<PAGE>
As filed with the Securities and Exchange Commission on November 28, 1994
Registration No. 2-88602
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 8
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
___________________
A. Exact Name of Trust:
NATIONAL MUNICIPAL TRUST,
First Put Series
(14 Day Repurchase--Collateral Backed)
B. Name of depositor:
PRUDENTIAL SECURITIES INCORPORATED
C. Complete address of depositor's principal executive office:
One Seaport Plaza
199 Water Street
New York, New York 10292
D. Name and complete address of agent for service:
Copy to:
LEE B. SPENCER, JR. ESQ. KENNETH W. ORCE, ESQ.
PRUDENTIAL SECURITIES INCORPORATED CAHILL GORDON & REINDEL
One Seaport Plaza 80 Pine Street
199 Water Street New York, New York 10005
New York, New York 10292
It is proposed that this filing will become effective (check appropriate box.)
___
/ / immediately upon filing on (date) pursuant to paragraph (b);
___
/X / on November 30, 1994 pursuant to paragraph (b);
___
/__/ 60 days after filing pursuant to paragraph (a);
___
/__/ on (date) pursuant to paragraph (a) of rule 485.
<PAGE>
CUSIPS: (M) 637013285R; (Q) 637013293R; (S) 637013301R
Prospectus--PART I
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NATIONAL MUNICIPAL TRUST
First Put Series
(14 Day Repurchase--Collateral Backed)
NMT
STANDARD & POOR'S CORPORATION RATING: AAA
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OFFERING: The initial public offering of Units in the Trust has been completed.
The Units offered hereby are issued and outstanding Units which have been
acquired by the Sponsor either by purchase from the Trustee of Units tendered
for redemption or in the secondary market. See ``Rights of Unit
Holders--Redemption--Purchase by the Sponsor of Units Tendered for Redemption''
and ``Public Offering--Market for Units.'' The price at which the Units offered
hereby were acquired was not less than the redemption price determined as
provided herein. See ``Rights of Unit Holders--Redemption--Computation of
Redemption Price Per Unit.''
THE TRUST is a unit investment trust formed for the purposes of providing
tax-exempt income while conserving capital through investment in a fixed
portfolio of long-term municipal bonds the interest on which is exempt from all
Federal income taxes (except in certain instances depending upon the Unit
holder) at the time of issuance, in the opinion of bond counsel for the issuing
governmental authority. All of the Bonds in the portfolio were issued on behalf
of states, counties, territories, possessions or municipalities of the United
States or authorities, agencies, instrumentalities or political subdivisions
thereof. (See ``The Trust.'') The Seller of the Bonds to the Trust has committed
itself (with respect to Bonds acquired from it) to repurchase any Bonds for an
amount equal to their Cost to the Trust plus accrued interest on 14 days' notice
under certain circumstances. (See ``The Trust--The Repurchase Commitments.'')
The Seller's Repurchase Commitments are secured by a security interest in the
Collateral described herein. (See ``The Trust--The Collateral.'')
The Public Offering Price of the Units is based on the aggregate bid price of
the underlying Bonds in the Trust's portfolio, divided by the number of
outstanding Units, plus a sales charge equal to 5.5% of the Public Offering
Price (5.82% of the aggregate bid price of the Bonds per Unit). Such charge is
reduced on a graduated scale for sales involving 100 or more Units.
THE SPONSOR, although it is not obligated to do so, intends to maintain a market
for the Units at prices based upon the aggegate bid price of the underlying
bonds plus accrued interest to the date of settlement (See ``Public
Offering--Market for Units''). As a result of the Sponsor's purchases in the
secondary market Units may be available for purchase at a price based upon the
bid side evaluation of the Bonds plus accrued interest, if any, and a sales
charge calculated in the manner set forth under ``Public Offering--Offering
Price''. If such a market is not maintained, a Unit holder may be able to
dispose of his Units only through redemption at prices based upon the aggregate
bid price of the underlying Bonds.
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Sponsor:
Prudential Securities (LOGO)
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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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Please read and retain Prospectus dated
this Prospectus for future reference November 30, 1994
<PAGE>
NATIONAL MUNICIPAL TRUST
First Put Series
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TABLE OF CONTENTS
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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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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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<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Summary of Essential Information......................................................... A-1
The Trust................................................................................ A-5
Portfolio.......................................................................... A-5
The Seller......................................................................... A-7
The Repurchase Commitments......................................................... A-9
Liquidity of Bonds................................................................. A-9
The Collateral..................................................................... A-10
The Units.......................................................................... A-16
Tax Status......................................................................... A-16
Expenses and Charges............................................................... A-19
Reinvestment Program..................................................................... A-20
Public Offering.......................................................................... A-20
Offering Price..................................................................... A-20
Market for Units................................................................... A-21
Distribution of Units.............................................................. A-22
Sponsor's Profits.................................................................. A-22
Rights of Unit Holders................................................................... A-22
Certificates....................................................................... A-22
Distribution of Interest and Principal............................................. A-22
Reports and Records................................................................ A-24
Redemption......................................................................... A-24
Exchange Option.................................................................... A-26
Tax Consequences................................................................... A-27
Sponsor.................................................................................. A-27
Limitations on Liability........................................................... A-27
Responsibility..................................................................... A-27
Resignation........................................................................ A-28
Trustee.................................................................................. A-28
Limitations on Liability........................................................... A-28
Responsibility..................................................................... A-28
Resignation........................................................................ A-28
Evaluator................................................................................ A-29
Limitations on Liability........................................................... A-29
Responsibility..................................................................... A-29
Resignation........................................................................ A-29
Amendment and Termination of the Trust Agreement......................................... A-29
Amendment.......................................................................... A-29
Termination........................................................................ A-29
Legal Opinions........................................................................... A-29
Auditors................................................................................. A-29
Rating of Units.......................................................................... A-30
Independent Auditors' Report............................................................. F-1
Statement of Financial Condition......................................................... F-2
Schedule of Investments.................................................................. F-8
PART II
Risk Factors Relating to New York Bonds.................................................. B-1
</TABLE>
<PAGE>
<PAGE>
NATIONAL MUNICIPAL TRUST
First Put Series
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SUMMARY OF ESSENTIAL INFORMATION
As of November 1, 1994
<TABLE>
<S> <C>
Sponsor: Prudential Securities Incorporated
Trustee: United States Trust Company of New York
Evaluator: Kenny Information Systems, Inc. through its division, Kenny S&P Evaluation
Services
Principal Amount of Bonds in Trust...................................................... $5,875,000.00
Number of Units......................................................................... 16,617(1)
Fractional Undivided Interest in Trust per Unit......................................... 1/16,617th
Calculation of Public Offering Price per Unit:
Aggregate Bid price of Bonds.......................................................... $6,004,044.55(2)
Divided by 16,617 Units............................................................... $ 361.33
Plus Sales Charge(3).................................................................. $ 21.03
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Public Offering Price per Unit........................................................ $ 382.35(4)
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Redemption Price and Sponsor's Repurchase Price per Unit based on bid side evaluation of
underlying bonds, $21.03 less than Public Offering Price.............................. $ 361.32(5)
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</TABLE>
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT:
<TABLE>
<CAPTION>
Monthly Quarterly Semi-Annual
Option Option Option
<S> <C> <C> <C>
Estimated Annual Income per Unit......................................... $17.57 $17.57 $ 17.57
Less: Estimated Annual Expenses per Unit................................. (1.18 ) (.90) (.70)
------- ---------- -----------
------- ---------- -----------
Estimated Net Annual Income per Unit........................... 16.39 16.67 16.87
Daily Rate of Estimated Income Accrual per Unit.......................... .0455 (1) .0463(2) .0496(3)
Estimated Current Return Based on Public Offering Price(6)............... 4.29 %(1) 4.36%(2) 4.41%(3)
Estimated Long-Term Return(6)............................................ 6.173 % 6.246% 6.299%
</TABLE>
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(1) On the Date of Deposit, the Principal Amount of Bonds in the Trust was
$18,000,000, the Number of Units outstanding was 18,000 and the Estimated
Current Return was 7.37% based on the monthly payment option; 7.39% based on the
quarterly payment option and 7.41% based on the semi-annual payment option. Any
difference in the Principal Amount of Bonds in the Trust shown here from the
Aggregate Principal amount shown as of the audit date in the Schedule of
Investments is attributable to sales and/or calls of Bonds that have occurred
between the audit date and the date hereof.
(2) Based upon the bid prices of the portfolio securities and any
appropriate cash adjustments in the principal account. See ``Public
Offering--Market for Units''.
(3) The sales charge is equal to 5.5% of the Public Offering Price (5.82% of
the aggregate bid price of the Bonds per Unit).
(4) Exclusive of accrued interest which to November 8, 1994, the expected
date of settlement for the purchase of Units on November 1, 1994, was $10.66,
$10.68 and $17.17 relating to the monthly, quarterly and semi-annual options,
respectively.
(5) Based upon the bid prices of the portfolio securities and any
appropriate Cash adjustments in the principal account. Upon tender for
redemption, the price to be paid will include accrued interest as described in
``Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit''.
(6) The Estimated Current Return is calculated by dividing the Estimated Net
Annual Income 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
Trustee and the Evaluator 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 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 and 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 above indicated calculation date of the Summary of
Essential Information.
A-1
<PAGE>
NATIONAL MUNICIPAL TRUST
First Put Series
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<TABLE>
<S> <C>
Evaluation Time.......................... 3:30 P.M., New York Time
Record Dates............................. The tenth day of each month (monthly distribution option); the
tenth day of January, April, July and October (quarterly option);
tenth day of January and July (semi-annual option).
Distribution Dates....................... The twenty-fifth day of each month to holders of record as of the
immediately preceding Record Date; (monthly distribution
option); the twenty-fifth day of January, April, July and
October (quarterly option); the twenty-fifth day of January and
July (semi-annual option).
Date of Trust Agreement.................. February 16, 1984
Date of Deposit.......................... February 16, 1984
Mandatory Termination Date............... December 31, 2019
Minimum Value of Trust................... Trust Agreement may be terminated if the value of the Trust is
less than $2,000,000 and must be terminated if the value of the
Trust is less than $1,000,000
Sponsor's Annual Portfolio Supervision
Fee.................................... Maximum $.25 per $1,000 face amount of underlying bonds
Trustee's Annual Fee..................... $.93 per $1,000 principal amount of bonds for that portion of the
Trust under the monthly distribution plan and $0.65 and $0.45 per
annum per $1,000 principal amount of underlying Bonds, for
those portions of the Trust under the quarterly and semi-annual
distribution plans, respectively.
Evaluator's Fee.......................... $12.00 per day
Number of Issues......................... 5
Number of Issuers........................ 3
Number of States......................... New York
*Percentage of Housing Bonds............. 83.0%
*Percentage of Hospital Revenue Bonds.... 17.0%
</TABLE>
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* The percentage indicated is the percentage of the aggregate bid price of
Bonds in the Portfolio on November 1, 1994.
A-2
<PAGE>
Objectives of the Trust
The Trust is designed to provide interest income exempt from all the regular
Federal income taxes while conserving capital through investment in a fixed
portfolio of long-term, fixed-rate Bonds, and at the same time provide the
investor with liquidity for the sale of Units at prices approximating the face
value of the underlying Bonds. It is an objective of the Trust that, in view of
the Seller's continuing collateralized Liquidity and Disposition Repurchase
Commitments, which terminate upon sale of a Bond by the Trust, the value of the
Bonds should not significantly decrease below their outstanding principal
amounts, thereby minimizing the risk of capital depreciation while maintaining
the potential for capital appreciation, in the event of a major decrease in
interest rates,in comparison to other fixed-rate investments. There is no
assurance that this objective can be met since it is subject to the continuing
solvency of the Seller and sufficiency of Collateral provided by the Seller.
Furthermore, absent a collateralized Repurchase Commitment, the market values of
the underlying Bonds, and therefore the value of the Units, would fluctuate
inversely with changes in prevailing interest rates and other factors.
Bonds--Repurchase Commitments
The Bonds in the portfolio, which at the time of deposit generally bore
interest rates lower than current coupon bonds, were purchased by the Sponsor,
at prices equal to the Repurchase Price of the Bonds, with Collateral-backed
Repurchase Commitments from the Seller attached to the Bonds. The Bonds with the
Repurchase Commitments were evaluated and deposited at the face value of the
Bonds. Since the Sponsor intends to buy back Units on the basis of the bid side
and the Units may be redeemed at the bid side (which both should approximate the
aggregate face amount of the underlying Bonds), Units will have liquidity
resembling many shorter term instruments.
The Trust acquired the Bonds from North Side Savings Bank, a New York State
chartered mutual savings bank, which converted into a stock savings bank in
April 1986, (the ``Seller'') which made the following Repurchase Commitments
with respect to the Bonds acquired from it:
(i) to repurchase, in an amount equal to the outstanding principal amount of
the Bonds to be purchased plus accrued interest at any time on 14 calendar days'
written notice by the Trust any Bond in the event it is necessary to sell any
such Bond to meet redemptions of Units should such redemptions be made;
(ii) to repurchase any such Bond at its scheduled disposition date under the
Trust Indenture (the ``Disposition Date'') if the Trustee elects not to sell
such Bond in the open market (because a price in excess of its face amount
cannot be obtained) on such date;
(iii) to repurchase on 14 calendar days' notice any such Bond if the issuer
thereof should fail to make payments of principal (and premium, if any) which
may be owing due to redemption prior to maturity or otherwise and interest
thereon;
(iv) to repurchase on 14 calendar days' notice any such Bond in an amount
equal to the unpaid principal amount plus accrued interest in the event that the
interest thereon should be deemed to be taxable; and
(v) to repurchase immediately in an amount equal to the unpaid principal
amount plus accrued interest all such Bonds if the Seller becomes or is deemed
to be insolvent or fails to meet its collateral requirements in certain
circumstances, in which case the Seller will be in default under the Collateral
Agreement and the Collateral Agent, United States Trust Company of New York,
will liquidate Collateral as described below. See ``The Trust--The Repurchase
Commitments''.
Investors should recognize that (1) they are subject to having all or part
of their investment return in the form of principal distributions prior to the
termination date of the Trust or, with respect to their pro rata share of any
underlying Bond, the Disposition Date of such obligation, in the situations
outlined in clauses (i) through (v) above and (2) should the Seller default in
the performance of its obligation to repurchase any Bond, so that a liquidation
of Collateral is required, it will take some time following such a default for
the Collateral Agent to liquidate Collateral for the purposes of satisfying such
repurchase obligation. In no event, however, will payment of redemption proceeds
to Unit holders be later than seven days from the date of tender of Units for
redemption.
Any repurchase of a Bond by the Seller will be at a price based on the
Bond's cost to the Trust plus interest accrued thereon to the date of repurchase
(``Repurchase Price''). See ``The Trust--The Seller'' herein for further
information in regard to the Seller.
