<PAGE>
DEFINED ASSET FUNDSSM
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INSURED TAXABLE FUND
(A UNIT INVESTMENT TRUST)
O PORTFOLIO OF INSURED LONG TERM BONDS
O TAXABLE TO U.S. INVESTORS
O U.S. TAX EXEMPT FOR MANY FOREIGN INVESTORS
O INCOME DISTRIBUTIONS TWICE A YEAR
SPONSORS: -------------------------------------------------
Merrill Lynch, The Securities and Exchange Commission has not
Pierce, Fenner & Smith approved or disapproved these Securities or
Incorporated passed upon the adequacy of this prospectus. Any
Salomon Smith Barney Inc. representation to the contrary is a criminal
PaineWebber Incorporated offense.
Dean Witter Reynolds Inc. Prospectus dated January 29, 1999.
<PAGE>
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Def ined Asset FundsSM
DEFINED ASSET FUNDSSM IS AMERICA'S OLDEST AND LARGEST FAMILY OF UNIT INVESTMENT
TRUSTS WITH OVER $115 BILLION SPONSORED IN THE LAST 25 YEARS. OUR FAMILY OF
DEFINED FUNDS HELPS INVESTORS WORK TOWARD THEIR FINANCIAL GOALS WITH A FULL
RANGE OF QUALITY INVESTMENTS, INCLUDING MUNICIPAL, CORPORATE AND GOVERNMENT BOND
PORTFOLIOS, EQUITY PORTFOLIOS AND DOMESTIC AND INTERNATIONAL BOND AND EQUITY
PORTFOLIOS.
DEFINED ASSET FUNDS OFFER A NUMBER OF ADVANTAGES:
O FIXED PORTFOLIO: DEFINED FUNDS FOLLOW A BUY AND HOLD INVESTMENT STRATEGY;
FUNDS ARE NOT MANAGED AND PORTFOLIO CHANGES ARE LIMITED.
O PRESELECTED PORTFOLIOS: WE CHOOSE THE STOCKS AND BONDS IN ADVANCE, SO YOU KNOW
WHAT YOU'RE INVESTING IN.
O PROFESSIONAL RESEARCH: OUR DEDICATED RESEARCH TEAM SEEKS OUT STOCKS OR BONDS
APPROPRIATE FOR A PARTICULAR FUND'S OBJECTIVES.
O ONGOING SUPERVISION: WE MONITOR EACH PORTFOLIO ON AN ONGOING BASIS.
NO MATTER WHAT YOUR INVESTMENT GOALS, TOLERANCE FOR RISK OR TIME HORIZON,
THERE'S PROBABLY A DEFINED ASSET FUND THAT SUITS YOUR INVESTMENT STYLE. YOUR
FINANCIAL PROFESSIONAL CAN HELP YOU SELECT A DEFINED ASSET FUND THAT WORKS BEST
FOR YOUR INVESTMENT PORTFOLIO.
CONTENTS
PAGE
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RISK/RETURN SUMMARY AND PORTFOLIO....................... 3
WHAT YOU CAN EXPECT FROM YOUR INVESTMENT................ 6
INCOME TWICE A YEAR.................................. 6
RETURN FIGURES....................................... 6
RECORDS AND REPORTS.................................. 6
THE RISKS YOU FACE...................................... 7
INTEREST RATE RISK................................... 7
CALL RISK............................................ 7
REDUCED DIVERSIFICATION RISK......................... 7
LIQUIDITY RISK....................................... 7
CONCENTRATION RISK................................... 7
INSURANCE RELATED RISK............................... 8
LITIGATION AND LEGISLATION RISKS..................... 8
SELLING OR EXCHANGING UNITS............................. 8
SPONSORS' SECONDARY MARKET........................... 8
SELLING UNITS TO THE TRUSTEE......................... 9
EXCHANGE OPTION...................................... 9
HOW THE FUND WORKS...................................... 10
PRICING.............................................. 10
EVALUATIONS.......................................... 10
INCOME............................................... 10
EXPENSES............................................. 11
PORTFOLIO CHANGES.................................... 11
FUND TERMINATION..................................... 12
CERTIFICATES......................................... 12
TRUST INDENTURE...................................... 12
LEGAL OPINION........................................ 13
AUDITORS............................................. 13
SPONSORS............................................. 13
TRUSTEE.............................................. 13
UNDERWRITERS' AND SPONSORS' PROFITS.................. 14
PUBLIC DISTRIBUTION.................................. 14
CODE OF ETHICS....................................... 14
YEAR 2000 ISSUES..................................... 14
TAXES................................................... 14
SUPPLEMENTAL INFORMATION................................ 16
FINANCIAL STATEMENTS.................................... 17
REPORT OF INDEPENDENT ACCOUNTANTS.................... 17
STATEMENT OF CONDITION............................... 17
2
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RISK/RETURN SUMMARY
1. WHAT IS THE FUND'S OBJECTIVE?
To provide a high level of current taxable income by
investing in a fixed portfolio consisting primarily of
insured long-term taxable municipal bonds with a duration of
15 to 30 years.
2. WHAT ARE TAXABLE MUNICIPAL BONDS?
O Taxable municipal bonds are typically issued by
municipalities or their agencies for purposes which do not
qualify for federal tax exemption, but do qualify for state
and local tax exemption. These bonds are issued to finance
the cost of buying, building or improving various projects,
such as sporting facilities, health care facilities, housing
projects, electric, water and sewer utilities, and colleges
or universities.
o Generally, payments on these bonds depend on the revenues
generated by the projects, excise taxes or state
appropriations, or the bonds can be backed by the
government's taxing power.
o Due to federal taxation, taxable municipal bonds offer
yields more comparable to other taxable sectors such as
corporate bonds or agency bonds than to other municipal
bonds. These bonds are federally taxable to individuals but
may be exempt from state and local taxes, depending on where
you live.
