<PAGE>
As filed with the Securities and Exchange Commission on July 24, 1998
Registration No. 2-89666
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE AMENDMENT NO. 13 TO
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,
Second 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 CAHILL GORDON & REINDEL
INCORPORATED 80 Pine Street
One Seaport Plaza New York, New York 10005
199 Water Street
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 July 31, 1998 pursuant to paragraph (b);
__
/__/ 60 days after filing pursuant to paragraph (a);
__
/__/ on (date) pursuant to paragraph (a) of rule 485.
<PAGE>
CUSIPS: 637013319R;637013335R;637013327R
Prospectus--PART I
NOTE: Part I of this Prospectus may not be distributed unless accompanied by
Part II.
- --------------------------------------------------------------------------------
NATIONAL MUNICIPAL TRUST
Second Put Series
NMT (14 Day Repurchase--Collateral Backed)
STANDARD & POOR'S CORPORATION RATING: AAA
- --------------------------------------------------------------------------------
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) under existing law 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 counties, territories, possessions or
municipalities in the State of New York 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 Repurchase Commitments.') The Seller's Repurchase Commitments are
secured by a security interest in the Collateral described herein. (See '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 4.500% of the Public Offering
Price (4.712% of the aggregate bid price of the Bonds per Unit). Such charge is
reduced on a graduated scale for sales involving 250 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 aggregate bid price of the underlying
bonds plus accrued interest to the date of settlement (see '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 of 4.500% of the Public
Offering Price at the time. 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.
- --------------------------------------------------------------------------------
Sponsor:
(LOGO)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Please read and retain Prospectus dated
this Prospectus for future reference July 31, 1998
<PAGE>
NATIONAL MUNICIPAL TRUST
Second Put Series
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<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-8
Liquidity of Bonds................................................................. A-8
The Collateral..................................................................... A-9
The Units.......................................................................... A-15
Tax Status......................................................................... A-15
Expenses and Charges............................................................... A-18
Reinvestment Program..................................................................... A-19
Public Offering.......................................................................... A-19
Offering Price..................................................................... A-19
Market for Units................................................................... A-20
Distribution of Units.............................................................. A-21
Sponsor's Profits.................................................................. A-21
Rights of Unit Holders................................................................... A-21
Certificates....................................................................... A-21
Distribution of Interest and Principal............................................. A-21
Reports and Records................................................................ A-23
Redemption......................................................................... A-23
Exchange Option.................................................................... A-24
Tax Consequences................................................................... A-25
Sponsor.................................................................................. A-26
Limitations on Liability........................................................... A-26
Responsibility..................................................................... A-26
Resignation........................................................................ A-27
Trustee.................................................................................. A-27
Limitations on Liability........................................................... A-27
Responsibility..................................................................... A-27
Resignation........................................................................ A-27
Evaluator................................................................................ A-27
Limitations on Liability........................................................... A-27
Responsibility..................................................................... A-28
Resignation........................................................................ A-28
Amendment and Termination of the Trust Agreement......................................... A-28
Amendment.......................................................................... A-28
Termination........................................................................ A-28
Legal Opinions........................................................................... A-28
Auditors................................................................................. A-28
Rating of Units.......................................................................... A-28
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>
NATIONAL MUNICIPAL TRUST
Second Put Series
- --------------------------------------------------------------------------------
SUMMARY OF ESSENTIAL INFORMATION
As of June 8, 1998
STANDARD & POOR'S CORPORATION RATING: AAA
<TABLE>
<CAPTION>
Sponsor: Prudential Securities Incorporated
Trustee: United States Trust Company of New York
Evaluator: Kenny S&P Evaluation Services, a division of
J.J. Kenny Co., Inc.
<S> <C>
Principal Amount of Bonds in Trust(6)................................................... $9,058,784.02
Number of Units(1)...................................................................... 24,430
Fractional Undivided Interest in Trust per Unit(1)...................................... 1/24,430th
Calculation of Public Offering Price per Unit:
Aggregate Bid Price of Bonds(2)....................................................... $ 370.81
-------------
-------------
Plus Sales Charge(3).................................................................. $ 17.47
-------------
Public Offering Price per Unit(4)..................................................... $ 388.28
-------------
-------------
Redemption Price and Sponsor's Repurchase Price per Unit based on bid side evaluation of
underlying bonds, $17.47 less than Public Offering Price(4)(5)........................ $ 370.81
-------------
-------------
CALCULATION OF ESTIMATED NET ANNUAL INCOME PER UNIT(6):
Estimated Net Annual Income per Unit.......................................... $28.21
-------------
-------------
Daily Rate of Estimated Net Interest Accrual per Unit................................... $.0783
Estimated Current Return Based on Public Offering Price(7).............................. 7.27%
Estimated Long-Term Return(7)........................................................... 7.10%
</TABLE>
- ------------
(1) On the Date of Deposit, the Principal Amount of Bonds in the Trust was
$32,330,252, the Number of Units outstanding was 32,325 and the Estimated
Current Return was 7.35%. 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 4.500% of the Public Offering Price (4.712%
of the aggregate bid price of the Bonds per Unit).