A-3
<PAGE>
Collateral
The types of Eligible Collateral that may be pledged under the Collateral
Agreement and held by the Collateral Agent that secures the Repurchase
Commitments of the Seller and the required percentages of Market Value of such
type of Collateral to the Repurchase Price of the Bonds in respect to such
Collateral (``Collateral Requirement'') are set forth in ``The Trust--The
Collateral.'' Eligible Collateral includes cash; direct obligations of the
United States; mortgage-backed securities guaranteed by the Government National
Mortgage Association (``GNMA'') or Federal Home Loan Mortgage Corporation
(``FHLMC''); obligations of public nongovernmental corporations rated A by
Standard & Poor's Corporation; and certain conventional, FHA insured, VA
guaranteed and privately insured mortgages (if Standard & Poor's Corporation
approves, which it has not yet done).
Valuation and Maintenance of Collateral
The Market Value of each Mortgage serving as Collateral is determined by
using a discount rate determined on the basis of prevailing mortgage market
rates. The Market Value of all other Collateral (other than cash) is determined
by quotations provided by certain dealers. Collateral will be valued quarterly,
monthly or weekly, at the election of the Seller, or more frequently whenever
the Sponsor determines that market conditions require a more frequent valuation;
in addition, Collateral will be valued prior to any substitution or release of
any Collateral.
Whenever the Collateral Agent notifies the Seller that the aggregate Pledge
Value of its Collateral does not satisfy the aggregate applicable Collateral
Requirements, the Seller is required to deposit additional Collateral within a
maximum of 10 business days with an Aggregate Pledge Value (i.e. the aggregate
principal amount of the underlying Bonds in the Trust) equal to the deficiency.
Failure to do so requires the Collateral Agent to immediately calculate the
Liquidation Value of the Seller's Collateral and (1) if the Liquidation Value of
the Collateral is at least equal to the Aggregate Pledge Value Requirement, the
Collateral Agent is required, unless otherwise directed by the Sponsor, to
liquidate all or part of the Collateral as is necessary and shall acquire Short
Term U.S. Government Securities or (2) if the Liquidation Value of the
Collateral is less than the Aggregate Pledge Value, the Collateral Agent, unless
otherwise directed by the Sponsor, is required to liquidate the Collateral.
Collateral held by the Collateral Agent may be withdrawn or substituted at any
time by the Seller provided that the remaining or substituted Eligible
Collateral meets with applicable Collateral Requirements and the Seller is not
in default.
Trust Portfolio
The Portfolio (see ``The Trust--Portfolio'') consists of long-term,
fixed-rate municipal revenue obligations, none of the issuers of which has the
power to levy taxes. While these Bonds have maturities ranging from 1998 to
2019, provision is made that they will be sold by the Trustee on scheduled
Disposition Dates beginning in 1997 and ending December 31, 2017. (See ``The
Trust--Portfolio''). Distributions to Unit holders of their pro rata share of
the principal of Bonds will be made following the disposition of such Bonds.
Special Considerations
All of the Bonds were purchased at face value by the predecessor sponsor
from the Seller which originally acquired them in the ordinary course of its
business and held them in its investment portfolio prior to the sale to the
predecessor sponsor. The Bonds were deposited in the Trust and any subsequent
repurchase by the Seller would be based on the outstanding principal amount of
the Bonds. The Bonds at the time of deposit generally bore interest at rates
that were substantially below the coupons of comparable long-term bonds being
issued at that time and accordingly, to the extent that interest rates remain at
the prevailing rates at the time of deposit, the Bonds in the portfolio may be
less attractive than such comparable long-term bonds since such long-term bonds
would be valued at or above face value while paying higher interest.
There can be no assurance that the prices that can be obtained for the Bonds
at any time in the open market will exceed the unpaid principal amount of the
Bonds. Additionally, there is no assurance that the Units will benefit from
favorable market fluctuations to the same degree as would units of a unit
investment trust composed of otherwise comparable debt obligations for which an
established secondary market exists. Certain of the Bond issues in the Portfolio
were issued under bond resolutions or trust indentures that do not provide for
the issuance of bonds in small denominations. The predecessor sponsor believed
that such Bonds would be marketable to institutions or through a participation
trust arrangement, if necessary. The predecessor sponsor also believed that all
the Bonds in the Portfolio would be readily marketable (at their Repurchase
Price if the Repurchase Commitments were utilized or at the market value which
might entail a substantial discount of the Bonds alone if such commitments were
not utilized) should it be necessary for the
A-4
<PAGE>
Trustee to sell Bonds to meet redemptions (see ``The Trust--Liquidity of
Bonds.'') While the Sponsor has not verified the predecessor sponsor's beliefs
it has no reason to believe that such beliefs were not accurate in all material
respects.
In the event that the Seller does not honor its Repurchase Commitments, the
Collateral Agent's ability to liquidate the Collateral may be impaired due to
the illiquidity of certain types of Collateral, e.g., certain mortgages, or by
insolvency proceedings. See ``The Trust--The Seller.'' It should be noted that
the Collateral Agent's liability to the Unit holders is limited. See ``The
Trust--The Collateral.''
In addition, the Trust is considered to be ``concentrated'' in obligations
backed by collateralized Repurchase Commitments of the Seller (100% of the
aggregate principal amount), housing bonds and in obligations of issuers located
in New York and Puerto Rico.
It should be noted that Unit holders who decide to participate in the
Reinvestment Program will be reinvesting in Trusts made up of municipal
obligations without collateral backed Repurchase Commitments.
THE TRUST
National Municipal Trust, First Put Series (14 Day Repurchase--Collateral
Backed) (the ``Trust''), the first of a series of similar but separate trusts,
was created under the laws of the State of New York by a Trust Indenture and
Agreement (the ``Trust Agreement''), dated the Date of Deposit, among Thomson
McKinnon Securities Inc., as Sponsor (the ``predecessor sponsor''), United
States Trust Company of New York, as Trustee, and Kenny Information Systems,
Inc. as Evaluator. On the Date of Deposit, the predecessor sponsor, acting for
the Underwriting Account, deposited with the Trustee $18,000,000 face value
amount of municipal obligations including delivery statements relating to
contracts for the purchase of bonds and funds (represented by cash, cash
equivalents and/or an irrevocable letter of credit issued by a major commercial
bank) for the purchase of certain of such obligations (the ``Bonds''). The
Trustee thereafter delivered to the predecessor sponsor a registered certificate
of 18,000 Units, representing the entire ownership of the Trust, which Units
were sold in an initial public offering.
Prudential Securities Incorporated, a wholly-owned, indirect subsidiary of
The Prudential Insurance Company of America, is the Sponsor (the ``Sponsor'').
The Bonds in the portfolio, which at the time of deposit generally bore
interest rates lower than then current coupon bonds, were purchased by the
predecessor sponsor, at prices equal to the Repurchase Price of the Bonds, with
collateral-backed Repurchase Commitments from the Seller attached to the Bonds.
The Bonds with the Repurchase Commitments were evaluated and deposited at the
face value of the Bonds. Since the Sponsor intends to buy back Units on the
basis of the bid side and the Units may be redeemed at the bid side (which both
should approximate the aggregate face amount of the underlying Bonds), Units
will have liquidity (and current return) resembling many shorter term
instruments.
Portfolio
The objectives of the Trust are tax-exempt income and preservation of
capital through investment in a fixed portfolio of liquid, long-term (10 years
or more according to the predecessor sponsor), fixed rate municipal bonds, with
fixed maturities and Disposition Dates (the dates on which a Bond must be sold
either on the open market or to the Seller pursuant to the Seller's Repurchase
Commitment--see ``The Trust--The Repurchase Commitments''), the interest on
which Bonds, in the opinion of bond counsel, is, with certain exceptions
depending on the Unit holder, exempt from all Federal income taxes. There is, of
course, no guarantee that the Trust's objectives will be achieved because they
are subject to the continuing ability of the issuers of the Bonds to meet their
interest and principal payment requirements, maintenance of the Collateral and
other factors. In view of the Trust's objectives, the following factors, among
others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of authorities in the State of New York or Commonwealth of Puerto
Rico, so that the interest on them will, in the opinion of bond counsel to the
issuing governmental authorities at the time of issuance, be exempt from Federal
income tax under existing law at the time of issuance (with certain exceptions
depending on the Unit holder), (2) the terms and conditions of the Repurchase
Commitments of the Seller with respect to the Bonds and (3) the quality and
sufficiency of the Collateral securing such Repurchase Commitments. Subsequent
to the Date of Deposit, a rated Bond may cease to be rated or its rating may be
reduced. Neither event requires an elimination of such Bond from the Portfolio
but may be considered in the Sponsor's determination to direct the Trustee to
dispose of the Bond (see ``Sponsor--Responsibility'').
A-5
<PAGE>
An investment in Units of the Trust should be made with an understanding of
the risks that an investment in fixed rate long-term debt obligations may
entail. Periods of high inflation, together with the fiscal measures adopted to
attempt to deal with it, have frequently resulted in wide fluctuations in
interest rates and thus in the value of fixed rate long-term debt obligations
generally. The Sponsor cannot predict whether such fluctuations will continue in
the future. The Seller has committed to repurchase at any time on 14 calendar
days' notice any Bonds acquired by the Trust from it at the Bond's Repurchase
Price if it is necessary to sell any such Bond to meet redemption of Units, and,
upon certain scheduled Disposition Dates, and under certain other circumstances
(see ``The Trust--The Repurchase Commitments'') any such Bond tendered to it by
the Trustee at the unpaid face amount thereof plus accrued interest, which
Repurchase Commitments of the Seller are collateralized. (See ``The
Collateral.'') Consequently, the predecessor sponsor believed that the value of
the Bonds should not significantly decrease below their unpaid face amount,
thereby minimizing the risk of capital depreciation on Trust Units while
maintaining the potential for capital appreciation if there should be a major
decrease in market interest rates, in comparison to other fixed-rate investments
of comparable maturities and credit risk. While the Sponsor has not verified the
predecessor sponsor's beliefs, it has no reason to believe that such beliefs are
not accurate in all material respects.
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their terms
and the proceeds from such events will be distributed to Unit holders and will
not be reinvested, no assurance can be given that the Trust will retain for any
length of time its present size and composition. In general, interest accrues to
the benefit of Unit holders commencing with the date of settlement for purchase
of the Units. Neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any Bond.
The Trust contains obligations of state housing authorities which have been
issued in connection with a variety of multi-family housing projects. 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 by a state housing authority to meet the qualifications
required for coverage under the Federal programs, or any legal or administrative
determination that the coverage of these Federal programs is not available to a
state housing authority, could result in a decrease or elimination of subsidies
available for payment of amounts due on the housing authority's obligations.
Economic developments including failure or inability to increase rentals, rates
of default on the underlying mortgage loans, 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.
In general, single-family housing mortgage-backed bonds and certain
multi-family housing mortgage-backed bonds are prepaid over the life of the
underlying mortgage or mortgage pool, and therefore, the average life of
mortgage-backed bonds cannot necessarily be determined, but will ordinarily be
less than their maturities. In addition, in the case of single-family housing
bonds and certain other mortgage-backed bonds, if proceeds from the sale of the
bonds are not allocated within a stated period (which may be within a year of
the date of issue), or if mortgage loans made from the bond proceeds are
prepaid, upon receipt of mortgage prepayments the bond issues may be called at
par. Prepayments are more likely to occur as interest rates decline. To the
extent that these obligations were valued at a premium at the time a Unit holder
purchased Units any prepayment at par would result in a loss of capital to the
Unit holder and, in any event, reduce the amount of income that would otherwise
have been paid to the Unit holder. When prevailing interest rates rise, the
value of a housing bond may decrease as do other debt securities, but when
prevailing interest rates decline, the value of mortgage-backed securities is
not likely to rise on a comparable basis with other debt securities because of
the prepayment feature.
The tax exemption for certain housing authority bonds depends on
qualification under Section 103A of the Internal Revenue Code of 1954, as
amended (the ``1954 Code'') or Section 143(a) of the Internal Revenue Code of
1986, as amended (the ``Code'') in the case of the single-family mortgage bonds
or under Section 103(b)(4)(A) of the 1954 Code or Section 142 of the Code and
appropriate Treasury Regulations. These sections of the Code or other provisions
of Federal law contain certain ongoing requirements, including requirements
relating to the cost and location of the residences financed with the proceeds
of the single-family mortgage bonds and the income levels of tenants of the
rental projects financed with the proceeds of the multi-family housing bonds.
While the issuers of the bonds, and other parties, including the originators and
servicers of the single-family mortgages and the owners of the rental projects
financed with the multi-family housing bonds, covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure that
these requirements are met, there can be no assurance that these ongoing
requirements will be
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<PAGE>
met. The failure to meet these requirements could cause the interest on the
bonds to become taxable, possibly retroactively from the date of issuance,
thereby reducing the value of the bonds, subjecting the Unit holders to
unanticipated tax liabilities and possibly requiring the Seller to repurchase
the Bonds pursuant to its Repurchase Commitment. Furthermore, any failure to
meet these ongoing requirements might not constitute an event of default under
the applicable mortgage or permit the holder to accelerate payment of the bonds
or require the issuer to redeem the bonds. In any event, where the mortgage is
insured by the Federal Housing Administration (``FHA''), the consent of the FHA
may be required before insurance proceeds would become payable to redeem the
mortgage bonds.
The Trust contains a Security in the hospital facilities category that is
payable from revenues derived from hospitals and health care facilities which,
generally, were constructed or are being constructed from the proceeds of such
Security. 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, 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.
There can be no assurance that additional Federal legislation will not be
introduced or that existing legislation will not be further amended, revised or
enacted hereafter which could cause interest on the Bonds to be subject to
Federal income taxation. If the interest on any Bond should ultimately be deemed
to be taxable, the Repurchase Commitment of the Seller backing such Bond would
be called upon for payment of principal of, premium, if any, and accrued
interest (which would be taxable) thereon in whole or in part for the benefit of
the Trust. If the Seller were unable to meet in whole or in part its obligations
under such Repurchase Commitment, the Trustee would be obligated to sell the
Bonds and, since they would be sold as taxable securities, it is expected that
the Bonds would have to be sold at a substantial discount from current market
value. Moreover, it is possible that the interest on such a Bond could be
determined to be taxable retroactive to its date of issuance, in which event
Unit holders would be required to pay income tax on the interest received by
them on the Bond prior to the determination of taxability.
The Seller
The Bonds were acquired from North Side Savings Bank (the ``Seller''), a New
York State chartered stock savings bank having its deposits insured by the
Federal Deposit Insurance Corporation (the ``FDIC'').
Historically, savings banks primarily financed residential and commercial
real estate by making fixed-rate mortgage loans and funded those loans from
various types of deposits. Savings banks were restricted as to types of accounts
that could be offered and rates that could be paid on those accounts. During
periods of high interest rates, large amounts of deposits were withdrawn as
depositors invested in Treasury bills and notes and in money market funds that
provided liquidity and high yields not subject to regulation. As a result, the
cost of savings banks' funds generally exceeded income from mortgage loan
portfolios and other investments, and their financial position was adversely
affected. State laws and regulations eliminating interest rate ceilings and
restrictions on types of accounts that may be offered by savings banks are
designed to permit savings banks to compete for deposits on the basis of current
market rates and to improve their financial position. The Trust, however, has
been structured so that, whether or not the financial positions of the Seller
improve in response to such laws or otherwise, Unit holders rely solely on the
Collateral for the performance of the Repurchase Commitments and not on the
financial position of the Seller. The predecessor sponsor provided the
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<PAGE>
collateralization provisions to afford Unit holders security which, in the
opinion of the predecessor sponsor, was reasonably adequate to support the
Repurchase Commitments without regard to the ability of the Seller to meet such
commitments. While the Sponsor has not verified the predecessor sponsor's
opinion, it has no reason to believe that such beliefs were not justified.