3. WHAT IS THE FUND'S INVESTMENT STRATEGY?
O The Fund plans to hold to maturity 10 insured, long-term
taxable municipal bonds with an aggregate face amount of
$10,000,000, and some short-term bonds reserved to pay the
deferred sales charge.
o The Fund is a unit investment trust which means that, unlike
a mutual fund, the Fund's portfolio is not managed.
o The bonds are rated AAA or Aaa by Standard & Poor's, Moody's
or Fitch.
o Most of the bonds cannot be called for several years, and
after that they can be called at a premium declining over
time to par value. Some bonds may be called earlier at par
for extraordinary reasons.
o 100% of the bonds are insured by AAA-rated insurance
companies that guarantee timely payments of principal and
interest on the bonds (but not Fund units or the market
value of the bonds before they mature).
The Portfolio consists of taxable municipal bonds of the
following types:
APPROXIMATE
PORTFOLIO
PERCENTAGE
o General Obligation 29%
o Lease Rental 10%
o Special Tax 29%
o Transit Authorities 10%
o State/Local Government Supported 12%
o Industrial Development Revenue 10%
4. WHAT ARE THE SIGNIFICANT RISKS?
YOU CAN LOSE MONEY BY INVESTING IN THE FUND. THIS CAN HAPPEN
FOR VARIOUS REASONS, INCLUDING:
o Rising interest rates, an issuer's worsening financial
condition or a drop in bond ratings can reduce the price of
your units.
o The Fund is concentrated in general obligation and special
tax bonds.
Here are some things you should know about the Fund's
concentration in general obligation bonds:
- -- because these bonds are backed by the issuer's full
faith and credit and taxing power, any limitation on a
government issuer's taxing power may affect repayment of
the bonds.
- -- an issuer's credit can be adversely affected by, among
other things, natural disasters, a decline in industry
and limited access to capital markets.
Payment on special tax bonds may be adversely affected by:
- -- reduction in revenues resulting from a decline in local
economy or population; or
- -- a decline in consumption, cost or use of goods and
services subject to taxation.
o Assuming no changes in interest rates, when you sell your
units, they will generally be worth less than your cost
because your cost included a sales fee.
o The Fund will receive early returns of principal if bonds
are called or sold before they mature. If this happens your
income will decline and you may not be able to reinvest the
money you receive at as high a yield or as long a maturity.
3
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DEFINED PORTFOLIO
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Insured Taxable Fund
<TABLE>
<CAPTION>
RATING COST
PORTFOLIO TITLE COUPON MATURITY (1) OF ISSUES (2) TO FUND (3)
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GENERAL OBLIGATION BONDS (29%):
<S> <C> <C> <C> <C>
1. $1,000,000 City of Chelsea, MA, G.O. State 6.35% 3/1/19 AAA $ 1,003,870.00
Qualified Bonds, Ser. 1999 B (MBIA Ins.)
2. $1,000,000 City of Worcester, MA, G.O. 6.25 1/1/28 AAA 986,770.00
Bonds, Pension Funding Loan of 1998 (FSA
Ins.)
3. $1,000,000 County of Union, PA, G.O. 6.50 11/1/25 Aaa(m) 1,000,000.00
Bonds, Series 1998 A (AMBAC Ins.)
LEASE RENTAL APPROPRIATION (10%):
4. $1,000,000 Unified Govt. of Wyandotte 6.75 12/1/27 AAA 987,370.00
Cnty., Kansas City, KS, Taxable Spec.
Oblig. Rev. Bonds (Kansas Intl. Speedway
Corp., Proj.), Ser. 1999 (MBIA Ins.)
SPECIAL TAX (29%):
5. $1,000,000 City of Phoenix, AZ, Civic Imp. 6.00 7/1/19 AAA 976,950.00
Corp., Excise Tax Rev. Rfdg. Bonds
(Municipal Multipurpose Arena), Ser.
1998 (MBIA Ins.)
6. $1,000,000 San Dieguito, CA, Pub. Fac. 7.00 8/1/18 AAA 1,031,890.00
Auth., Rev. Bonds, Ser. 1998 B (AMBAC
Ins.)
7. $1,000,000 City of Dallas, TX, Spec. Tax 6.625 8/15/27 AAA 1,005,960.00
and Lease Rev. Bonds (Sports Arena Proj.),
Ser. 1998 B
(AMBAC Ins.)
TRANSIT AUTHORITIES (10%):
8. $1,000,000 Alameda, CA, Corridor Trans. 6.50 10/1/19 AAA 1,005,540.00
Auth., Taxable Senior Lien Rev. Bonds,
Ser. 1999 C
(MBIA Ins.)
STATE/LOCAL GOVERNMENT SUPPORTED (12%):
9. $1,000,000 City of Philadelphia, PA, Auth. 6.35 4/15/28 AAA 1,013,230.00
For Ind. Dev., Pension Funding Bonds (City
of Philadelphia Retirement Sys.), Ser.
1999 A (FSA Ins.)
10. $180,000 City of Philadelphia, PA, Auth. 5.05-5.18 4/15/00-01 AAA 180,248.30
For Ind.
Dev., Pension Funding Bonds (City of
Philadelphia
Retirement Sys.), Ser. 1999 A (MBIA
Ins.)(4)
INDUSTRIAL DEVELOPMENT REVENUE (10%):
11. $10,000 Middlesex Cnty. Imp. Auth., NJ, 5.23 9/1/00 AAA 10,079.90
Util. Sys. Rev. Bonds (Perth Amboy
Franchise Acquisition Proj.), Ser. C
(AMBAC Ins.)(4)
12. $1,000,000 Middlesex Cnty. Imp. Auth., 6.00 9/1/13 AAA 1,004,070.00
NJ, Util. Sys. Rev. Bonds (Perth Amboy
Franchise Acquisition Proj.), Ser. C
(AMBAC Ins.)
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$ 10,205,978.20
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</TABLE>
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(1) 40% of the long-term bonds are callable in 2008, 20% are callable in 2009.
