayer's highest bracket tax rate
is applicable to the entire amount of any increase or decrease in his taxable
income resulting from a switch from taxable to tax-exempt securities or vice
versa. The table reflects the Federal income tax rates and tax brackets for the
1998 taxable year under the Code as in effect on the date of this Prospectus.
Because the Federal rate brackets are subject to adjustment based on changes in
the Consumer Price Index, the taxable equivalent yields for subsequent years may
vary somewhat from those indicated in the table. Use this table to find your tax
bracket. Read the columns below to determine the approximate taxable yield you
would need to equal a return free of Federal income tax.
1998 TAX YEAR
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$25,351 $61,401 $128,101
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
SINGLE RETURN $25,350 $61,400 $128,100 $278,450 $278,450
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$42,351 $102,301 $155,951
TAXABLE INCOME BRACKET* UP TO TO TO TO OVER
JOINT RETURN $42,350 $102,300 $155,950 $278,450 $278,450
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FEDERAL TAX RATE 15% 28% 31% 36% 39.6%
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TAX EXEMPT YIELD TAXABLE EQUIVALENT YIELD
4.00% 4.705 5.555 5.797 6.250 6.622
4.50 5.294 6.250 6.521 7.031 7.450
5.00 5.882 6.944 7.246 7.812 8.278
5.50 6.470 7.638 7.971 8.593 9.105
6.00 7.059 8.333 8.696 9.375 9.933
6.50 7.647 9.028 9.420 10.156 10.761
7.00 8.235 9.722 10.145 10.937 11.589
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* The income amount shown is income subject to Federal income tax reduced by
adjustments to income, exemptions, and itemized deductions or the standard
deduction. It is assumed that the investor is not subject to the alternative
minimum tax. Where applicable, investors should take into account the
provisions of the Code under which the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of higher
income individuals. Under the Code, individual taxpayers with adjusted gross
income in excess of a $124,500 threshold amount are subject to an overall
limitation on certain itemized deductions, requiring a reduction equal to the
lesser of (i) 3% of adjusted gross income in excess of the $124,500 threshold
amount or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased-out for married
taxpayers filing a joint return with adjusted gross income in excess of
$186,800 and for single taxpayers with adjusted gross income in excess of
$124,500. Personal exemptions are phased out at the rate of two percentage
points for each $2,500 (or fraction thereof) of adjusted gross income in
excess of the applicable threshold amount. The Federal tax brackets, the
threshold amounts at which itemized deductions are subject to reduction, and
the range over which personal exemptions are phased out will be adjusted for
inflation for each year after 1998.
B-32
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THIS INVESTMENT COMPANY NOT CONTAINED HEREIN;
AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
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This Prospectus contains information concerning the Trust and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Trust has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
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INDEX
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PAGE
-----
Risk Considerations................................................... A- 1
Summary of Essential Information...................................... A- 3
Independent Auditors' Report.......................................... A- 7
Statement of Financial Condition...................................... A- 8
National Municipal Trust, The Trust................................... B- 1
Portfolio Summary.................................................. B- 2
Insurance on the Securities in the Portfolio of an Insured Trust... B- 9
Objectives and Securities Selection................................ B-14
Estimated Annual Income Per Unit................................... B-14
Tax Status............................................................ B-15
Public Offering of Units.............................................. B-18
Public Offering Price.............................................. B-18
Public Distribution................................................ B-19
Secondary Market................................................... B-19
Sponsor's and Underwriters' Profits................................ B-19
Volume Discount.................................................... B-20
Secondary Market Sales Charge...................................... B-20
Employee Discount.................................................. B-21
Exchange Option....................................................... B-21
Tax Consequences................................................... B-22
Reinvestment Program.................................................. B-22
Expenses and Charges.................................................. B-22
Organization Costs................................................. B-22
Trust Fees and Expenses............................................ B-22
Other Charges...................................................... B-23
Rights of Unit Holders................................................ B-23
Certificates....................................................... B-23
Distribution of Interest and Principal............................. B-23
Reports and Records................................................ B-25
Redemption......................................................... B-25
Sponsor............................................................... B-26
Limitations on Liability........................................... B-27
Responsibility..................................................... B-27
Resignation........................................................ B-27
Trustee............................................................... B-27
Limitations on Liability........................................... B-28
Responsibility..................................................... B-28
Resignation........................................................ B-28
Evaluator............................................................. B-28
Limitations on Liability........................................... B-28
Responsibility..................................................... B-28
Resignation........................................................ B-28
Amendment and Termination of the Indenture............................ B-29
Amendment.......................................................... B-29
Termination........................................................ B-29
Legal Opinions........................................................ B-30
Auditors.............................................................. B-30
Bond Ratings.......................................................... B-30
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SERIES 193
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NATIONAL TRUST--10,000 UNITS
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10,000 UNITS
in a diversified
PORTFOLIO of
municipal bonds
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Sponsor
Prudential Securities Incorporated
One Seaport Plaza
199 Water Street
New York, New York 10292
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