Investors should recognize that they are subject to having all or part of
the principal amount of their investment returned prior to the termination date
of the Trust or, with respect to their pro rata share of any underlying Bond,
the Disposition Date of such obligation, in any of the situations outlined in
clauses (i) through (v) on page A-3 hereof. Should the Seller become or be
deemed insolvent, the Collateral Agent may liquidate the Collateral, in which
event the proceeds thereof will be used to repurchase the Bonds from the Trust
which will distribute such proceeds to the Unit holders unless a Receiver for
the Seller has been appointed and delivers to the Collateral Agent the required
documents affirming the Seller's binding obligations under the Collateral
Agreement and any Related Agreement.
The predecessor sponsor agreed with the Seller that the predecessor
sponsor's sole recourse in connection with any default, including insolvency, by
the Seller would be to exercise available remedies with respect to the
Collateral provided by such Seller on deposit with the Trustee; should such
Collateral be insufficient therefor, the predecessor sponsor would be unable to
pursue any default judgment against the Seller.
The ability of the Trust to exercise its rights as to the Collateral in the
event a Seller defaults in its obligations to the Trust due to the insolvency of
such Seller depends upon the validity of the security interest of the Trust
under state law in the Collateral of the insolvent Seller, and the recognition
of such security interest by any conservator or receiver who is appointed to
manage the assets of such Seller (see discussion below).
The Seller, unlike most entities, is not covered by the United States
bankruptcy law in the event the Seller becomes insolvent. If a savings bank
chartered by the State of New York becomes insolvent, the New York
Superintendent of Banks may appoint as receiver the Federal Deposit Insurance
Corporation (``FDIC'') if such bank's assets are insured by the FDIC, as is the
case with the Seller. Upon appointment, the FDIC will assume those powers
granted by New York State law to a receiver of a New York State bank. If a New
York savings bank goes into receivership, the statutory law of New York provides
that a secured creditor in possession of the collateral is entitled to retain
that collateral in either partial or full satisfaction of its claim.
Accordingly, if a Seller should become insolvent, the ability of the Trustee to
exercise its rights under the Seller's repurchase commitments or the respective
Collateral Agreement should not be significantly impaired. However, no
assurances can be given that a court would not grant a stay that could
significantly delay payments under such repurchase commitments or Collateral
Agreement. Neither the Sponsor nor the Sellers can predict the effect on the
Trust, or the value of the Units in the Trust, if such a stay were imposed.
A recent policy statement by the staff of the FDIC concerning the treatment
of collateralized put options after appointment of the FDIC as conservator or
receiver indicates that the FDIC Policy on collateralized put options originally
issued by insured depository institutions prior to FIRREA is that the FDIC in
its capacity as conservator or receiver may accelerate the collateralized put
option, in which event payment is to be made, to the extent of available
collateral, up to an amount equal to the outstanding principal amount or
accreted value of the secured obligations, together with interest at the
contract rate up to (and including if so provided in the contract), the date of
payment, plus expenses of liquidation, if so provided in the contract. If the
holder of the options for any reason fails to accept the amount tendered, the
FDIC will deem the options contract and the related collateral arrangement
terminated. If the FDIC does not accelerate the contract, the terms of the
contract will be enforceable during the pendency of conservatorship or
receivership.
The Seller has agreed to provide without charge to each person to whom this
prospectus is delivered, on the written request of such person, a copy of its
financial statement most recently prepared for delivery to depositors in
accordance with the banking laws of the State of New York, and the regulations
prescribed by the New York Superintendent of Banks thereunder or such other
applicable laws, rules and regulations. Written requests should be directed to
the Trustee, United States Trust Company of New York, 770 Broadway, New York,
New York 10003, Attention: Unit Trust Department.
A-8
<PAGE>
The Repurchase Commitments
The Seller has made the following commitments with respect to Bonds acquired
by the Trust from it:
(i) to repurchase at any time on 14 calendar days' written notice any such
Bond if it is necessary to sell any such Bond to meet redemptions of Units (a
``Liquidity Repurchase'') should such redemptions be made despite the
market-making activity of the Sponsor, (ii) to repurchase any such Bond at its
scheduled Disposition Date (Disposition Dates for all Bonds begin in 1997 and
end in 2017) if the Trustee elects not to sell the Bond in the open market
(because a price in excess of its face amount cannot be obtained) on such date
(a ``Disposition Repurchase''), (iii) to repurchase at any time on 14 calendar
days' notice any such Bond (a ``Default Repurchase'') if the issuer thereof
should fail to make timely payments of principal (and premium, if any, that may
be owing due to redemption prior to maturity or otherwise) thereof and interest
thereon, (iv) to repurchase at any time on 14 calendar days' notice any such
Bond in the event that interest thereon should be deemed to be taxable (a ``Tax
Repurchase''), and (v) to repurchase immediately all such Bonds if the Seller
becomes or is deemed to be insolvent or fails to meet its collateral
requirements in certain circumstances, in which case the Seller will be in
default under the Collateral Agreement and the Collateral Agent will liquidate
the Collateral. Any repurchase of a Bond as described in this paragraph is at a
price equal to the Bond's Cost to the Trust plus interest accrued to the date of
repurchase, the Repurchase Price. (The Liquidity Repurchase, Disposition
Repurchase, Default Repurchase and Tax Repurchase Commitments are sometimes
collectively referred to herein as the ``Repurchase Commitments'').
If the Seller fails to meet its Repurchase Commitments, recourse may be had
only to the Collateral provided by the Seller.
The Liquidity Repurchase and Disposition Repurchase Commitments of the
Seller will terminate with respect to the related Bond upon disposition of such
Bond by the Trust. The Default Repurchase and Tax Repurchase Commitment will not
so terminate but will be transferable, together with an interest in the
Collateral securing such commitments, upon the transfer of the related Bond. In
connection with the Seller's Repurchase Commitments, the predecessor sponsor
relied, without independent investigation, as to the authority and validity
thereof and as to the validity, perfection and priority of security interests in
the Collateral, upon the opinion of special counsel for the Seller. While the
Sponsor has not verified the predecessor sponsor's reliance on special counsel
it has no reason to believe that such reliance was not justified in all material
respects.
Liquidity of Bonds
Liquidity of the Trust is augmented by the Seller's collateralized Liquidity
Repurchase commitments if it is necessary to sell any Bond to meet redemptions
of Units (should such redemptions be made despite the market-making activity of
the Sponsor). If, upon any of the scheduled Disposition Dates for the Bonds
(ranging from 1997 to 2017), the Trustee elects not to sell Bonds scheduled for
disposition on such date in the open market (because, among other things, a
price in excess of their face amount cannot be obtained), the Seller is
obligated to repurchase such Bonds pursuant to their respective collateralized
Disposition Repurchase Commitments. There can be no assurance that the prices
that can be obtained for the Bonds at any time in the open market will exceed
the unpaid principal amount of the Bonds. In addition, the Evaluator has valued
the Bonds at their unpaid principal amount due in large part to the existence of
the Seller's Liquidity Repurchase Commitments, which are non-transferable.
However, once notice has been given to the Seller with respect to any Bonds, the
Seller will be obligated to make payment to the owner thereof on the Bond even
if it is in the hands of someone other than the Trust subsequent to the date of
the notice. Because such Repurchase Commitments may be called upon at any time
during the life of the Trust, the Bonds while held in the Trust are comparable
to short-term demand instruments and carried a yield on the Date of Deposit
comparable to such instruments issued by obligors of similar credit standing.
However, because the Liquidity Repurchase Commitments are non-transferable and
terminate upon sale of a Bond by the Trust, Bonds if sold from the Trust to
other parties will be valued in relation to comparable long-term debt
obligations. (As of the Date of Deposit, such Bonds without the Repurchase
Commitments would be valued in the open market at a discount from their face
amount since rates on long-term debt obligations on such date were generally
higher than the rates borne by the bonds in the portfolio. This will vary with
changes in interest rates and, as the remaining life of the Bonds shortens, the
discount, absent changes in interest rates and the relationship between rates
for debt obligations of differing maturities, should decrease.)
The Bonds in the Trust are not subject to the registration provisions of the
Federal securities laws and can be, therefore, sold free of the registration
requirements of such laws. However, if the Seller should become unable to honor
its Repurchase Commitments, and the Trustee is consequently forced to sell the
Bonds in the open market, there is no
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<PAGE>
assurance that the price realized on such a sale of the Bonds would not be
adversely affected by the absence of an established secondary market for certain
of the Bonds. Additionally, there can be no assurance that the Units will
benefit from favorable market fluctuations to the same degree as would units of
a unit investment trust composed of otherwise comparable debt obligations for
which an established secondary market exists.
The Collateral
The following is only a summary of the detailed information appearing
elsewhere in this Prospectus and to the terms and provisions of the Collateral
Agreement filed as an Exhibit to the Registration Statement filed prior to the
initial offering of Units.
The types of Eligible Collateral that may be pledged under the Collateral
Agreement that secures the Repurchase Commitments of the Seller and the required
percentages of Market Value of each such type of Collateral to the Repurchase
Price of Bonds in respect to such Collateral (``Collateral Requirement'') are as
follows on either a weekly, monthly or quarterly regular valuation basis (at the
election of the Seller):
<TABLE>
<CAPTION>
Quarterly Monthly Weekly
Types of Collateral Valuation Valuation Valuation
- --------------------------------------------------------------- ----------- --------- ---------------
<S> <C> <C> <C>
Cash........................................................... 105% 105% 105%
Direct Obligations of the United States with a maturity of:
1 year or less............................................ 117 115 113
5 years or less........................................... 145 135 133
10 years or less.......................................... 155 145 140
15 years or less.......................................... 160 150 145
30 years or less.......................................... 170 160 155
Conventional, FHA insured, VA guaranteed and privately insured
mortgages that have the characteristics described under the
Collateral Agreement--Eligible Collateral (``Mortgages'').... 180 170 Not Applicable
Mortgage-backed securities issued by private parties and
guaranteed as to full and timely payment of interest and
principal by the Government National Mortgage Association
(``GNMA''), which guarantee is an obligation of the United
States (``GNMA Pass Throughs'').............................. 160 150 145
Mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (``FHLMC'') and guaranteed as to full
and timely payment of interest and full collection of
principal by FHLMC, which guarantee is not an obligation of
the United States (``FHLMCPCs'')............................. 170 160 155
Obligations of public nongovernmental corporations rated at
least A by Standard & Poor's Corporation (or such other
acceptable rating agency at the time rating the Trust)
(``Corporate Bonds'')........................................ 190 165 155
</TABLE>
(The foregoing valuation figures are based upon a period of 10 business days in
the case of quarterly and monthly valuations, and 5 business days in the case of
weekly valuations, in which any failure to meet a given collateral requirement
may be cured.) ``Eligible Collateral'' may also consist of mortgages and other
securities of such other types and with such Collateral Requirements as the
Sponsor may specify from time to time to the Trustee, provided that Standard &
Poor's Corporation (or such other acceptable rating agency) shall have confirmed
that the pledging of such types of mortgages or other securities as part of the
Collateral in accordance with the Sponsor's designation would not result in the
reduction of its rating then assigned to the Units. (Standard & Poor's
Corporation has not yet approved mortgages as Eligible Collateral.) Standard &
Poor's Corporation (or such other acceptable rating agency if Standard & Poor's
Corporation is no longer rating the Bonds) has no obligation to review or
approve any proposed additions to the types of ``Eligible Collateral'' and may,
at any time, change or withdraw any rating on the Units. Such additions to types
of ``Eligible Collateral'' are permitted without the consent of holders of the
Units (see ``The Collateral'').
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<PAGE>
The Repurchase Commitments of the Seller are secured by a security interest
in the various types of Eigible Collateral described below.
Mortgages--In order to be eligible as Collateral as a Mortgage a
conventional mortgage must be insured by FHA or guaranteed by VA or if neither
so insured nor so guaranteed (a ``Conventional Mortgage''): (i) secure a loan
with a loan-to-value ratio not in excess of 80% (i.e. the original principal
amount of a loan divided by the lesser of the purchase price or appraised value
(as appraised at the time of origination or, if more recently appraised, at the
time of such appraisal) and a principal amount not in excess of the FHLMC/FNMA
limit); (ii) be secured by a first lien (subject only to current taxes and other
exceptions generally acceptable to mortgage lenders) on a single-family (one
unit) detached structure, that at the time of origination was owner-occupied and
designed and intended for use as a primary residence; (iii) not have had any
payment of principal or interest or escrow payment in arrears for 60 or more
days at any time during the twelve months preceding its Pledge Date and, as of
its Pledge Date, have no payments more than 30 days due and unpaid; (iv) provide
for level monthly payments of principal and interest for an original term to
maturity not in excess of 30 years; (v) bear interest at a fixed annual rate and
(vi) if originated subsequent to January 1, 1977, be written on then-applicable
FHLMC/FNMA documentation. A Mortgage may be insured by the Federal Housing
Administration or guaranteed by the Veterans Administration; however, the
Collateral Agreement does not require that any Mortgage be so insured or
guaranteed. Conventional Mortgages must not have had an original principal
amount in excess of applicable FHLMC/FNMA limitations. Not more than 35% of the
unpaid principal amount of Conventional Mortgages pledged by a Seller may
include Conventional Mortgages that fall within one of the three following
categories of exceptions to the general eligibility requirements for
Conventional Mortgages. The aggregate unpaid principal amount of Conventional
Mortgages included in any one category of exceptions (which each Conventional
Mortgage shall, meet as well as all other requirements set forth above) may not
exceed the Category Percentage (see below) of the unpaid principal amount of all
Mortgages pledged by such Seller, except that each such Conventional Mortgage
shall meet all other requirements set forth above.
<TABLE>
<CAPTION>
Category
Category of Mortgages Percentage
- -------------------------------------------------------------------------------------------- ----------
<S> <C>
Mortgages secured by units in low-rise condominiums......................................... 10%
Mortgages having, as of the date of origination, loan-to-value ratios in excess of 80% but
not in excess of 90% with private mortgage insurance of at least 25% of the mortgage*..... 25%
Mortgages having an original principal amount in excess of the FHLMC or FNMA limit as
applicable by between $25,000 and $50,000 depending on the geographic area................ 25%
</TABLE>
- ---------------
* Provided that if through seasoning the mortgage has been amortized to a
ratio of less than 80% as evidenced by a new appraisal or bona fide sale, such
private insurance will no longer be necessary.
FHA Insurance--The regulations governing the FHA single family programs
under which a Mortgage may be insured provide that a mortgage will be considered
to be in default if the mortgagor fails to make any payment or perform any other
obligation under the mortgage, and such failure continues for a period of thirty
days. Insurance benefits are payable to the mortgagee either upon foreclosure or
other acquisition of the property (which, in either case, may be subject to
certain delays, see ``Delays in Foreclosure'', below) and conveyance of
mortgaged premises to the United States Department of Housing and Urban
Development (``HUD'') or upon assignment of the defaulted Mortgage to HUD.