40% of the long-term bonds are non-callable. Some bonds could be called
earlier under extraordinary circumstances.
(2) All ratings are by Standard & Poor's Ratings Group unless followed by
'(m)', which indicates a Moody's Investors Service rating or by '(f)',
which indicates a Fitch IBCA rating. An AAA rating indicates highest
quality bonds with a very strong capacity to pay interest and repay
principal.
(3) Approximately 61% of the bonds were deposited at a premium, 10% at par, and
29% at a discount from par. Sponsors' profit on deposit was $99,658.50.
(4) The principal on these bonds will be used to pay the deferred sales charge
obligations of the investors, and these amounts are not included in the
calculation of Estimated Current and Long Term Returns.
------------------------------------
PLEASE NOTE THAT IF THIS PROSPECTUS IS USED AS A PRELIMINARY
PROSPECTUS
FOR A FUTURE FUND IN THIS SERIES, THE PORTFOLIO WILL CONTAIN
DIFFERENT
BONDS FROM THOSE DESCRIBED ABOVE.
4
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5. IS THIS FUND APPROPRIATE FOR YOU?
Yes, if you want taxable semiannual income. You will benefit
from a professionally selected and supervised portfolio
whose risk is reduced by investing in insured bonds of
several different issuers.
The Fund is not appropriate for you if you want a
speculative investment that changes to take advantage of
market movements, if you want a tax-advantaged investment or
if you cannot tolerate any risk.
DEFINING YOUR INCOME AND
ESTIMATING YOUR RETURN
WHAT YOU MAY EXPECT (RECORD DAY: 10th day of
each February and August)
First payment per 1,000 units (8/25/99) $ 33.93
Regular Semi-Annual Income per 1,000 units
(each February and August beginning 2/25/00): $ 31.98
Annual Income per 1,000 units: $ 63.96
These figures are estimates on the business day before the
initial date of deposit; actual payments may vary.
Estimated Current Return 6.19%
Estimated Long Term Return 6.13%
These returns will vary (see page 6)
6. WHAT ARE THE FUND'S FEES AND EXPENSES?
This table shows the costs and expenses you may pay,
directly or indirectly, when you invest in the Fund.
INVESTOR FEES
Maximum Sales Fee (Load) on new
purchases (as a percentage of
$1,000 invested) 2.90%
You will pay an up-front sales fee of 1.00%, as well as a
total deferred sales fee of $19.00 ($2.38 per 1,000 units
quarterly in the first year and $2.37 per 1,000 units
quarterly in the second year). Employees of some of the
Sponsors and their affiliates may be charged a reduced
sales fee of no less than $5.00 per 1,000 Units.
The maximum sales fee is reduced if you invest at least
$100,000, as follows:
YOUR MAXIMUM
SALES FEE
IF YOU INVEST: WILL BE:
----------------------------------- -----------------
Less than $100,000 2.90%
$100,000 to $249,999 2.65%
$250,000 to $499,999 2.40%
$500,000 to $999,999 2.15%
$1,000,000 and over 1.90%
Maximum Exchange Fee 1.90%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
AS A % OF AMOUNT
$1,000 PER 1,000
INVESTED UNITS
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.062% $ 0.63
Trustee's Fee
.035% $ 0.36
Portfolio Supervision,
Bookkeeping and
Administrative Fees
(including updating
expenses)
.013% $ 0.13
Evaluator's Fee
.022% $ 0.22
Other Operating Expenses
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.132% $ 1.34
TOTAL
AMOUNT
PER 1,000
UNITS
---------------------
$ 2.00
ORGANIZATIONAL COSTS (deducted from
Fund assets at the close of the
initial offering period)
The Sponsors historically paid organization costs and
updating expenses.
EXAMPLE
This example may help you compare the cost of investing in
the Fund to the cost of investing in other funds.
The example assumes that you invest $10,000 in the Fund for
the periods indicated and sell all your units at the end of
those periods. The example also assumes a 5% return on your
investment each year and that the Fund's operating expenses
stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
$323 $352 $383 $476
You will pay the following expenses if you do not sell
your units:
1 Year 3 Years 5 Years 10 Years
$228 $352 $383 $476
7. IS THE FUND MANAGED?
Unlike a mutual fund, the Fund is not managed and bonds are
not sold because of market changes. Rather, experienced
Defined Asset Funds financial analysts regularly review the
bonds in the Fund. The Fund may sell a bond if certain
adverse credit or other conditions exist.
4
<PAGE>
8. HOW DO I BUY UNITS?
You can buy units from any of the Sponsors and other
broker-dealers. The Sponsors are listed later in this
prospectus. Some banks may offer units for sale through
special arrangements with the Sponsors, although certain
legal restrictions may apply.
The minimum investment is $250.
UNIT PRICE PER 1,000 UNITS $1,032.71
(as of January 28, 1999)
Unit price is based on the net asset value of the Fund plus
the up-front sales fee. An amount equal to any principal
cash, as well as net accrued but undistributed interest on
the unit, is added to the unit price. Unit price also
includes the estimated organization costs shown on the
previous page. An independent evaluator prices the bonds at
3:30 p.m. Eastern time every business day. Unit price
changes every day with changes in the prices of the bonds
in the Fund.
UNIT PAR VALUE $1.00
Unit par value means the total amount of money you should
generally receive on each unit by the termination of the
Fund (other than interest and premium on the bonds). This
total amount assumes that all bonds in the Fund are either
paid at maturity or called by the issuer at par or are sold
by the Fund at par. If you sell your units before the Fund
terminates, you may receive more or less than the unit par
value.
9. HOW DO I SELL UNITS?
You may sell your units at any time to any Sponsor or the
Trustee for the net asset
value determined at the close of business
on the date of sale, less any remaining
deferred sales fee. You will not pay any other fee when you
sell your units.
10. HOW ARE DISTRIBUTIONS MADE AND TAXED?
The Fund pays income twice a year. Interest on the bonds in
this fund is subject to federal income taxes for U.S.
investors, but if you are a non-U.S. investor, your
interest may be exempt from U.S. federal income taxes,
including withholding taxes. A portion of the income may be
exempt from some state and local taxes, depending on where
you live.