Assignments are permitted only with prior HUD approval. In the event of a
default on an FHA insured single family mortgage, the mortgagee must determine
whether or not the default is caused by circumstances beyond the mortgagor's
control that temporarily render the mortgagor financially unable to cure the
delinquency within a reasonable time or to make full mortgage payments. If the
determination is made that the default is caused by such circumstances, the
mortgagee generally is not permitted to initiate foreclosure proceedings unless
and until it has requested HUD to accept assignment, and HUD has rejected such
request. FHA insurance claims are paid in an amount equal to 100% of the
outstanding principal balance of the mortgage plus interest and certain
additional costs and expenses less other amounts received on account of the
mortgage or real property securing the mortgage (e.g., rents less reasonable
expenses). When entitlement to insurance benefits results from foreclosure (or
other acquisition of the property) and conveyance, the insurance payment is
computed as of the date of institution of foreclosure (or the date of other
acquisition of the property). When entitlement to insurance benefits results
from assignment of the mortgage to HUD, the benefits include full compensation
for mortgage interest accrued and unpaid to the assignment date. In both
instances, the insurance
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<PAGE>
payment itself bears interest from the date of default, or where applicable, the
date of assignment, at the HUD debenture rate in effect on the date the
commitment to insure was issued or the endorsement date, whichever is higher,
which may be less than the mortgage rate.
Payment for an insurance claim may include reimbursement to the mortgagee
for tax, insurance, and similar payments made by it, as well as deductions for
amounts received or retained by it after default. Under most FHA insurance
programs for single family residences the Federal Housing Commissioner has the
option of paying insurance claims in cash or in debentures. The HUD debenture
rate may be less than the interest rate on a Mortgage, and any such debentures
would mature 20 years after the date of issue, pay interest semi-annually and
may be redeemable at par at the option of HUD with the approval of the Secretary
of the Treasury. Current FHA policy, which is subject to change at any time, is
to pay insurance claims in cash.
VA Guarantee--Claims for the payment of a VA guarantee may be submitted when
any default of the mortgagor continues for a period of three months. A guarantee
may be paid without the mortgagee instituting foreclosure proceedings or
otherwise acquiring title. A mortgagee intending to institute foreclosure
proceedings cannot do so until 30 days after notifying the Administrator of
Veterans Affairs of its intention by registered mail. The maximum amount of
guarantee that may be paid is limited to the lesser of (1) sixty percent (60%)
of the original principal balance of the mortgage loan or (2) $27,500 for
mortgage loans made on or after October 7, 1980. The liability on the guarantee
is reduced or increased pro rata with any reduction or increase in the amount of
the indebtedness. Notwithstanding the dollar and percentage limitations of the
guarantee, a mortgagee will ordinarily suffer a monetary loss only when the
difference between the unsatisfied indebtedness and the proceeds of any
foreclosure sale of a mortgaged premises is greater than the original guarantee
as adjusted. The VA may, at its option and without regard to the guarantee, make
full payment to a mortgagee of unsatisfied indebtedness on a mortgage upon the
mortgagee's obtaining title and assigning it to the VA.
Private Mortgage Insurance--Private mortgage insurance policies currently
being issued by private mortgage insurers approved by the FHLMC contain
provisions substantially as follows: (a) the private mortgage insurance must pay
a claim, including unpaid principal, accrued interest and certain expenses,
within 60 days of presentment of the claim by the insured; (b) in order for the
insured to present a claim, the insured must have acquired, and tendered to the
insurer, title to the property, free and clear of all liens and encumbrances
including any right of redemption by the mortgagor; (c) when a claim is
presented, the insurer will have the option of paying the claim in full and
taking title to the property and arranging for its sale or of paying the insured
some percentage of the claim (the insured percentages vary but are customarily
20-25% of the claim) and allowing the insured to retain title to the property;
and (d) claims may also be settled by the insurer at the option of the insured
for actual losses where such losses are less than the insured percentage of the
claim.
Delays in Foreclosure--Mortgages insured by the FHA or guaranteed by the VA
are subject to current federal regulations which provide that a mortgagee may
not initiate foreclosure proceedings on an FHA insured or VA guaranteed loan
unless at least three full monthly installments are due and unpaid. An
administrative appeal prior to foreclosure is available to a mortgagor, and, if
the mortgagor utilizes this procedure, the foreclosure may be delayed an
additional three months. No delay in the foreclosure action is required if the
property is encumbered by an FHA/VA mortgage and is abandoned by the mortgagor.
Mortgagors may seek protection under the United States Bankruptcy Code,
which provides a debtor with an opportunity to adjust his debts without losing
control of his assets. Under a plan confirmed under Chapter 13 of the Bankruptcy
Code, the debtor's unsecured and secured debts may be modified, except that debt
secured by a mortgage on real property used as the debtor's principal residence
may not be modified unless the case is converted to a case under Chapter 7
(liquidation). Absent court ordered relief (which is only available under
limited circumstances) the automatic stay under Section 362 of the Bankruptcy
Code will apply to any case commenced under the Bankruptcy Code, and the
mortgagee will be stayed from any action to satisfy its claim, including
foreclosure on the real property. Both prior and subsequent to a demand for
accelerated payment of principal, a bankruptcy court may impose repayment plans
on any terms it considers appropriate over a period of up to five years. Federal
and state legislation has been proposed to assist defaulting mortgagors. The
legislation provides either for rendering financial assistance to such a
mortgagor or limiting the ability of a mortgagee to institute foreclosure
proceedings. If enacted, such legislation may preclude foreclosures that would
otherwise have occurred.
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Demand for accelerated payment of principal is usually the initial step in
foreclosure proceedings. A voluntary deed in lieu of foreclosure may be accepted
in those jurisdictions where this practice is authorized. If a mortgagor pays
all delinquent amounts, foreclosure proceedings may be terminated depending on
local law. In some jurisdictions the mortgagor may be required to tender the
full amount of the mortgage plus costs in order to terminate the foreclosure
action. If the mortgagor thereafter becomes delinquent, a new demand for
accelerated payment of principal must generally be made and new foreclosure
proceedings commenced. The length of the foreclosure process varies
significantly from state to state. Many state laws provide mortgagors with an
equity of redemption following foreclosure, and the foreclosure typically is not
final until the expiration of any such right, which may involve a period of at
least one to two years in some states.
Mortgage-Backed Securities--The market value of mortgage-backed securities
(``the Securities''), is determined by a variety of factors operative at the
time of purchase or sale, including: (i) the prevailing structure and the
direction of trends in the yield curve, particularly for U.S. Treasury
obligations, and the spread between the yields for U.S. Treasury obligations and
the Securities; (ii) the level of and trends in housing construction activity
and mortgage loan originations, which indirectly affect the amount of
securitized mortgages in the market; (iii) the demand for and new originations
of derivative mortgage-backed security products such as collateralized mortgage
obligations; (iv) the demand for mortgage-backed securities for the investment
portfolios of banking and thrift institutions, which could be adversely affected
by changes in the treatment of the Securities in the capital-based risk and
accounting guidelines adopted by Federal regulatory agencies to comply with
provisions of the FIRREA; (v) market perception as to the risk of massive sales
of mortgage-backed securities by savings and loan associations, which are
insolvent, financially ailing or otherwise required to restructure their
portfolios to reduce interest rate risk or shrink assets; and (vi) market
reaction to the insolvency or liquidation of major servicers/lenders
participating in the programs related to the Securities, and consequent
financial losses experienced by GNMA. ``Eligible Collateral'' includes two types
of mortgage-backed securities, GNMA Pass Throughs and FHLMCs. These securities
constitute certificates issued with respect to pools of mortgages. The interest
represented by certificates and the characteristics of the mortgages comprising
a pool vary between GNMA and FHLMC. A pool may be comprised of mortgages that
are concentrated by mortgage lending institutions or by geographical area or
both. It is not expected that mortgages in a pool would necessarily meet the
requirements for the mortgages, themselves, to constitute ``Eligible
Collateral''. Mortgages in a pool may be secured by 1-4 family housing (having a
stated maturity of up to 30 years) or by multifamily projects and may be insured
by the FHA, Farmers Home Administration (``FmHA'') or guaranteed by the VA.
Alternatively, such mortgages may be insured in part by private mortgage
insurers or neither insured nor guaranteed (``conventional mortgages'').
Mortgages may vary as to loan-to-value ratios, maximum unpaid principal amounts,
maturity, required documentation, payments of interest in advance or arrears,
owner-occupancy and primary residence requirements. While mortgages comprising a
pool are generally ``whole loans'', in some instances, participations in
mortgages may be included in a pool. At present, only fixed rate mortgages are
included in a pool.
GNMA--GNMA is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development (``HUD''), with its
principal office at 451 Seventh Street, S.W., Washington, D.C. 20410. GNMA was
created in 1968 through amendment of Title III of the National Housing Act.
(Under the provisions of the Housing and Urban Development Act of 1968, the
Federal National Mortgage Association (``FNMA''), originally established in
1938, was rechartered as a private corporation to provide secondary market
support for the private residential mortgage market). GNMA was established to
administer mortgage support programs which could not be carried out in the
private market. The National Housing Act and other Federal legislation bearing
on GNMA is subject to amendment by Congress in a fashion that could materially
affect the scope of GNMA's activities and operations.
GNMA is authorized by Section 306(g) of Title III of the National Housing
Act, as amended, to guarantee the timely payment of principal of and interest on
securities which are based on or backed by a trust or pool composed of mortgages
insured by the FHA under the National Housing Act, as amended, or the Farmers'
Home Administration, under Title V of the Housing Act of 1949 or guaranteed by
the VA under the Servicemen's Readjustment Act of 1944, as amended, or Chapter
37 of Title 38, United States Code. Section 306(g) provides further that ``the
full faith and credit of the United States is pledged to the payment of all
amounts which may be required to be paid under any guaranty under such
subsection''. An opinion of an Assistant Attorney General of the United States,
dated December 9, 1969, states that such guaranties under Section 306(g)
``constitute general obligations of the United States backed by its full faith
and credit.'' GNMA is empowered to borrow from the United States Treasury to the
extent necessary to make any payments of principal and interest required under
such guaranties.
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GNMA Pass-Throughs--The GNMA Pass-Throughs will be the ``fully modified
pass-through'' type, the terms of which provide for timely monthly payments by
the issuers to the registered holders of their pro rata shares of the scheduled
principal payments, whether or not collected by the issuers, on account of the
mortgages backing such GNMA Pass-Throughs, plus any prepayments of principal of
such mortgages received, and interest (net of the servicing and other charges
described above) on the aggregate unpaid principal balance of such GNNA
Pass-Throughs, whether or not interest on account of such mortgages has been
collected by the issuers.
The GNMA Pass-Throughs will be guaranteed as to timely payment of principal
and interest by GNMA. All installments are applied first to interest and then in
reduction of principal balance then outstanding. Interest is paid at the
specified rate on the unpaid portion of the principal. The amount of principal
due on the GNMA's Pass Throughs is in an amount equal to the scheduled principal
amortization currently due on the pooled mortgages. However, payment of
principal and interest is subject to adjustment by reason of any prepayments or
other early or unscheduled recoveries of principal on the pooled mortgages.
Funds received by the issuers on account of the mortgages backing the several
issues of the GNMA Pass-Throughs are intended to be sufficient to make the
required payments of principal of and interest on such GNMA Pass-Throughs, but,
if such funds are insufficient for that purpose, the guaranty agreements between
the issuers and GNMA require the issuers to make advances sufficient for such
payments. If the issuers fail to make such payments, GNMA will do so.
GNMA Pass-Throughs are based upon and backed by the aggregate indebtedness
secured by the underlying FHA insured, FmHA insured, or VA guaranteed mortgages
and, except to the extent of funds received by the issuers on account of such
mortgages, the GNMA Pass-Throughs do not constitute a liability of or evidence
any recourse against the issuers, but recourse thereon is solely against GNMA.
Holders of GNMA Pass-Throughs have no security interest in or lien on the pooled
mortgages. GNMA Pass-Throughs were developed as a means of attracting capital
not customarily invested in mortgages. GNMA also provides special assistance for
certain types of mortgages through subsidies in its purchase at par of below
market interest rate mortgages.
In a recent review of GNMA's Guarantees of Mortgage-Backed Securities
(``GMBS'') account, the United States General Accounting Office (``GAO'') noted
that the GMBS account has never used authority to borrow because its collections
have always been sufficient to make any required payments. The GAO report
recommended, however, that Congress consider setting a limit on the amount of
debt GMBS can have with the Treasury Department. HUD officials have disagreed
with the GAO recommendation, arguing that any limit on the amount GNMA can
borrow would, in effect, qualify the government's guarantee of Ginnie Maes.
However, the Treasury Department has concurred with the general recommendations
contained in the full GAO report. The Sponsor is unable to predict whether
legislation imposing limits on GNMA's borrowing authority will be enacted, or
what effect, if any, such provisions would have on the market value of the
Securities in the Portfolio.
The FHLMC is a corporate instrumentality of the United States created
pursuant to the Emergency Home Finance Act of 1970 (The ``FHLMC Act''). Under
FIRREA the previous three member board of directors of FHLMC was dissolved and a
new, 18-member board was established. Of the 18 members, 13 are elected by the
shareholders and five are appointed by the President of the United States. Prior
to the adoption of FIRREA, the common stock of FHLMC was held by the Federal
Home Loan Banks (the ``FHLBs''). Since the adoption of FIRREA, the common stock
held by the FHLBs has been retired and the outstanding senior participating
preferred stock of FHLMC has been converted into voting common stock.
The principal activity of FHLMC currently consists of the purchase of first
lien, conventional, residential mortgage loan or participation interests in such
mortgage loans and resale of the mortgage loans so purchased in the form of
mortgage securities. All mortgage loans purchased by FHLMC must meet certain
standards set forth in the FHLMC Act. Mortgages retained by FHLMC are financed
with debt and equity capital.
FHLMC PCs--FHLMC PCs are certificates issued by FHLMC which represent
undivided interests in identified pools of residential mortgage loans purchased
by FHLMC. FHLMC guarantees the full and timely payment of interest (adjusted to
the certificate rate) on the unpaid principal balance of mortgage loans in the
pool as determined or estimated by FHLMC and the collection of principal without
any offset or deduction. Payment of principal is subject to the delay due to
federal and state laws (see ``Mortgages--Delays in Foreclosure'', above). If a
mortgagor does not pay all delinquent amounts within one year after demand for
accelerated repayment of the indebtedness, payment is nevertheless made by FHLMC
to certificate holders pursuant to its guarantee of full collection. The
obligations of FHLMC under its guarantee
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are solely those of FHLMC and are not backed by the full faith and credit of the
United States nor are they an obligation of any Federal Home Loan Bank.
Short Term U.S. Governments--Direct obligations of the United States that
mature within one year at the time of being pledged under the Collateral
Agreement.
U.S. Governments--Direct obligations of the United States that mature within
30 days at the time of being pledged under the Collateral Agreement.
Corporate Bonds--Marketable direct obligations of public, nongovernmental
corporations payable in U.S. dollars, bearing interest at a fixed rate and rated
at least A by Standard & Poor's Corporation (or other acceptable rating agency).