You will also receive principal payments if bonds are sold
or called or mature, when the cash available is more than
$10.00 per 1,000 units. You will be subject to tax on any
gain realized by the Fund on the disposition of bonds.
11. WHAT OTHER SERVICES ARE AVAILABLE?
REINVESTMENT
You will receive your semiannual income in cash unless you
choose to compound your income by reinvesting at no sales
fee in the Corporate Fund Investment Accumulation Program,
Inc. This program is an open-end mutual fund with a
comparable investment objective except that those bonds
will generally not be insured.
Income from this program will be subject to U.S. federal
income taxes for both U.S. and foreign investors. For more
complete information about the program, including charges
and fees, ask the Trustee for the program's prospectus.
Read it carefully before you invest. The Trustee must
receive your written election to reinvest at least 10 days
before the record day of an income payment.
EXCHANGE PRIVILEGES
You may exchange units of this Fund for units of certain
other Defined Asset Funds. You may also exchange into this
Fund from certain other funds. We charge a reduced sales
fee on exchanges.
5
<PAGE>
WHAT YOU CAN EXPECT FROM YOUR INVESTMENT
INCOME TWICE A YEAR
The Fund will pay you regular taxable income twice a year. Your income may vary
because of:
o elimination of one or more bonds from the Fund's portfolio because of
calls, redemptions or sales;
o a change in the Fund's expenses; or
o the failure by a bond's issuer to pay interest.
Changes in interest rates generally will not affect your income because the
portfolio is fixed.
Along with your income, you will receive your share of any available bond
principal.
RETURN FIGURES
We cannot predict your actual return, which will vary with unit price, how long
you hold your investment and changes in the portfolio, interest income and
expenses.
Estimated Current Return equals the estimated annual cash to be received from
the bonds in the Fund less estimated annual Fund expenses, divided by the Unit
Price (including the maximum sales fee):
Estimated Annual Estimated
Interest Income - Annual Expenses
- -------------------------------------------------
Unit Price
Estimated Long Term Return is a measure of the estimated return over the
estimated life of the Fund. Unlike Estimated Current Return, Estimated Long Term
Return reflects maturities, discounts and premiums of the bonds in the Fund. It
is an average of the yields to maturity (or in certain cases, to an earlier call
date) of the individual bonds in the portfolio, adjusted to reflect the Fund's
maximum sales fee and estimated expenses. We calculate the average yield for the
portfolio by weighting each bond's yield by its market value and the time
remaining to the call or maturity date.
Yields on individual bonds depend on many factors including general conditions
of the bond markets, the size of a particular offering and the maturity and
quality rating of the particular issues. Yields can vary among bonds with
similar maturities, coupons and ratings.
These return quotations are designed to be comparative rather than predictive.
RECORDS AND REPORTS
You will receive:
o a statement of income payments twice a year;
o a notice from the Trustee when new bonds are deposited in exchange or
substitution for bonds originally deposited;
o an annual report on Fund activity; and
o annual tax information. This will also be sent to the IRS. You must report the
amount of interest received during the year.
You may request:
o copies of bond evaluations to enable you to comply with federal and state tax
reporting requirements; and
o audited financial statements of the Fund.
You may inspect records of Fund transactions at the Trustee's office during
regular business hours.
6
<PAGE>
THE RISKS YOU FACE
INTEREST RATE RISK
Investing involves risks, including the risk that your investment will decline
in value if interest rates rise. Generally, bonds with longer maturities will
change in value more than bonds with shorter maturities. Bonds in the Fund are
more likely to be called when interest rates decline. This would result in early
returns of principal to you and may result in early termination of the Fund. Of
course, we cannot predict how interest rates may change.
CALL RISK
Many bonds can be prepaid or 'called' by the issuer before their stated
maturity. For example, some bonds may be required to be called pursuant to
mandatory sinking fund provisions.
Also, an issuer might call its bonds during periods of falling interest rates,
if the issuer's bonds have a coupon higher than current market rates.
An issuer might call its bonds in extraordinary cases, including if:
o it no longer needs the money for the original purpose;
o the project is condemned or sold;
o the project is destroyed and insurance proceeds are used to redeem the
bonds; or
o any related credit support expires and is not replaced.
If the bonds are called, your income will decline and you may not be able to
reinvest the money you receive at as high a yield or as long a maturity. An
early call at par of a premium bond will reduce your return.
REDUCED DIVERSIFICATION RISK
If many investors sell their units, the Fund will have to sell bonds. This could
reduce the diversification of your investment and increase your share of Fund
expenses.
LIQUIDITY RISK
The bonds will generally trade in the over-the-counter market. We cannot assure
you that a liquid trading market will exist, especially since current law may
restrict the Fund from selling bonds to any Sponsor. The value of the bonds, and
of your investment, may be reduced if trading in bonds is limited or absent.
CONCENTRATION RISK
When a certain type of bond makes up 25% or more of the portfolio, the Fund is
said to be 'concentrated' in that bond type, which makes the Fund less
diversified.
Here is what you should know about the Fund's concentration in general
obligation bonds:
o general obligation bonds are backed by the issuer's pledge of its full
faith, credit and taxing power;
o but the taxing power of any government issuer may be limited by provisions
of the state constitution or laws as well as political and economic
considerations; and
o an issuer's credit can be negatively affected by various factors, including
population decline that erodes the tax base, natural disasters, decline in
industry, limited access to capital markets or heavy reliance on state or
federal aid.
Here is what you should know about the Fund's concentration in special tax
bonds. Special tax bonds are payable from and secured by the revenues a
municipality derives from a particular tax; for example, a tax on hotel rentals,
on the purchase of food and beverages, car rentals, or liquor consumption.
7
<PAGE>
These bonds are not secured by general tax revenues. Payment on these bonds may
be adversely affected by:
o a reduction in revenues resulting from a decline in the local economy or
population; or
o a decline in the consumption, use or cost of the goods and services that
are subject to taxation.
Changes to the portfolio from bond redemptions, maturities and sales may affect
the Fund's concentration over time.
INSURANCE RELATED RISK
The bonds are backed by insurance companies (as shown under Defined Portfolio).
Insurance policies generally make payments only according to a bond's original
payment schedule and do not make early payments when a bond defaults. Although
the federal government does not regulate the insurance business, various state
laws and federal initiatives and tax law changes could significantly affect the
insurance business. The claims-paying ability of the insurance companies is
generally rated AAA by Standard & Poor's or another nationally recognized rating
organization. The insurance company ratings are subject to change at any time at
the discretion of the rating agencies. The rating of a bond will be reduced if
the rating of its insurer is reduced. A reduction in a bond's rating may
decrease its value and, indirectly, the value of your investment in the Fund.
LITIGATION AND LEGISLATION RISKS
We do not know of any pending litigation that might have a material adverse
effect upon the Fund.
SELLING OR EXCHANGING UNITS
You can sell your units at any time for a price based on net asset value. Your
net asset value is calculated each business day by:
o adding the value of the bonds, net accrued interest, cash and any other
Fund assets;
o subtracting accrued but unpaid Fund expenses, unreimbursed Trustee
advances, cash held to buy back units or for distribution to investors and
any other Fund liabilities; and
o dividing the result by the number of outstanding units.
Your net asset value when you sell may be more or less than your cost because of
sales fees, market movements and changes in the portfolio.
As of the close of the initial offering period, the price you receive will be
reduced to reflect estimated organization costs.
If you sell your units before the final deferred sales fee installment, the
amount of any remaining installments will be deducted from your proceeds.
SPONSORS' SECONDARY MARKET
While we are not obligated to do so, we will buy back units at net asset value
without any other fee or charge other than any remaining deferred sales charge.
We may resell the units to other buyers or to the Trustee. You should consult
your financial professional for current market prices to determine if other
broker-dealers or banks are offering higher prices.
We have maintained a secondary market continuously for over 25 years, but we
could discontinue it without prior notice for any business reason.
8
<PAGE>
SELLING UNITS TO THE TRUSTEE
Regardless of whether we maintain a secondary market, you can sell your units to
the Trustee at any time by sending the Trustee a letter (with any outstanding
certificates if you hold unit certificates). You must properly endorse your
certificates (or execute a written transfer instrument with signatures
guaranteed by an eligible institution). Sometimes, additional documents are
needed such as a trust document, certificate of corporate authority, certificate
of death or appointment as executor, administrator or guardian.
Within seven days after your request and the necessary documents are received,
the Trustee will mail a check to you. Contact the Trustee for additional
information.
As long as we are maintaining a secondary market, the Trustee will sell your
units to us at a price based on net asset value. If there is no secondary
market, the Trustee may sell your units in the over-the-counter market for a
higher price, but it is not obligated to do so. In that case, you will receive
the net proceeds of the sale.
If the Fund does not have cash available to pay you for units you are selling,
the agent for the Sponsors will select bonds to be sold. Bonds will be selected
based on market and credit factors. These sales could be made at times when the
bonds would not otherwise be sold and may result in your receiving less than the
unit par value and also reduce the size and diversity of the Fund.
If you acquire 25% or more of the outstanding units of the Fund and you sell
units with a value exceeding $250,000, the Trustee may choose to pay you 'in
kind' by distributing bonds and cash with a total value equal to the price of
those units. The Trustee will try to distribute bonds in the portfolio pro rata,
but it reserves the right to distribute only one or a few bonds. The Trustee
will act as your agent in an in kind distribution and will either hold the bonds
for your account or sell them as you instruct. You must pay any transaction
costs as well as transfer and ongoing custodial fees on sales of bonds
distributed in kind.
There could be a delay in paying you for your units:
o if the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o if the SEC determines that trading on the New York Stock Exchange is
restricted or that an emergency exists making sale or evaluation of the
bonds not reasonably practicable; and
o for any other period permitted by SEC order.
EXCHANGE OPTION
You may exchange units of certain Defined Asset Funds for units of this Fund at
a maximum exchange fee of 1.90%. You may exchange units of this Fund for units
of certain other funds at a reduced sales fee if your investment goals change.
To exchange units, you should talk to your financial professional about what
funds are exchangeable, suitable and currently available.
Normally, an exchange is taxable and you must recognize any gain or loss on the
exchange. However, the IRS may try to disallow a loss if the portfolios of the
two funds
9
<PAGE>
are not materially different; you should consult your own tax adviser.
We may amend or terminate this exchange option at any time without notice.
HOW THE FUND WORKS
PRICING
The price of a unit includes interest accrued on the bonds, less expenses, from
the initial date of deposit up to, but not including, the settlement date, which
is usually three business days after the purchase date of the unit.
Bonds also carry accrued but unpaid interest up to the initial date of deposit.
To avoid having you pay this additional accrued interest (which earns no return)
when you buy, the Trustee advances this amount to the Sponsors. The Trustee
recovers this advance from interest received on the bonds.
In addition, a portion of the price of a unit consists of cash to pay all or
some of the costs of organizing the Fund including:
o cost of initial preparation of legal documents;
o federal and state registration fees;
o initial fees and expenses of the Trustee;
o initial audit; and
o legal expenses and other out-of-pocket expenses.
EVALUATIONS
An independent Evaluator values the bonds on each business day (excluding
Saturdays, Sundays and the following holidays as observed by the New York Stock
Exchange: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas).
Bond values are based on current bid or offer prices for the bonds or comparable
bonds. In the past, the difference between bid and offer prices of publicly
offered taxable municipal bonds has ranged from 0.5% of face amount on actively
traded issues to 3.5% on inactively traded issues; the difference has averaged
between 1 and 2%.