Valuation--The Market Value of each Mortgage equals the present value of an
assumed cash flow using a discount rate equal to the average weighted yield
established by, as applicable, FNMA or FHLMC for applicable mortgages in the
earliest delivery category. The assumed cash flow is based on a 30 year,
fixed-rate level monthly payment mortgage that is prepaid in whole in the
twelfth year. The actual interest rate and unpaid principal amount of the
particular Mortgage, but not the maturity, are used in calculating cash flow. If
no weighted yield is so established by FNMA or FHLMC, the weighted yield shall
be the average market price for a comparable mortgage established within such
period by a mortgage banking firm selected by the Collateral Agent and
reasonably acceptable to the Seller who pledged the particular Mortgage. The
Market Value of all Collateral is the average bid price available on the
Reporting Date from any two dealers that make a market in such Collateral and
are members of the National Association of Securities Dealers.
If the foregoing valuation procedures do not accurately reflect the market
value of different types of Collateral subsequently included as ``Eligible
Collateral'', the Sponsor will determine an appropriate valuation procedure that
will not impair the rating then assigned to the Units by the rating services
that rate the Units.
Additions to Collateral--Whenever the Collateral Agent notifies the Seller
that the aggregate Pledge Value (the Market Value of Collateral divided by the
Collateral requirement for such Collateral) of its Collateral does not satisfy
the aggregate applicable Collateral Requirements, the Seller is required to
deposit with the Collateral Agent additional Collateral within a maximum of 10
business days with an aggregate Pledge Value equal to the deficiency. If the
Seller fails to do so, the Collateral Agent immediately determines the
Liquidation Value (the Market Value less reasonably anticipated expenses
including those of the Collateral Agent and Divided by 105%) of the Seller's
Collateral. If the Liquidation Value is less than the aggregate Pledge Value
Requirement, the Collateral Agent immediately shall, unless the Sponsor directs
otherwise, sell all of the Seller's Collateral at public or private sale.
Proceeds of such sale and any cash belonging to the Seller then held by the
Collateral Agent, after paying Permitted Expenses (fees and expenses owing to it
in connection wth such sale or otherwise under the Collateral Agreement), are
used to repurchase Bonds from the Trustee originally sold by the Seller to the
Trust. The purchase price for such Bonds is the unpaid principal amount thereof
plus interest accrued to the date of purchase. Alternatively, if the Liquidation
Value of Seller's Collateral at least equals the aggregate Pledge Value
Requirement, the Collateral Agent shall immediately notify the Sponsor and
Trustee and, unless otherwise directed by the Sponsor, sell at public or private
sale so much of such Seller's Collateral as is necessary, after taking into
account Permitted Expenses, to acquire Short Term U.S. Governments with proceeds
of such sale so that the Collateral Agent will then hold a combination of cash,
Short Term U.S. Governments and other Collateral that satisfies the aggregate
Pledge Value Requirement.
Although the predecessor sponsor believed that the Collateral Requirements
were sufficient to provide a high degree of protection against capital
depreciation and the Sponsor, while not verifying the predecessor sponsor's
opinion, has no reason to believe that the predecessor's opinion was not valid
in all material respects and Standard & Poor's Corporation has taken such
requirements into account in assigning its rating to the Trust, investors should
be aware that if Collateral liquidation is required and proves insufficient to
satisfy redemptions or other required Trust distributions, if any, then the full
principal amount of their investment could not be returned.
Substitutions and Release--Collateral may be withdrawn or substituted at any
time by the Seller provided that the remaining or substituted Eligible
Collateral meets the applicable Collateral Requirement. All payments on
Collateral will be made to and retained by the Seller unless an event of default
has occurred and is then continuing.
Servicing Collateral--Collateral of the Seller will be serviced by the
Seller. The Seller covenants that it will exercise the same degree of care in
servicing Collateral as prudent financial institutions exercise in servicing
similar securities and instruments owned by them that have not been pledged. The
Seller may contract with a third party servicer for the
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servicing of any Mortgage on behalf of the Seller, but such Seller shall remain
primarily liable for the proper servicing of all Mortgages pledged by it.
The Collateral Agent--The Collateral Agent or any successor may resign upon
30 days' written notice to the Seller and to the Trust. The Collateral Agent may
be removed upon the direction of the Trust unless the Trust does not then hold a
majority in principal amount of Bonds then outstanding. Such resignation shall
become effective upon the appointment of a successor. The Collateral Agent shall
not be liable among other things, for any action taken, suffered, or omitted by
it in good faith (a) reasonably believed by it to be authorized or within the
discretion or rights or powers conferred on it by the Collateral Agreement or
(b) in accordance with any direction or request of the Sponsor or the holders of
51% of the aggregate principal amount of Units then outstanding. The Collateral
Agent shall not be deemed to have knowledge of any Default or Event of Default
unless and until a Responsible Officer thereof shall have actual knowledge
thereof or shall have received written notice thereof. In addition, the
Collateral Agreement contains other provisions limiting the liability of the
Collateral Agent.
Modifications--The Collateral Agreement may be amended or compliance with
any of its provisions may be waived by the Collateral Agent and Seller upon
notice to all holders if such amendment or waiver is not materially adverse to
the interest of such holders with the written consent of the holders of 51% in
aggregate principal amount of the Units at the time outstanding (100% in case of
waivers). Initially, the Trust would hold 100% of the Bonds affected by
Repurchase Commitments; however, the percentage held by the Trust would decrease
if any such Bonds were sold in the open market.
The Units
On the date of this Prospectus each Unit represented the fractional
undivided interest in the Trust set forth under ``Summary of Essential
Information''. Thereafter, if any Units are redeemed by the Trustee, the
fractional undivided interest in the Trust represented by each unredeemed Unit
will increase, although the relative interest in the Trust represented by each
such Unit will remain unchanged. 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 Agreement.
Tax Status
In the opinion of bond counsel to the issuing governmental authorities,
interest income on the Bonds 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.
Interest on the Bonds is also, in the opinion of such bond counsel, exempt from
the New York State and New York City personal income taxes imposed on
individuals, estates and trusts.
In the case of Bonds issued at a time when the Internal Revenue Code of 1954
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 Bonds. Gain (other than any
earned original issue discount) realized on sale or redemption of the Bonds 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. Bonds 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.
On the Date of Deposit, special counsel for the predecessor sponsor rendered
an opinion under the then existing Federal income tax law which read, in part,
as follows:
The Trust (and consequently the Unit holders, as discussed below) will
be treated as the owners of the Bonds for Federal income tax purposes,
notwithstanding the existence of the Sellers' Repurchase Commitments.
(Neither the Trust nor the Sponsor has applied for a ruling from the
Internal Revenue Service regarding the ownership of the Bonds: the Internal
Revenue Service has announced in Rev. Proc. 83-55, since
restated * * * that it will not ordinarily issue advance rulings or
determination letters on the question of who is the true owner of
securities, or participation interests therein, where the purchaser has the
contractual right to cause the security, or participation interests
therein, to be purchased by either the seller or a third party).
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The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on the underlying Bonds, 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,
when distributed to the Unit holders.
Each Unit holder will be considered the owner of a pro rata portion of
the Trust under the grantor trust rules of Sections 671-679 of the Code.
Each Unit holder will be considered to have received his pro rata share of
Bond interest when it is received by the Trust, and each Unit holder will
have a taxable event when the Trust disposes of a Bond (whether by sale,
exchange, redemption, payment at maturity or pursuant to the Sellers'
Repurchase Commitments) or when the Unit holder redeems or sells his Units.
The total tax cost of each Unit to a Unit holder is allocated among each of
the Bond issues held in the Trust (in accordance with the proportion of the
Trust comprised by each Bond issue at the time the Unit holder purchases
his Units) in order to determine his per Unit tax cost for each Bond issue,
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 Bond issue.
In the opinion of Messrs. Cahill Gordon & Reindel, special counsel to the
Sponsor, no change in law has occurred since the Date of Deposit which would
require a change in the above opinion.
Messrs. Cahill Gordon & Reindel are also of the opinion that, under existing
law:
Interest on the underlying debt obligations which is exempt from tax
under the laws of the State and City of New York when received by the Trust
will retain its status as tax-exempt interest to its Unit holders.
(Interest on the underlying obligations in the Trust is, however, not
excludable from income in determining the amount of the income-based (i)
New York State franchise taxes on business and financial corporations or
(ii) the New York City general corporation tax and the New York City
financial corporation tax.) The minimum income taxes imposed by New York
State and New York City on individuals, estates and trusts exclude from
their taxable bases the Federal tax preference item with respect to
tax-exempt interest.
Non-residents of New York City will not be subject to the City personal
income tax on gains derived with respect to their Units. Non-residents of
the State will not be subject to New York State personal income tax on such
gains unless the Units are employed in a business, trade or occupation
carried on in New York State. A New York State or City resident should
determine his basis and holding period for his Units in the same manner for
New York State and City personal income tax purposes as for federal income
tax purposes.
A portion of a Unit holder's tax cost of his Units is allocated to the cost
of the Repurchase Commitments and such portion is allocated to the Repurchase
Commitments applicable to the various Bonds held in the Trust as a part of the
total tax cost allocated among the Bonds. The cost of the Repurchase Commitments
is, however, taken into account in determining the gain or loss realized by the
Unit holder upon disposition of a Bond by the Trust or disposition of Units by a
Unit holder.
If the proceeds received by the Trust upon the sale or redemption of an
underlying Bond exceed a Unit holder's adjusted tax cost allocable to the Bond
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 Bond are less than a Unit holder's adjusted tax cost
allocable to the Bond 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 Bond, 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 Bond 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 Bond in a case in which the tax
cost for the Unit holder's pro rata interest in the Bond 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 Bond). If the market discount is less than .25% of the stated
redemption price of the Bond at maturity multiplied by the number of complete
years to maturity, the market discount shall be considered to be zero. Under the
Code, net capital gain (i.e., the excess of net long-term capital gain over net
short-term capital loss) of individuals, estates and trusts is subject to a
maximum nominal tax rate of 28%. Such net capital gain may, however, result in a
disallowance of itemized deductions and/or affect a personal exemption phase
out.
Exemption of interest on a Bond from regular income tax requires that the
issuer of the Bond (or other user of the Bond proceeds) meet certain ongoing
compliance requirements. Failure to meet these requirements could result in loss
of
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the exemption and such loss of exemption could apply retroactively from the date
of issuance. A Bond may provide that if a loss of exemption is determined to
have occurred, the Bond is immediately due and payable; and, in the case of a
secured Bond, that the security can be reached if the Bond is not then paid. If
such a loss of exemption were to occur and the Bond did not contain such an
acceleration clause, or if the acceleration did not in fact result in payment of
the Bond, the affected Bond would likely be sold as a taxable bond. Sale of a
Bond as a taxable bond would likely result in a realization of proceeds less
than the cost of the Bond.
In the case of certain of the underlying Bonds comprising the Portfolio of
the Trust, the opinions of bond counsel may indicate that although interest on
such underlying Bonds is generally exempt from Federal income tax, such
underlying Bonds 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 Bonds will not be
exempt from Federal income tax for any period during which such underlying Bonds
are held by a ``substantial user'' of the facilities financed by the proceeds of
such underlying Bonds (or a ``related person'' to such a ``substantial user'').
In the opinion of Messrs. Cahill Gordon & Reindel, interest attributable to such
underlying Bonds (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 Bonds were held by the Unit
holder directly as owner. No investigation as to the users or of the facilities
financed by the underlying Bonds 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.
The Portfolio of the Trust may contain one or more Bonds 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 Bond 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
Bond at maturity multiplied by the number of complete years to maturity, the
original issue discount shall be considered to be zero. In the case of a Bond
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 Bond 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 such an original issue discount Bond is measured
by the difference between the amount realized upon disposition of and the amount
paid for such obligation. A holder may, however, 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 municipal debt obligation 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 Bond over the sum of the issue price and the accrued original issue
discount on the acquisition date). The tax basis in such a Bond is increased by
the amount of original issue discount that is deemed to accrue while the Bond is
held. The difference between the amount realized on a disposition of the Bond
(ex currently accrued interest) and the adjusted tax basis of the Bond will give
rise to taxable gain or deductible loss upon a disposition of the Bond by the
Trust (or a sale or redemption of Units by a Unit holder).
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 Bonds. 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.
The Code provides, generally, that adjustments to taxable income to produce
alternative minimum taxable income for corporations include 75% of the amount by
which adjusted current earnings (which would include tax-exempt
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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.
The Code also imposes 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
environmental tax is an excise tax and is deductible for United States Federal
income tax purposes (but not for purposes of the environmental tax itself).
Although the environmental tax is based on alternative minimum taxable income,
the environmental tax must be paid in addition to any Federal income taxes
payable by the corporation.
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.
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.
Under the Code taxpayers are required to report on their Federal income tax
returns the amount of tax-exempt interest received or accrued during the year.
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 Bonds 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 Bonds in the
Trust.
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.
Expenses and Charges
Initial Expenses
At no cost to the Trust, the predecessor sponsor has borne all the expenses
of creating and establishing the Trust, including the cost of the initial
preparation, printing and execution of the Trust Agreement and the certificates
for Units, the fees of the Evaluator during the initial public offering, legal
expenses, advertising and selling expenses, expenses of the Trustee and other
out-of-pocket expenses.
Sponsor's Fee
The Portfolio supervision fee (the ``Supervision Fee'') which is earned for
Portfolio supervisory services, is based upon the aggregate face amount of Bonds
in the Trust at the beginning of each calendar year.
The Supervision Fee, which is not to exceed the amount per $1,000 face
amount of Bonds in the Trust set forth in Part A--``Summary of Essential
Information'', 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 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--Responsbility.'' 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.
A-19
<PAGE>
Trustee's and Evaluator's Fees
The Trustee will receive for its ordinary recurring services to the Trust an
annual fee in the amount set forth under ``Summary of Essential Information''.
For a discussion of the services performed by the Trustee pursuant to its
obligations under the Trust Agreement, reference is made to the material set
forth under ``Rights of Unit Holders''.
The Evaluator receives a fee set forth under ``Summary of Essential
Information'' to be paid by the Trustee. (See ``Evaluator--Responsibility''.)
The Trustee's and Evaluator's fees are payable monthly on each Record Date
from the Interest Account to the extent funds are available and then from the
Principal Account. Both fees may be increased without approval of the Unit
holders by amounts not exceeding proportionate increases in consumer prices for
services as measured by the United States Department of Labor's Consumer Price
Index entitled ``All Services Less Rent''. The Trustee's fee will not be
increased in future years in order to make up the reduction in the Trustee's fee
under ``Rights of Unit Holders--Distribution of Interest and Principal''.
Other Charges
There are no fees or charges to the Trust in connection with exercise of the
Repurchase Commitments or the rights under the Collateral Agreement. The
following additional charges are or may be incurred by the Trust: all expenses
(including counsel fees) of the Trustee incurred in connection with its
activities under the Trust Agreement, including the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any extraordinary
services performed under the Trust Agreement; indemnification of the Trustee for
any loss or liability accruing to it without gross negligence, bad faith or
willful misconduct on its part, arising out of or in connection with its
acceptance or administration of the Trust; and all taxes and other governmental
charges imposed upon the Bonds or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsor,
contemplated). The above expenses, including the Trustee's fee, when paid by or
owing to the Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell Bonds in order to make funds available to pay all
expenses.
REINVESTMENT PROGRAM
Distributions of interest and principal, if any, are made to Unit holders
monthly, quarterly or semiannually. A Unit holder will have the option of either
receiving his monthly, quarterly or semiannual income check from the Trustee or
reinvesting the distribution in an open-end diversified management investment
company offered by the Sponsor 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, quarterly or semiannual
interest distributions and principal distributions, if any, to the designated
fund. It should be noted that there are no repurchase commitments with respect
to bonds in the Reinvestment Series. 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.
PUBLIC OFFERING
Offering Price
The price of the Units is determined by adding to the Evaluator's
determination of the aggregate bid price of the Bonds per Unit a sales charge of
4.712% of the net amount invested thereof equal to 4.5% of the Public Offering
Price. A proportionate share of accrued and undistributed interest on the Bonds
at the date of delivery of the Units to the purchaser is also added to the
Public Offering Price.
The aggregate bid price of the Bonds (including their respective Repurchase
Commitments) is determined by the Evaluator (1) on the basis of current bid
prices for the Bonds, (2) if bid prices are not available for any Bonds, on the
basis of current bid prices for comparable bonds, (3) by making an appraisal of
the value of the Bonds on the basis of bid prices in the market, or (4) by any
combination of the above. Such valuations will take into account the Repurchase
Commitments of the Seller relating to the Bonds as discussed in footnote 5 in
the Notes to the Schedule of Investments. For information relating to the
calculation of the Redemption Price, which is based upon the aggregate bid price
of the
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<PAGE>
underlying Bonds, see ``Rights of Unit Holders--Redemption''. See also ``Rights
of Unit Holders--Certificates'' and ``Rights of Unit Holders--Redemption'' for
information relating to redemption of Units.
The sales charge per Unit 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.
<TABLE>
<CAPTION>
(As Percent of Bid (As Percent of Public
Time to Maturity Side Evaluation) Offering Price)
- ------------------------ ------------------ ---------------------
<S> <C> <C>
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%
</TABLE>
The sales charge per Unit will reduced pursuant to the following graduated
scale for sales to any person of at least 100 Units.
<TABLE>
<CAPTION>
Number of Units % of Sales Charge
- ----------------------- -----------------
<S> <C>
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%
</TABLE>
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
a 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.
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 bid side evaluation of the Bonds in the Trust divided by
the number of Units outstanding plus a reduced sales charge of $5.00 per Unit,
subject to a limit of 5% of the Units of a Trust at the discretion of the
Sponsor.
Market for Units
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units of the Trust offered hereby and continuously to offer to
purchase said Units at prices based on the aggregate bid price of the underlying
Bonds. There is no sales charge incurred when a Unit holder sells Units back to
the Sponsor. Any Units repurchased by the Sponsor may be reoffered to the public
by the Sponsor at the Public Offering Price at the time, plus accrued interest.
If the supply of Units of the Trust exceeds demand, or for some other
business reason, the Sponsor may discontinue purchases of Units of the Trust at
prices based on the bid prices of Bonds in the Trust. The Sponsor, of course,
does not in any way guarantee the enforceability, marketability or price of any
Bond in the portfolio or of the Units. In the event that a market is not
maintained for the Units, a Unit holder desiring to dispose of his Units may be
able to do so only by
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<PAGE>
tendering such Units to the Trustee for redemption at the Redemption Price,
which is based upon the aggregate bid price of the underlying Bonds. If a Unit
holder wishes to dispose of his Units, he should inquire of the Sponsor as to
current market prices prior to making a tender for redemption to the Trustee.
(See ``Rights of Unit Holders--Redemption''.)
Distribution of Units
The Sponsor intends to qualify Units for sale in states selected by the
Sponsor, to be sold by the Sponsor and through dealers who are members of the
National Association of Securities Dealers, Inc. at prices which include a
concession per Unit as stated 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 purchase of Units.
The dealer concession per Unit in the secondary market will be 65% of the
sales charge per Unit.
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 Texas, any
bank making Units available must be registered as a broker-dealer in that State.
Sponsor's Profits
The Sponsor receives a sales charge as set forth in ``Summary of Essential
Information''. On the sale of Units to dealers, the Sponsor will retain the
difference between the dealer concession and the sales charge (see
``Distribution of Units,'' herein).
The Sponsor may realize profits (or sustain losses) due to the daily
fluctuations in prices of the Bonds and thus in the Public Offering Price of the
Units received by the Sponsor. Cash, if any, made available to the Sponsor prior
to the settlement date for purchase of Units may be used in the Sponsor's
businesses, subject to the limitations permitted by applicable regulations, and
may be of benefit to the Sponsor.
In maintaining a secondary market for the Units (see ``Market for Units'')
the Sponsor may also realize profits or sustain losses in the amount of any
difference between the price at which it buys Units and the price at which it
resells or redeems such Units.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsor. The Trustee is authorized to treat as the record owner
of Units that person who is registered as such owner on the books of the
Trustee. Delivery of certificates representing Units ordered for purchase is
normally made five business days following order or within a reasonable period
of time thereafter. 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 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 must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
Interest and principal received by the Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Unit holders of record as of
the preceding Record Date. All distributions will be net of applicable expenses
and funds required for the redemption of Units. (See ``Summary of Essential
Information'', ``The Trust--Expenses and Charges'' and ``Rights of Unit
Holders--Redemption''.)
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<PAGE>
The Trustee will credit to the Interest Account all interest received by the
Trust, including that part of the proceeds of any disposition of Bonds 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''.) Proceeds received from the disposition of any of the Bonds
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 the 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 holders' pro rata share of the estimated annual income to be credited to
the Interest Account after deducting estimated expenses (the ``Monthly Interest
Distribution'') plus such holders' pro rata share of the cash balance of the
Principal Account computed as of the close of business on the preceding Record
Date. Because Bond interest payments are not received by the Trust at a constant
rate throughout the year, such Monthly Interest Distribution may be more or less
than the amount credited to the Interest Account as of the 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 $1.00 per
Unit. The Interest Distribution per Unit (i.e. Estimated Net Annual Income Per
Unit) shown under ``Summary of Essential Information'' will change as Bonds are
exchanged, redeemed, paid or sold.
Purchasers of Units who desire to receive distributions on a semiannual or
quarterly basis may elect to do so at the time of purchase. Those indicating no
choice will be deemed to have chosen the monthly distribution plan. Record dates
for monthly distributions will be the tenth day of each month. Record dates for
quarterly distributions will be the tenth day of January, April, July and
October, and record dates for semiannual distributions will be the tenth day of
January and July.
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 his 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 ``The
Trust--Expenses and Charges''.) The Trustee also may 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 the Trust's assets 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''.) Funds that are available for
future distributions, redemptions and payment of expenses are held in accounts
which are non-interest bearing to the Unit holders and are available for use by
and may be of benefit to United States Trust Company of New York pursuant to
normal banking procedures.
Because interest on Bonds in the Trust is payable at varying intervals,
usually in semiannual installments, and distributions of income are made monthly
to Unit holders, the interest accruing to the Trust will not be equal to the
amount of money received and available monthly for distribution from the
Interest Account. Therefore, on each Monthly Distribution Date, the amount of
interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In order to eliminate fluctuations in monthly interest distributions
resulting from such variances, the Trustee is required by the Trust Agreement 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 advances 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 Bonds 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 Bonds by reducing the
amount otherwise distributable per Unit with respect to one or more Interest
Distributions. If Units are redeemed subsequent to such advances by the Trustee,
but prior to receipt by the
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<PAGE>
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 Interest Distribution than would have occurred
absent such redemptions. In addition, because of the varying interest payment
dates of the Bonds comprising the Trust 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. Therefore, there will always remain an
item of accrued interest that is added to the value of the Units. If a Unit
holder sells all or a portion of his Units, he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his Units.
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
also include accrued interest on the Bonds. Thus, the accrued interest
attributable to a Unit will not be entirely recovered until the holder either
redeems or sells such Unit or until the Trust is terminated. (See ``Rights of
Unit Holders--Redemption--Computation of Redemption Price per Unit.'')
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 Bonds 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 Bonds, the amount of the reduction in
the distribution per Unit resulting from such failure, the percentage of the
aggregate face amount of Bonds which such Bond represents and, to the extent
then determined, information regarding any disposition or legal action with
respect to such Bond. 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 (1) as to the Interest
Account: interest received (including any earned original issue discount and
amounts representing interest received upon any disposition of Bonds), and, if
the issuers of the Bonds are located in different states or territories, the
percentage of such interest by such states or territories, deductions for
payment of applicable taxes and for fees and expenses of the Trust, 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
Bonds and the net proceeds received therefrom (including any unearned original
issue discount but excluding any portion representing interest), deductions for
payments of applicable taxes and for fees and expenses of the Trust, 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; (3) a list of the Bonds held and the number of Units outstanding
on the last business day of such calendar year; (4) the Redemption Price 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 Bonds in the Portfolio
and a copy of the Trust Agreement.
Redemption
Tender of Units
Units may be tendered to the Trustee for redemption on any day the New York
Stock Exchange is open at its unit investment trust office at 770 Broadway, New
York, New York 10003, 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 canceled.
Certificates for Units to be redeemed must be delivered to the Trustee and
must be properly endorsed or accompanied by a written instrument of transfer.
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, a member firm of either the New York, Midwest or Pacific Coast
Stock Exchange, or in such other manner as may be acceptable to the Trustee. In
certain
A-24
<PAGE>
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 seven calendar days following such tender, or if the seventh calendar
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 on the date of tender. (See
``Redemption--Computation of Redemption Price per Unit''.) The ``date of
tender'' is deemed to be the business day on which Units are received by the
Trustee, except that as regards Units received after the Evaluation Time, the
date of tender is the next business day 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. For information relating to the purchase by the Sponsor of
Units tendered to the Trustee for redemption, see ``Redemption--Purchase by the
Sponsor of Units Tendered for Redemption''.
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 Bonds in order to make funds available
for redemption. Such sales, if required, could result in a sale of Bonds by the
Trustee at a loss. To the extent Bonds are sold, the size and diversity of the
Trust will be reduced.
The Trustee shall advance to the Trust such funds as are necessary to meet
redemptions pending the receipt by the Trust of the proceeds of the exercise of
the Repurchase Commitments.
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
Bonds is not reasonably practicable, or for such other periods as the Securities
and Exchange Commission has by order permitted.
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined by the Trustee on the basis of
the bid prices of the Bonds in the Trust, and the Public Offering Price of Units
is determined on the basis of the bid prices of the Bonds, both 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 Bonds in the Trust (determined by the Evaluator as set
forth below), (2) cash on hand in the Trust and (3) accrued and unpaid interest
on the Bonds 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, and (c) 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 fifth business day thereafter
also comprises a part of the Redemption Price per Unit. The Evaluator may
determine the value of the Bonds in the Trust (1) on the basis of current bid
prices for the Bonds and the repurchase commitment, (2) if bid prices are not
available for any Bonds, on the basis of current bid prices for comparable bonds
and commitments, (3) by appraisal, or (4) by any combination of the above; it
being understood that under ordinary circumstances the bonds and repurchase
commitments will be priced at the face value of the Bonds.
Purchase by the Sponsor of Units Tendered for Redemption
The Trust Agreement 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 on the date of tender not later
than the day on which the Units would otherwise have been redeemed by the
Trustee. (See ``Public Offering--Market for Units''.) 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 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
offering or redemption price subsequent to its acquisition of such Units. (See
``Public Offering--Sponsor's Profits''.)
A-25
<PAGE>
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 Trust'').
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 propectus for the applicable Exchange Trust carefully to
determine the investment objective prior to the exercise of this option.
This option will be available provided the Sponsor maintains a secondary
market in both the Units of this series and units of the applicable Exchange
Trust and 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. While it is the Sponsor's intention to maintain a secondary
market for the units of all such trusts, there is no obligation on its part to
do so. Therefore, 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 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.
The exchange transaction will operate in a manner essentially identical to
any secondary market transaction, i.e., Units will be repurchased at a price
equal to the aggregate bid side evaluation per Unit of the Bonds in the
Portfolio plus accrued interest. Units of the Exchange Trust will be sold to the
Unit holder at a price equal to the Public Offering Price per unit of the bonds
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
Prudential Securities Incorporated sponsored trusts, 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 available
units of any Exchange Trust at the reduced sales charge of $20 per Unit, subject
to the terms and conditions applicable to the Exchange Option. 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 units of which 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
A-26
<PAGE>
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 generally
constitute a ``taxable event'' under the Code, i.e. a Unit holder will recognize
gain or loss at the time of exchange. However, 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 will not
constitute a taxable event to the extent that the underlying bonds in each trust
do not differ materially either in kind or in extent.
Unit holders are urged to consult their own tax advisors as to the tax
consequences to them of exchanging Units in particular cases.
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 Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and for
Class B shares of The BlackRock Government Income Trust, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Adjustable Rate Securities Fund, Inc., Prudential California
Municipal Fund (California Series), Prudential Equity Fund, Prudential Equity
Income Fund, Prudential FlexiFund, Prudential Global Fund, Prudential Global
Genesis Fund, Prudential Global Natural Resources Fund, Prudential GNMA Fund,
Prudential Government Plus Fund, Prudential Growth Opportunity Fund, Prudential
High Yield Fund, Prudential IncomeVertiblet Plus Fund, Inc., Prudential
Intermediate Global Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund, Prudential National
Municipals Fund, Prudential Pacific Growth Fund, Inc., Prudential Short-Term
Global Income Fund, Prudential Strategic Income Fund, Prudential Total Return
Fund, Prudential U.S. Government Fund and Prudential Utility Fund.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from
its responsibilities under the Trust Agreement, 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 responsible in any way for depreciation or
loss incurred by reason of the sale of any Bonds, except in cases of its own
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. (See ``Sponsor--Responsibility''.)
Responsibility
The Trust is a unit investment trust and is not actively managed. The
Sponsor, however, is empowered under the Trust Agreement to direct the Trustee
to dispose of Bonds when certain events occur that adversely affect the value of
Bonds, including default in payment of interest or principal, default in payment
of interest or principal on other obligations of the same issuer, institution of
legal proceedings, a breach of covenant or warranty which could adversely affect
the payment of debt service on the Bonds, decline in price or the occurrence of
other market or credit factors, or decline in projected income pledged for debt
service on revenue bonds and advanced refunding that, in the opinion of the
Sponsor, may be detrimental to the interests of the Unit holders.
The Sponsor and/or an affiliate intend to continuously monitor developments
affecting the Bonds in each Trust in order to determine whether the Trustee
should be directed to dispose of any such Bonds.
A-27
<PAGE>
It is the responsibility of the Sponsor to instruct the Trustee to reject
any offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds 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 Bonds or in the judgment of the
Sponsor the issuer will probably default in respect to such Bonds 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 Trust Agreement to the same
extent as Bonds originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder, identifying the
Bonds eliminated and the Bonds substituted therefor. Except as stated in this
and the preceding paragraph, the acquisition by the Trust of any securities
other than the Bonds initially deposited is prohibited.