INCOME
Interest on any bonds purchased on a when-issued basis or for a delayed delivery
does not begin to accrue until the bonds are delivered to the Fund. If a bond is
not delivered on time and the Trustee's annual fee and expenses do not cover the
additional accrued interest, we will treat the contract to buy the bond as
failed.
The Trustee credits interest to an Income Account and other receipts to a
Capital Account. The Trustee may establish a Reserve Account by withdrawing from
these accounts amounts it considers appropriate to pay any material liability.
These accounts do not bear interest.
EXPENSES
The Trustee is paid monthly. It also benefits when it holds cash for the Fund in
non-interest bearing accounts. The Trustee may also receive additional amounts:
o to reimburse the Trustee for the Fund's operating expenses;
o for extraordinary services and costs of indemnifying the Trustee and the
Sponsors;
o costs of actions taken to protect the Fund and other legal fees and
expenses;
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o expenses for keeping the Fund's registration statement current; and
o Fund termination expenses and any governmental charges.
The Sponsors are currently reimbursed up to 45 cents per $1,000 face amount
annually for providing portfolio supervisory, bookkeeping and administrative
services and for any other expenses properly chargeable to the Fund. Legal,
typesetting, electronic filing and regulatory filing fees and expenses
associated with updating the Portfolio's registration statement yearly are now
chargeable to the Portfolio.While this fee may exceed the amount of these costs
and expenses attributable to this Fund, the total of these fees for all Series
of Defined Asset Funds will not exceed the aggregate amount attributable to all
of these Series for any calendar year. The Fund also pays the Evaluator's fees.
The Trustee's, Sponsors' and Evaluator's fees may be adjusted for inflation
without investors' approval.
Quarterly deferred sales fees you owe are paid with principal from certain
bonds. If these amounts are not enough, the rest will be paid out of
distributions to you from the Fund's Capital and Income Accounts.
The Sponsors will pay advertising and selling expenses at no charge to the Fund.
If Fund expenses exceed initial estimates, the Fund will owe the excess. The
Trustee has a lien on Fund assets to secure reimbursement of Fund expenses and
may sell bonds if cash is not available.
PORTFOLIO CHANGES
The Sponsors and Trustee are not liable for any default or defect in a bond; if
a contract to buy any bond fails in the first 90 days of the Fund, we generally
will deposit a replacement taxable insured municipal bond with a similar yield,
maturity, rating and price.
Unlike a mutual fund, the portfolio is designed to remain intact and we may keep
bonds in the portfolio even if their credit quality declines or other adverse
financial circumstances occur. However, we may sell a bond in certain cases if
we believe that certain adverse credit conditions exist or if a bond becomes
taxable.
If we maintain a secondary market in units but are unable to sell the units that
we buy in the secondary market, we will redeem units, which will affect the size
and composition of the portfolio. Units offered in the secondary market may not
represent the same face amount of bonds that they did originally.
We decide whether or not to offer units for sale that we acquire in the
secondary market after reviewing:
o diversity of the portfolio;
o size of the Fund relative to its original size;
o ratio of Fund expenses to income;
o current and long-term returns;
o degree to which units may be selling at a premium over par; and
o cost of maintaining a current prospectus.
FUND TERMINATION
The Fund will terminate following the stated maturity or sale of the last bond
in the portfolio. The Fund may also terminate earlier with the consent of
investors holding 51% of
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the units or if total assets of the Fund have fallen below 40% of the face
amount of bonds deposited. We will decide whether to terminate the Fund early
based on the same factors used in deciding whether or not to offer units in the
secondary market.
When the Fund is about to terminate you will receive a notice, and you will be
unable to sell your units after that time. On or shortly before termination, we
will sell any remaining bonds, and you will receive your final distribution. Any
bond that cannot be sold at a reasonable price may continue to be held by the
Trustee in a liquidating trust pending its final sale.
You will pay your share of the expenses associated with termination, including
brokerage costs in selling bonds. This may reduce the amount you receive as your
final distribution.
CERTIFICATES
Certificates for units are issued on request. You may transfer certificates by
complying with the requirements for redeeming certificates, described above. You
can replace lost or mutilated certificates by delivering satisfactory indemnity
and paying the associated costs.
TRUST INDENTURE
The Fund is a 'unit investment trust' governed by a Trust Indenture, a contract
among the Sponsors, the Trustee and the Evaluator, which sets forth their duties
and obligations and your rights. A copy of the Indenture is available to you on
request to the Trustee. The following summarizes certain provisions of the
Indenture.
The Sponsors and the Trustee may amend the Indenture without your consent:
o to cure ambiguities;
o to correct or supplement any defective or inconsistent provision;
o to make any amendment required by any governmental agency; or
o to make other changes determined not to be materially adverse to your best
interest (as determined by the Sponsors).
Investors holding 51% of the units may amend the Indenture. Every investor must
consent to any amendment that changes the 51% requirement. No amendment may
reduce your interest in the Fund without your written consent.
The Trustee may resign by notifying the Sponsors. The Sponsors may remove the
Trustee without your consent if:
o it fails to perform its duties and the Sponsors determine that its
replacement is in your best interest; or
o it becomes incapable of acting or bankrupt or its affairs are taken over by
public authorities.
Investors holding 51% of the units may remove the Trustee. The Evaluator may
resign or be removed by the Sponsors and the Trustee without the consent of
investors. The resignation or removal of either becomes effective when a
successor accepts appointment. The Sponsors will try to appoint a successor
promptly; however, if no successor has accepted within 30 days after notice of
resignation, the resigning Trustee or Evaluator may petition a court to appoint
a successor.
Any Sponsor may resign as long as one Sponsor with a net worth of $2 million
remains and agrees to the resignation. The remaining Sponsors and the Trustee
may appoint a replacement. If there is only one
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Sponsor and it fails to perform its duties or becomes bankrupt the Trustee may:
o remove it and appoint a replacement Sponsor;
o liquidate the Fund; or
o continue to act as Trustee without a Sponsor.
Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as agent for the
Sponsors.
The Trust Indenture contains customary provisions limiting the liability of the
Trustee, the Sponsors and the Evaluator.
LEGAL OPINION
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as
special counsel for the Sponsors, has given an opinion that the units are
validly issued.
AUDITORS
Deloitte & Touche LLP, 2 World Financial Center, New York, New York 10281,
independent accountants, audited the Statement of Condition included in this
prospectus.
SPONSORS
The Sponsors and their underwriting percentages are:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.)
P.O. Box 9051,
Princeton, NJ 08543-9051 77.50%
SALOMON SMITH BARNEY INC.
(an indirectly wholly-owned subsidiary of
Citigroup Inc.)
388 Greenwich Street--23rd Floor,
New York, NY 10013 7.50%
DEAN WITTER REYNOLDS INC. (a principal operating subsidiary of Morgan Stanley
Dean Witter & Co.)
Two World Trade Center--59th Floor,
New York, NY 10048 5.00%
PAINEWEBBER INCORPORATED (a wholly-owned subsidiary of PaineWebber Group Inc.)
1285 Avenue of the Americas,
New York, NY 10019 10.00%
100.00%
Each Sponsor is a Delaware corporation and it, or its predecessor, has acted as
sponsor to many unit investment trusts. As a registered broker-dealer each
Sponsor buys and sells securities (including investment company shares) for
others (including investment companies) and participates as an underwriter in
various selling groups.
TRUSTEE
The Bank of New York, Unit Investment Trust Department, Box 974, Wall Street
Division, New York, New York 10268-0974, is the Trustee. It is supervised by the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System and New York State banking authorities.
UNDERWRITERS' AND SPONSORS' PROFITS
Underwriters receive sales charges when they sell units. Sponsors also realize a
profit or loss on deposit of the bonds shown under Defined Portfolio. Any cash
made available by you to the Sponsors before the settlement date for those units
may be used in the Sponsors' businesses to the extent permitted by federal law
and may benefit the Sponsors.
A Sponsor or Underwriter may realize profits or sustain losses on bonds in the
Fund which were acquired from underwriting syndicates of which it was a member.
We bought approximately 10% of the bonds in the portfolio from one or more of
the Sponsors (as
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sole underwriter, managing underwriter or member of an underwriting syndicate).
During the initial offering period, the Sponsors also may realize profits or
sustain losses on units they hold. In maintaining a secondary market, the
Sponsors will also realize profits or sustain losses in the amount of any
difference between the prices at which they buy units and the prices at which
they resell or redeem them.
PUBLIC DISTRIBUTION
During the initial offering period, units will be distributed to the public by
the Sponsors and dealers who are members of the National Association of
Securities Dealers, Inc. This period is 30 days or less if all units are sold.
The Sponsors may extend the initial period up to 120 days.
The Sponsors do not intend to qualify units for sale in any foreign countries.
This prospectus does not constitute an offer to sell units in any country where
units cannot lawfully be sold.
In the initial offering period, the concession to dealers will be $21 per 1,000
units. We may change the concession at any time. Dealers may resell units to
other dealers with a concession not in excess of the original concession to
dealers.
CODE OF ETHICS
Merrill Lynch, as agent for the Sponsors, has adopted a code of ethics requiring
preclearance and reporting of personal securities transactions by its employees
with access to information on portfolio transactions. The goal of the code is to
prevent fraud, deception or misconduct against the Fund and to provide
reasonable standards of conduct.
YEAR 2000 ISSUES
Many computer systems were designed in such a way that they may be unable to
distinguish between the year 2000 and the year 1900 (commonly known as the 'Year
2000 Problem'). We do not expect that the computer system changes necessary to
prepare for the Year 2000 will cause any major operational difficulties for the
Fund. The Year 2000 Problem may adversely affect the issuers of the securities
contained in the Fund, but we cannot predict whether any impact will be material
to the Fund as a whole.
TAXES
The following summary describes some of the important income tax consequences of
holding units. It assumes that you are not a dealer, financial institution,
insurance company or other investor with special circumstances. You should
consult your own tax adviser about your particular circumstances.
In the opinion of our counsel, under existing law:
GENERAL TREATMENT OF THE FUND AND YOUR INVESTMENT
The Fund will not be taxed as a corporation for federal income tax purposes, and
you will be considered to own directly your share of each bond in the Fund.
INCOME OR LOSS UPON DISPOSITION
When all or part of your share of a bond is disposed of (for example, when the
Fund sells, exchanges or redeems a bond or when you sell or exchange your
units), you will generally recognize capital gain or loss. Your gain, however,
will generally be ordinary income to the extent of any accrued 'market
discount'.
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Generally you will have market discount to the extent that your basis in a bond
when you purchase a unit is less than its stated redemption price at maturity
(or, if it is an original issue discount bond, the issue price increased by
original issue discount that has accrued on the bond before your purchase). You
should consult your tax adviser in this regard.
If your net long-term capital gains exceed your net short-term capital losses,
the excess may be subject to tax at a lower rate than ordinary income. Any
capital gain from the Fund will be long-term if you are considered to have held
your investment on each bond for more than one year and short-term if you held
it for one year or less. Because the deductibility of capital losses is subject
to limitations, you may not be able to deduct all of your capital losses. You
should consult your tax adviser in this regard.
YOUR BASIS IN THE BONDS
Your aggregate basis in the bonds will be equal to the cost of your units,
including any sales charges and the organizational expenses you pay, adjusted to
reflect any accruals of 'original issue discount,' 'acquisition premium' and
'bond premium'. You should consult your tax adviser in this regard.
EXPENSES
If you are an individual who itemizes deductions, you may deduct your share of
Fund expenses, but only to the extent that such amount, together with your other
miscellaneous deductions, exceeds 2% of your adjusted gross income. Your ability
to deduct Fund expenses will be limited further if your adjusted gross income
exceeds a specified amount (for 1998, $124,500 or $62,250 for a married person
filing separately).