If the Sponsor fails to perform its duties under the Trust Agreement or
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, that Sponsor is automatically discharged under the Trust
Agreement.
Resignation
If at any time the Sponsor is acting under the Trust Agreement and that
Sponsor shall fail to perform any of its duties thereunder or becomes incapable
of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business at 114 West 47th Street, New York, New York 10036. United
States Trust Company of New York has, since its establishment in 1853, engaged
primarily in the management of trust and agency accounts for individuals and
corporations. The Trustee is a member of the New York Clearing House Association
and is subject to supervision and examination 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.
United States Trust Company of New York also acts as Collateral Agent in
connection with the Collateral securing the Seller's Repurchase Commitments.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for or
depreciation or loss incurred by reason of the disposition or failure to dispose
of any Bonds or for the disposition of any moneys, Bonds or certificates or in
respect of any evaluation or with respect to the validity or sufficiency of any
of the Bonds, 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 for its obligations and duties. In
addition, the Trustee shall not be 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 law of the United States or any other
taxing authority having jurisdiction.
Responsibility
For information relating to the responsibilities of the Trustee under the
Trust Agreement, reference is made to the material set forth under ``Rights of
Unit Holder'', ``Sponsor--Responsibility'' 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 Trust Agreement. 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 and has 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.
A-28
<PAGE>
EVALUATOR
The Evaluator is Kenny Information Systems, Inc. through its division, Kenny
S&P Evaluation Services 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 Trust Agreement 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. But 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 Trust Agreement requires the Evaluator to evaluate the Bonds (1) on the
basis of their bid prices on the last business day of each calendar week and (2)
on the basis of their bid prices when 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 Bonds on the basis of their bid prices, see ``Public
Offering--Offering Price.''
Resignation
The Evaluator may resign or may be removed by the Sponsor and the Trustee,
and the Sponsor and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective upon
the acceptance of appointment by the 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.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
Amendment
The Sponsor and the Trustee have the power to amend the Trust Agreement
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 Trust
Agreement 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 Trust Agreement is
not amended to increase the number of Units issuable thereunder or to permit the
deposit or acquisition of securities either in addition to or in substitution
for any of the Bonds initially deposited in the Trust, except for the
substitution of certain refunding securities for such Bonds. 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 51% of the Unit
holders or by the Trustee when the value of the Trust as evaluated by the
Evaluator pursuant to the Trust Agreement is less than $2,000,000 and the Trust
will be terminated if its value on any such date is less than $1,000,000.
However, in no event may the Trust continue beyond the Mandatory Termination
Date. 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 Bonds remaining in the Trust, and, after paying all
expenses and charges incurred by the 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.
LEGAL OPINIONS
Certain legal matters 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 Trust included in this Prospectus have been
examined by Deloitte & Touche, certified public accountants, as indicated in
their report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in giving said report.
A-29
<PAGE>
<PAGE>
RATING OF UNITS*
The Trust Units have been rated AAA by Standard & Poor's Corporation. The
meaning of the applicable rating symbols as published by Standard & Poor's
follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of 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 rating is not a
recommendation to purchase or sell a security, inasmuch as the rating does not
comment as to market price or suitability for a particular investor.
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.
Standard & Poor's defines its AAA rating as the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
- ------------
* As described by Standard & Poor's.
A-30
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
We have audited the statement of financial condition and schedule of
investments of the National Municipal Trust First PUT Series (14 Day
Repurchase - Collateral Backed) as of July 31, 1994, and the related
statements of operations and changes in net assets for each of the three
years in the period then ended. These financial statements are the
responsibility of the Trustee (see Footnote (a)(1)). Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of July 31,
1994 as shown in the statement of financial condition and schedule of
investments by correspondence with United States Trust Company of New York,
the Trustee. An audit also includes assessing the accounting principles
used and the significant estimates made by the Trustee, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the National Municipal
Trust First PUT Series (14 Day Repurchase - Collateral Backed) as of
July 31, 1994, and the results of its operations and the changes in its net
assets for each of the three years in the period then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
October 6, 1994
New York, New York
</AUDIT-REPORT>
F-1
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
<TABLE>
TRUST PROPERTY
<S> <C>
Investments in securities at market value (cost $5,890,000)
(Note (a) and schedule of investments notes (4) and (5)) $6,030,423
Accrued interest receivable 110,394
Cash 76,644
Total $6,217,461
NET ASSETS
Balance applicable to 16,617 Units of fractional undivided
interest outstanding (Note (c)):
Capital, plus unrealized market appreciation
of $140,423 $6,030,423
Undistributed principal and net investment
income (Note (b)) 187,038
Net assets $6,217,461
See notes to financial statements
</TABLE>
F-2
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<CAPTION>
For the years ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Investment income - interest $458,815 $691,740 $ 898,902
Less Expenses:
Trust fees and expenses 11,934 11,003 14,044
Total expenses 11,934 11,003 14,044
Investment income - net 446,881 680,737 884,858
Net (loss) gain on investments:
Realized gain on securities sold or redeemed 12,100 42,550 23,075
Unrealized market (depreciation) appreciation (27,970) (72,787) 193,675
Net (loss) gain on investments (15,870) (30,237) 216,750
Net increase in net assets resulting from operations $431,011 $650,500 $1,101,608
See notes to financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<CAPTION>
For the years ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Operations:
Investment income - net $ 446,881 $ 680,737 $ 884,858
Realized gain on securities sold or
redeemed 12,100 42,550 23,075
Unrealized market (depreciation)
appreciation (27,970) (72,787) 193,675
Net increase in net assets
resulting from operations 431,011 650,500 1,101,608
Less Distributions to Unit Holders:
Principal (951,988) (3,377,572) (2,063,166)
Investment income - net (445,882) (707,451) (890,792)
Total distributions (1,397,870) (4,085,023) (2,953,958)
Net decrease in net assets (966,859) (3,434,523) (1,852,350)
Net assets:
Beginning of year 7,184,320 10,618,843 12,471,193
End of year (including undistributed
principal and net investment income
of $187,038, $185,927 and $197,663,
respectively) $6,217,461 $ 7,184,320 $10,618,843
See notes to financial statements
</TABLE>
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
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 controls 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
Investments on the basis set forth in Part I of this Prospectus,
"Public Offering of Units - Public Offering Price". Under the
Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor
has the responsibility of an issuer under the Act with respect to
financial statements of each Trust included in the Registration
Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period considering the purchase commitment of
the Seller (see Note 5 to the Schedule of Investments).
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
(4) Expenses
The Trust pays an annual Trustee's fee, estimated expenses,
Evaluator's fees, and an annual Sponsor's portfolio supervision
fee and may incur additional charges as explained under "Expenses
and Charges" in Part I of this Prospectus.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the twenty-fifth day of the month, either monthly,
quarterly (January, April, July and October) or semiannually (January
and July), at the Unit Holders' election, after deducting applicable
expenses. Receipts other than interest are distributed as explained in
"Rights of Unit Holders - Distribution of Interest and Principal" in
Part I of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (February 16, 1984) exclusive
of accrued interest.
<TABLE>
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of July 31, 1994 follows:
<S> <C>
Original cost to investors $18,556,701
Less: Gross underwriting commissions (sales charge) (556,701)
Net cost to investors 18,000,000
Cost of securities sold or redeemed (12,110,000)
Unrealized market appreciation 140,423
Net amount applicable to investors $ 6,030,423
</TABLE>
(d) OTHER INFORMATION
<TABLE>
Selected data for a Unit of the Trust:
<CAPTION>
Net Assets as of July 31, 1994 represented by:
Monthly Quarterly Semiannual
distribution distribution distribution
plan plan plan
<S> <C> <C> <C>
Net Asset Value $374.15 $374.17 $374.18
Units Outstanding 9,059 1,813 5,745
</TABLE>
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
(d) OTHER INFORMATION (continued)
<TABLE>
Distributions of net investment income and principal per Unit:
<CAPTION>
For the years ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Net investment income:
Monthly Distribution Plan $26.62 $40.99 $53.12
Quarterly Distribution Plan $26.92 $44.30 $54.02
Semiannual Distribution Plan $27.14 $44.49 $54.21
Principal: $57.29 $ - $ -
</TABLE>
F-7
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
<CAPTION>
Port- Optional
folio Face Interest Maturity Disposition Sinking Fund Refunding Market
No. Title of Securities Ratings<F1> Amount Rate Date Year<F8> Redemptions<F3> Redemptions<F2> Value
<F4><F5><F6>
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
1. New York State Housing
Finance Agency, Keeler
Project BBB $ 920,000 8.000% 05/01/19 2017 Presently@100 11/01/94@102 $ 939,118
2. New York State Housing
Finance Agency, South-East
Tower Housing Project Bonds NR 890,000 7.750 11/01/18 2016 Presently@100 10/24/94@102 908,823
3. New York State Medical Care
Facilities Finance Agency,
Hospital and Nursing Home
Project Revenue Bonds, 1979
Series A A<F7> 1,000,000 7.400 11/01/16 2014 11/01/04@100 08/28/94@103 1,033,130
4. New York State Housing
Finance Agency - Hospital
and Nursing Home Project
Bonds, 1977 Series A A- 2,140,000 7.000 11/01/17 2015 11/01/98@100 08/28/94@103 2,183,314
5. New York State Housing
Finance Agency, Henry
Phipps Plaza West Urban
Rental Project Bonds BBB 940,000 8.000 05/01/18 2016 Presently@100 11/01/94@102 966,038
$5,890,000 $6,030,423
</TABLE>
F-8
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
<F1> All ratings are provided by Standard & Poor's Corporation, unless
otherwise indicated. A brief description of applicable Security
ratings is given under "Bond Ratings" in Part B of this
Prospectus.
<F2> There is shown under this heading the date on which each issue of
Bonds is redeemable by the operation of optional call provisions
and the redemption price for that date; unless otherwise
indicated, each issue continues to be redeemable at declining
prices thereafter but not below par. The Bonds may also be
redeemable at par under certain circumstances from special
redemption payments.
<F3> There is shown under this heading the date on which an issue of
Bonds is subject to scheduled sinking fund redemption and the
price on that date.
<F4> The market value of the Bonds as of July 31, 1994 was determined by
the Evaluator on the basis of bid side evaluations for the Bonds
on the last trading date during the period (July 29, 1994)
considering the repurchase commitment of the Seller.
<F5> The Seller (refer to "Bonds-Repurchase Commitments" in Part I of
this Prospectus) has committed to repurchase on fourteen calendar
days' notice to any bond at its unpaid principal amount plus
accrued interest to meet redemptions of Units. Furthermore, bonds
in the Trust are guaranteed as to principal and interest (and
premium which may be owing due to redemption prior to maturity or
otherwise) by the Seller. The Seller has secured such guarantees
and repurchase commitments by pledging certain securities
including those issued, guaranteed or insured by, and backed by
the full faith and credit of, the United States Government, to
United States Trust Company of New York, as Collateral Agent for
the benefit of the Trust. The Seller has also agreed to provide
additional collateral whenever the aggregate market or pledge
value of the existing collateral is less than the aggregate market
or pledge value requirement in an amount sufficient to eliminate
such shortfall.
F-9
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
July 31, 1994
<F6> At July 31, 1994, the unrealized market appreciation of all Bonds
was comprised of the following:
Gross unrealized market appreciation $140,423
Gross unrealized market depreciation -
Unrealized market appreciation $140,423
The cost of the Bonds for Federal income tax purposes was
$5,890,000 at July 31, 1994.
<F7> Moody's Investors Service, Inc. rating.
<F8> The Trustee is required under the Indenture to sell each of the
Bonds on its scheduled Disposition Date in the open market if the
price which can be obtained on such date is in excess of the
unpaid principal amount or, in all other cases, to the Seller at
an amount equal to the outstanding principal plus accrued
interest.
F-10
<PAGE>
PROSPECTUS--PART II
State Risk Factors
The Sponsor believes the information summarized below describes some of the
more significant aspects of the Trust. The sources of such information are the
official statements of issuers as well as other publicly available documents.
While the Sponsor has not independently verified this information, it has no
reason to believe that such information is not correct in all material respects.
New York State
The national and regional economic recession has caused a substantial
reduction in State tax receipts. This reduction is the principal cause of the
imbalance between recurring receipts and disbursements that faced the Governor
and Legislature in the adoption of the budget for the 1991-1992 and subsequent
fiscal years. The Governor is required by the State Constitution to submit an
Executive Budget that balances receipts and disbursements.
As a result of the national and regional economic recession, the State's
projections of tax revenues for its 1991, 1992 and 1993 fiscal years were
substantially reduced. Consequently, the State took various actions for its
1991-1992 fiscal year, which included increases in certain State taxes and fees,
substantial decreases in certain expenditures from previously projected levels,
including cuts in State operations and reductions in State aid to localities,
and the sale of $531 million of short-term deficit notes prior to the end of the
State's 1991-1992 fiscal year. The State's 1992-93 budget was passed on time,
closing an estimated $4.8 billion imbalance resulting primarily from the
national and regional economic recession. Major budgetary actions included a
freeze in the scheduled reduction in the personal income tax and business tax
surcharge, adoption of significant Medicaid cost containment or revenue
initiatives, and cost reductions in both agency operations and grants to local
governments from previously anticipated levels. For its 1992-93 fiscal year, the
State had a balanced budget on a cash basis with a positive margin of $671
million. This performance was primarily attributable to income tax collections
that were more than $700 million higher than originally projected.
The 1993-94 State Financial Plan projects receipts and transfers from other
funds at $32.367 billion and disbursements and transfers to other funds at
$32.300 billion. The 1993-94 State budget, as enacted, reflects increases in
both receipts and disbursements in the General Fund of $811 million over the
Executive Budget, as submitted by the Governor.
The State has noted that its forecasts of tax receipts have been subject to
variance in recent fiscal years. In addition, many uncertainties exist in
forecasts of both national and State economies, including consumer attitudes
toward spending, Federal financial and monetary policies, the availability of
credit, and the condition of the world economy which could have an adverse
effect on the State. As a result of these uncertainties and other factors,
actual results could differ materially and adversely from the State's current
projections and the State's projections could be materially and adversely
changed from time to time. To address any potential budgetary imbalance, the
State may need to take significant actions to align recurring receipts and
disbursements in future fiscal years.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A-and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. However, on April 26, 1993, Standard & Poor's revised its
negative rating outlook assessment on State general obligation debt to stable.
On March 9, 1993, Standard & Poor's confirmed its A-rating with respect to the
State's general obligation bonds. On January 6, 1992, Moody's reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On March 9, 1993, Moody's reconfirmed its A rating
on the State's general long-term indebtedness.
State Authorities
The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing,
and operating revenue-producing public benefit facilities. Certain authorities
of the State, including the State Housing Finance Agency (``HFA''), the Urban
Development Corporation (``UDC'') and the Metropolitan Transportation Authority
(``MTA'') have faced and continue to experience substantial financial
difficulties which could adversely affect the ability of such authorities to
make payments of interest on, and principal amounts of, their respective bonds.
Should any of its authorities default on their respective obligations, the
State's access to public credit markets could be impaired. The difficulties have
in certain instances caused the State (under its so-called ``moral obligation'')
to appropriate funds on behalf of the authorities. Moreover, it is expected that
the problems faced by these authorities will continue and will require
increasing amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those
authorities having financial difficulties to meet their obligations (including
HFA, UDC and MTA) could result in a default by one or more of the authorities.
Such default, if it were to
B-1
<PAGE>
<PAGE>
occur, would be likely to have a significant adverse effect on investor
confidence in, and therefore the market price of, obligations of the defaulting
authority.
The MTA oversees the operation of New York City's subway and bus lines by
its affiliates, the New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the ``Transit Authority'' or
the ``TA''). Through MTA's subsidiaries, the Long Island Railroad Company, the
Metro-North Commuter Railroad Company and the Metropolitan Suburban Bus
Authority, the MTA operates certain commuter rail and bus lines in the New York
metropolitan area. In addition, the Staten Island Rapid Transit Operating
Authority, an MTA subsidiary, operates a rapid transit line on Staten Island.
Through its affiliated agency, the Triborough Bridge and Tunnel Authority (the
``TBTA''), the MTA operates certain intrastate toll bridges and tunnels. Because
fare revenues are not sufficient to finance the mass transit portion of these
operations, the MTA has depended and will continue to depend for operating
support upon a system of State, local government and TBTA support, and to the
extent available, Federal operating assistance, including loans, grants and
operating subsidies.
For 1993, the TA originally projected a budget gap of approximately $266
million. The MTA Board approved an increase in TBTA tolls which took effect
January 31, 1993. Since TBTA operating surpluses help subsidize TA operations,
the TBTA toll increase and other developments reduced the projected budget gap
to $241 million. Legislation enacted in April 1993, relating to MTA's 1992-1996
Capital Program, reflected a plan for closing this gap without raising fares. A
major element of the plan provides that the TA receive a significant share of
the petroleum business tax which will be paid directly to MTA for the TA and
MTA's subsidiaries. The plan relies significantly on State and City actions that
have not been taken and on MTA and TA resources projected to be available to
help close the gap. If any of the assumptions used in making these projections
prove incorrect, the TA's gap could grow larger and the TA would be required to
seek additional State assistance, raise fares even higher or take other actions.
A subway fire on December 28, 1990, and a subway derailment on August 28,
1991, which caused fatalities and many injuries, have given rise to substantial
claims for damages against both the TA and the City.
New York City
The fiscal health of the State is closely related to the fiscal health of
its localities, particularly The City of New York (the ``City''), which has
required and continues to require significant financial assistance from the
State which financial assistance could be affected by State revenue shortfalls
or spending increases beyond its projections. For each of its 1981 through 1992
fiscal years, the City, as required by State law, achieved balanced operating
results, in accordance with GAAP.
The New York State Financial Emergency Act for The City of New York (the
``Financial Emergency Act''), among other things, established the New York State
Financial Control Board (the ``Control Board'') to oversee the City's financial
affairs. The City operates under a four-year financial plan which is prepared
annually and is updated quarterly. The City submits its financial plans as well
as the updates quarterly to the Control Board for its review. The Municipal
Assistance Corporation for The City of New York (``MAC'') and the Office of the
State Deputy Comptroller for The City of New York (``OSDC'') assist the Control
Board in exercising its powers and responsibilities and exercise various
monitoring functions relating to the City's financial position.
The City's economy, whose rate of growth slowed substantially over the past
three years, is currently in recession. During each of the fiscal years
1990-1993, as a result of the slowing economy, the City experienced significant
shortfalls from earlier projections in almost all of its major tax sources, and
has been required to take exceptional measures to close substantial budget gaps
in order to maintain balanced budgets. The City's Financial Plan for the
1994-1997 fiscal years released on May 3, 1993, sets forth actions to close a
projected budget gap of $2.1 billion for the 1994 fiscal year.
On February 11, 1991, Moody's Investors Service lowered its rating on the
City's general obligation bonds from A to Baa1.
Other New York Localities
Certain localities in addition to New York City could also have financial
problems leading to requests for additional State assistance in the future. The
Revised 1991-92 State Financial Plan included a significant reduction in State
aid to localities in such programs as revenue sharing and aid to education from
projected base-line growth in such programs. It is expected that such reductions
will result in the need for localities to reduce their spending or increase
their revenues.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1991, the total indebtedness of all other
localities in the State was approximately $14.8 billion. Certain proposed
Federal expenditure reductions would reduce, or in some cases eliminate, Federal
funding of some local programs and accordingly might
B-2
<PAGE>
<PAGE>
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State could
be adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions, and long-range
economic trends. The longer range problems of declining urban population,
increasing expenditures, and other economic trends could adversely affect
localities and require increasing State assistance in the future.
Litigation
The State is the subject of numerous legal proceedings relating to State
finances, State programs and miscellaneous tort, real property and contract
claims in which the State is a defendant and where monetary damages sought are
substantial. These proceedings could adversely affect the financial condition of
the State.
Economy
A national recession commenced in mid-1990. The State has suffered a more
severe economic downturn. The national recession has been exacerbated in the
State by a significant retrenchment in the financial services industry, cutbacks
in defense spending, and an overbuilt real estate market.
Over the long term, serious potential economic problems may continue to
aggravate state and local financial conditions. For decades, the State economy
has grown more slowly than the nation as a whole, resulting in the gradual
erosion of the State's relative economic affluence and tax base, and the
relocation of certain manufacturing operations and executive offices outside the
State. The causes of this relative decline are varied and complex, in many cases
involving national and international developments beyond the State's control.
Part of the reason for the long-term relative decline in the State economy has
been attributed to the combined state and local tax burden, which is among the
highest in the nation. The existence of this tax burden limits the State's
ability to impose higher taxes in the event of future financial difficulties.
If during the existence of the New York Trust, the City, the State, or any
of its agencies or municipalities, because of its or their own financial
difficulties, become unable to meet regular commitments or if there should be a
default, moratorium or other interruption of payments of interest or principal
on any obligation issued by the City, the State, or a municipality or other
authority in New York State, the market value and marketability of Bonds in the
New York Trust, the asset value of Units of the New York Trust and the interest
income to the New York Trust could be adversely affected.
B-3
<PAGE>
This Post-Effective Amendment to the Registration Statement on
Form S-6 comprises the following papers and documents:
The facing sheet on Form S-6.
The Prospectus.
Signatures.
Consent of independent public accountants and consent of evalu-
ator; all other consents were previously filed.
The following Exhibits:
****EX-3.(i) - Restated Certificate of Incorporation of
Prudential Securities Incorporated dated March
29, 1993.
****EX-3.(ii) - Revised By-Laws of Prudential Securities
Incorporated as amended through March 5, 1993.
+EX-4 - Trust Indenture and Agreement dated
February 16, 1984.
*EX-23 - Consent of Kenny S&P Evaluation Services, a divi-
sion of Kenny Information Systems, Inc. (as
evaluator).
***EX-24 - Powers of Attorney executed by a majority of the
Board of Directors of Prudential Securities
Incorporated.
*Ex-27 - Financial Data Schedule.
Ex-99 - Information as to Officers and Directors of Pruden-
tial Securities Incorporated is incorporated by
reference to Schedules A and D of Form BD filed
by Prudential Securities Incorporated pursuant to
Rules l5b1-1 and l5b3-1 under the Securities
Exchange Act of 1934 (1934 Act File No. 8-16267).
**EX-99.a - Affiliations of Sponsor with other investment com-
panies.
**EX-99.b - Broker's Blanket Policies, Standard Form No. 39 in
the aggregate amount of $62,500,000.
++EX-99.c - Investment Advisory Agreement.
II-1
<PAGE>
_________________________
* Filed herewith.
** Incorporated by reference to exhibit of same designation filed with
the Securities and Exchange Commission as an exhibit to the Registra-
tion Statement under the Securities Act of 1933 of Prudential Unit
Trusts, Insured Tax-Exempt Series 1, Registration No. 2-89263.
*** Incorporated by reference to exhibit of same designation filed with
the Securities and Exchange Commission as an exhibit to the Registra-
tion Statement under the Securities Act of 1933 of National Municipal
Trust Series, Series 164, Registration No. 33-66108.
**** Incorporated by reference to exhibit of same designation filed with
the Securities and Exchange Commission as an exhibit to the Registra-
tion Statement under the Securities Act of 1933 of Government Securi-
ties Equity Trust, Series 5, Registration No. 33-57992.
+ Incorporated by reference to exhibit of same designation filed with
the Securities and Exchange Commission as an exhibit to the Registra-
tion Statement under the Securities Act of 1933 of National Municipal
Trust, First Put Series (14 Day Repurchase--Collateral Backed),
Registration No. 2-88602.
++ Incorporated by reference to exhibit of same designation filed with
the Securities and Exchange Commission as an exhibit to the Registra-
tion Statement under the Securities Act of 1933 of National Municipal
Trust, Insured Series 43, Registration No. 33-29314.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, National Municipal Trust, First Put Series (14 Day
Repurchase--Collateral Backed) certifies that it meets all of the require-
ments for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Reg-
istration Statement or amendment thereto to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, and State
of New York on the 28th day of November, 1994.
NATIONAL MUNICIPAL TRUST,
First Put Series (14 Day
Repurchase--Collateral Backed
(Registrant)
By PRUDENTIAL SECURITIES INCORPORATED
(Depositor)
By the following persons,* who
constitute a majority of the
Board of Directors of Prudential
Securities Incorporated
Alan D. Hogan
George A. Murray
John P. Murray
Leland B. Paton
Vincent T. Pica
Richard A. Redeker
Hardwick Simmons
Lee B. Spencer, Jr.
By Richard R. Hoffmann
(Richard R. Hoffmann,
First Vice President,
authorized signatory for
Prudential Securities
Incorporated and Attorney-
in-Fact for the persons
listed above)
_____________________
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the Prospectus
included in this Registration Statement is contained in its opinion filed
as Exhibit 5 to the Registration Statement.
II-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 6, 1994, accompanying
the financial statements of the National Municipal Trust First PUT
Series (14 Day Repurchase - Collateral Backed) included herein and to
the reference to our Firm as experts under the heading "Auditors" in
the prospectus which is a part of this registration statement.
Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
November 28, 1994
New York, New York
II-5
<PAGE>
Exhibit 23
Letterhead of Kenny S&P Evaluation Services
(a division of Kenny Information Systems, Inc.)
November 23, 1994
Prudential Securities Incorporated
1 New York Plaza
New York, NY 10292
Re: National Municipal Trust
Post-Effective Amendment No. 8
First Put Series
(14 Day Repurchase--Collateral Backed)
Gentlemen:
We have examined the post-effective Amendment to the Registra-
tion Statement File No. 2-88602 for the above-captioned trust. We hereby
acknowledge that Kenny S&P Evaluation Services, a division of Kenny Infor-
mation Systems, Inc. is currently acting as the evaluator for the trust.
We hereby consent to the use in the Amendment of the reference to Kenny S&P
Evaluation Services, a division of Kenny Information Systems, Inc. as
evaluator.
In addition, we hereby confirm that the ratings indicated in
the above-referenced Amendment to the Registration Statement for the
respective bonds comprising the trust portfolio are the ratings currently
indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
John R. Fitzgerald
John R. Fitzgerald
Vice President
<PAGE>
(Letterhead of Standard & Poor's Ratings Group)
Richard P. Larkin
Managing Director
Municipal Finance Department
Mr. Kenneth Swankie
First Vice President, Manager
Prudential Securities Incorporated
Unit Investment Trust Department
1 New York Plaza
New York, NY 10292-2014
November 23, 1994
RE: National Municipal Trust, First Put Series (14 Day
Repurchase-Collateral Backed) (SEC Reg. # 2-88602)
Dear Mr. Swankie:
It is our understanding that you have filed with the
Securities and Exchange commission an eighth Post Effective Amendment on the
above captioned fund, SEC file number 2-88602.
Because the rating is a direct reflection of the obligation to
repurchase the portfolio of the trust, which obligation is secured by col-
lateral from North Side Savings Bank, New York, we reaffirm the assignment of
an "AAA" rating to the units of the trust.
Please note that a condition for maintaining the rating is your
monthly submission of collateral reports listing securities by type, face
amount, market value, allowed value and collateral value. In addition,
please send all reports submitted to the trustee with regard to the trust
and all publicly distributed financial information. You should also submit
the accountant's reports required by the documentation which verify that
the required level of overcollateralization is being maintained. Any
information regarding material changes or significant ongoing analysis
should also be provided. Finally, S&P reserves the right to request fur-
ther information, if necessary, in order to review the rating. Please send
all reports to: Standard & Poor's Ratings Group, 25 Broadway, New York, NY
10004-1064, Attn: Surveillance Group. The absence of this information may
result in the withdrawal of our rating.
You have permission to use the name of Standard & Poor's
Ratings Group and the above-assigned rating in connection with your
dissemination of information relating to these units, provided that it is
understood that the rating is not a "market" rating nor a recommendation to
buy, hold, or sell the units of the trust. Further, it should be
understood the rating does not take into account the extent to which fund
expenses or portfolio asset sales for less than the fund's purchase price
will reduce payment to the unit holders of the interest and principal required
to be paid on the portfolio assets. S&P reserves the right to advise its own
clients, subscribers, and the public of the rating. S&P relies on the sponsor
and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the rating. S&P
does not independently verify the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of
Standard & Poor's Corporation in connection with the rating assigned to the
units in the post-effective amendment referred to above. However, this
letter should not be construed as a consent by us, within the meaning of
Section 7 of the Securities Act of 1933, to the use of the name of Standard
& Poor's Ratings Group in connection with the ratings assigned to the
securities contained in the trust. You are hereby authorized to file a
copy of this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final pro-
spectus as soon as it becomes available. Should we not receive them within
a reasonable time after the closing or should they not conform to the rep-
resentations made to us, we reserve the right to withdraw the rating. We
are pleased to have had the opportunity to be of service to you. Our bill
will be sent to you within one month. If we can be of further help, please
do not hesitate to call upon us.
Sincerely,
Richard P. Larkin
Richard P. Larkin
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES (14 DAY REPURCHASE -
COLLATERAL BACKED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS
</LEGEND>
<RESTATED>
<CIK> 0000736932
<NAME> NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<SERIES>
<NAME> NATIONAL MUNICIPAL TRUST
FIRST PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<NUMBER> 1
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jul-31-1994
<PERIOD-START> Aug-1-1993
<PERIOD-END> Jul-31-1994
<INVESTMENTS-AT-COST> 5,890,000
<INVESTMENTS-AT-VALUE> 6,030,423
<RECEIVABLES> 110,394
<ASSETS-OTHER> 76,644
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,217,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,905,147
<SHARES-COMMON-STOCK> 16,617
<SHARES-COMMON-PRIOR> 16,617
<ACCUMULATED-NII-CURRENT> 171,891
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 140,423
<NET-ASSETS> 6,217,461
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 458,815
<OTHER-INCOME> 0
<EXPENSES-NET> 11,934
<NET-INVESTMENT-INCOME> 446,881
<REALIZED-GAINS-CURRENT> 12,100
<APPREC-INCREASE-CURRENT> (27,970)
<NET-CHANGE-FROM-OPS> 431,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 445,882
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 951,988
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (966,859)
<ACCUMULATED-NII-PRIOR> 170,892
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