FOREIGN INVESTORS
If you are a foreign investor and you are not engaged in a U.S. trade or
business, you generally will not be subject to U.S. federal income tax,
including withholding tax, on the interest or gain on a bond issued after July
18, 1984 if you meet certain requirements, including the certification of
foreign status and other matters. You should consult your tax adviser about the
possible application of federal, state and local, and foreign taxes.
STATE AND LOCAL TAXES
Depending on where you live, income on some of the bonds may be exempt from
state and local taxation. You should consult your tax adviser in this regard.
RETIREMENT PLANS
You may wish to purchase units for an Individual Retirement Account (IRA) or
other retirement plan. Generally, capital gains and income received in each of
these plans are exempt from federal taxation. All distributions from such plans
are generally treated as ordinary income but may, in some cases, be eligible for
tax-deferred rollover treatment. You should consult your attorney or tax adviser
about the specific tax rules relating to these plans are offered by brokerage
firms, including the Sponsors of this Fund, and other financial institutions.
Fees and charges with respect to such plans may vary.
SUPPLEMENTAL INFORMATION
You can receive at no cost supplemental information about the Fund by calling
the Trustee. The supplemental information includes more detailed risk disclosure
about the types of bonds that may be in the Fund's portfolio, general risk
disclosure concerning any insurance securing certain bonds, and
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<PAGE>
general information about the structure and operation of the Fund. The
supplemental information is also available from the SEC.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Trustee and Holders of Insured Taxable Fund, Defined Asset Funds
(the 'Fund'):
We have audited the accompanying statement of condition and the related defined
portfolio included in the prospectus of the Fund as of January 29, 1999. This
financial statement is the responsibility of the Trustee. 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 cash, securities and an irrevocable letter of credit deposited
for the purchase of securities, as described in the statement of condition, with
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 position of the Fund as of January 29, 1999
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
NEW YORK, N.Y.
JANUARY 29, 1999
STATEMENT OF CONDITION AS OF JANUARY 29, 1999
TRUST PROPERTY
Investments--Bonds and Contracts to purchase Bonds(1) $ 10,205,978.20
Cash 20,000.00
Accrued interest to Initial Date of Deposit on underlying
Bonds 99,449.74
--------------------
Total $ 10,325,427.94
--------------------
--------------------
LIABILITIES AND INTEREST OF HOLDERS
Liabilities: Advance by Trustee for accrued interest (2) $ 99,449.74
Reimbursement of Sponsors for organization expenses (3) 20,000.00
--------------------
Subtotal 119,449.74
--------------------
Interest of Holders of 10,000,000 Units of fractional
undivided interest outstanding:
Cost to investors (3)(4)(5) 10,327,078.20
Organization expenses (3) and gross underwriting
commissions(4) (121,100.00)
--------------------
Subtotal 10,205,978.20
--------------------
Total $ 10,325,427.94
--------------------
--------------------
- ---------------
(1) Aggregate cost to the Fund of the bonds listed under Defined
Portfolio is based upon the offer side evaluation determined by the Evaluator at
the evaluation time on the business day prior to the Initial Date of Deposit.
The contracts to purchase the bonds are collateralized by an irrevocable letter
of credit which has been issued by The San Paolo Bank, New York Branch, in the
amount of $2,203,894.81 and deposited with the Trustee. The amount of the letter
of credit includes $2,194,439.70 for the purchase of $2,190,000.00 face amount
of the bonds, plus $9,455.11 for accrued interest.
(2) Representing a special distribution to the Sponsors by the Trustee
of an amount equal to the accrued interest on the bonds.
(3) A portion of the Unit Price consists of cash in an amount
sufficient to pay for costs incurred in establishing the Fund. These costs have
been estimated at $2.00 per 1,000 Units. A distribution will be made at the
close of the initial offering period to an account maintained by the Trustee
from which the organization expense obligation of the investors to the Sponsors
will be satisfied.
(4) Assumes the maximum up-front sales fee per 1,000 units of 1.00% of
the Unit Price. A deferred sales fee of $19.00 per 1,000 Units is payable over a
two-year period ($2.38 per 1,000 Units quarterly in the first year and $2.37 per
1,000 units quarterly in the second year). Distributions will be made to an
account maintained by the Trustee from which the deferred sales fee obligation
of the investors will be satisfied. If units are redeemed prior to the final
deferred sales charge deduction, the remaining portion of the deferred sales fee
applicable to such units will be transferred to the account on the redemption
date.
(5) Aggregate Unit Price (exclusive of interest) computed on the basis
of the offer side evaluation of the underlying bonds as of the evaluation time
on the business day prior to the Initial Date of Deposit.
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<PAGE>
Defined
Asset FundsSM
HAVE QUESTIONS ? INSURED TAXABLE FUND
Request the most recent free (A Unit Investment Trust)
Information Supplement ---------------------------------------
that gives more details about This Prospectus does not contain
the Fund, by calling: complete information about the
The Bank of New York investment company filed with the
1-800-221-7771 Securities and Exchange Commission in
Washington, D.C. under the:
o Securities Act of 1933 (file no.
333-68827) and
o Investment Company Act of 1940 (file
no. 811-2537).
TO OBTAIN COPIES AT PRESCRIBED RATES--
WRITE: Public Reference Section of the
Commission
450 Fifth Street, N.W., Washington,
D.C. 20549-6009
CALL: 1-800-SEC-0330.
VISIT: http://www.sec.gov.
---------------------------------------
No person is authorized to give any
information or representations about
this Fund not contained in this
Prospectus or the Information
Supplement, and you should not rely on
any other information.
---------------------------------------
When units of this Fund are no longer
available, this Prospectus may be used
as a preliminary prospectus for a
future series, but some of the
information in this Prospectus will be
changed for that series.
Units of any future series may not be
sold nor may offers to buy be accepted
until that series has become effective
with the Securities and Exchange
Commission. No units can be sold in any
State where a sale would be illegal.
32741--1/99
18