(4) Exclusive of accrued interest which to June 11, 1998 the expected date
of settlement for the purchase of Units on June 8, 1998, was $6.51.
(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) All of the Bonds pay principal and interest on a 'mortgage' basis. This
type of payment generates monthly or semi-annual payments of combined interest
and principal, which are paid to the Trust and (after deduction of Trust
expenses, if any) distributed to Unit holders and are designed to reduce the
principal balance of such Bonds to zero at the time of their stated maturities.
Accordingly, Unit holders should anticipate the regular distribution of
principal payments in increasing amounts on their Units while the amounts
distributed representing interest will decrease.
(7) 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 bid 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>
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL TRUST
Second Put Series
- --------------------------------------------------------------------------------
<S> <C>
Evaluation Time.......................... 3:30 P.M., New York Time
Record Dates............................. The tenth day of each month
Distribution Dates....................... The twenty-fifth day of each month to Unit Holders of record as
of the immediately preceding Record Date
Date of Trust Agreement.................. May 30, 1984
Date of Deposit.......................... May 30, 1984
Mandatory Termination Date............... December 31, 2009
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(1)................................... Maximum $.25 per $1,000 face amount of underlying bonds
Trustee's Annual Fee(1).................. $1.02 per $1,000 principal amount of bonds
Evaluator's Fee(1)....................... A minimum of $12.00 per evaluation per day
Number of Issues......................... 2
Number of Issuers........................ 2
Number of States......................... New York only
(2)Percentage of Multi-Family Housing
Bonds.................................. 100%
</TABLE>
- ------------
(1) All fees are paid by the Seller up to $1.30 per Unit. In the case of the
Trustee's fee the return will be higher for the quarterly and semi-annual
distribution plans because of decreased fees and expenses but, in any case,
as in the monthly distribution plan, all fees are paid by the Seller up to
$1.30 per Unit. Currently $.20 per Unit is estimated to be paid by the
Trust.
(2) The percentage indicated is the percentage of the aggregate bid price of
Bonds in the Portfolio.
A-2
<PAGE>
Objectives of the Trust
The Trust is designed to provide interest income exempt from all 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 a federally chartered mutual savings bank
located then in New York, New Jersey, Florida and Georgia, Anchor Savings Bank
FSB (the 'Seller') which subsequently converted to a federally chartered stock
savings bank, 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 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 unpaid principal amount
plus accrued interest of 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, The Chase Manhattan Bank (formerly, 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
regarding 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 equal to the
deficiency. If the Liquidation Value of the Collateral (market value less
reasonable expense divided by 105%) is at least equal to the Aggregate Pledge
Value requirement the Collateral Agent is required, unless otherwise directed by
the Sponsor, to liquidate the Seller's Collateral and to reinvest the proceeds
in short-term U.S. Government securities. If the liquidation Value of the
Collateral is less than the Aggregate Pledge Value of the Collateral 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 non-rated, 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 2008 to
2010, provision is made that they will be sold by the Trustee on scheduled
Disposition Dates beginning in 2007 and ending in 2008 on which date the Trust
will terminate. (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 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.
A-4
<PAGE>
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 housing bonds
of issuers located in the State of New York, backed by collateralized Repurchase
Commitments of the Seller (100% of the aggregate principal amount) and in
obligations of issuers located in New York (100%).
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, Second Put Series (14 Day Repurchase--Collateral
Backed) (the 'Trust'), the second 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 (the 'predecessor trustee'), and Kenny
Information Systems, Inc. as Evaluator. The Chase Manhattan Bank is the Trustee
(the 'Trustee') of the Trust. On the Date of Deposit, the predecessor sponsor,
acting for the Underwriting Account, deposited with the Trustee $32,330,252 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 for
32,325 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), 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 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.
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
A-5
<PAGE>
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 and local 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 of a housing authority to meet the qualifications
required for coverage under the Federal programs, or any legal or administrative
determination that the coverage of 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 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 thus, if so directed by the Sponsor,
requiring the Trustee to sell the Bonds in order to maintain the sound
investment character of the Trust, at what might be an unfavorable price.
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.
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
A-6
<PAGE>
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 Anchor Savings Bank FSB (the 'Seller'), a
federally chartered mutual savings bank at the time of the acquisition of the
Bonds by the trust. Anchor commenced operations in 1868 as a New York
State-chartered mutual savings bank. In 1980, Anchor converted to a
federally-chartered mutual savings bank, having its deposits insured by the
Federal Savings and Loan Insurance Corporation (the 'FSLIC'). In April of 1987,
Anchor converted to a stock federally-chartered savings bank; effective March
29, 1991, Anchor formed a holding company, Anchor Bancorp, Inc. ('Bancorp'), and
continued to operate as a stock federally-chartered savings bank wholly-owned by
Bancorp. Following the enactment of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 ('FIRREA'), the insurance of Anchor's deposits was
changed. FIRREA abolished the FSLIC and transferred its insurance
responsibilities to the Savings Association Insurance Fund, adminsitered by the
Federal Deposit Insurance Corporation. On January 13, 1995 the Seller and
Bancorp merged into The Dime Savings Bank of New York FSB and Dime Bancorp,
Inc., respectively.
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
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, on
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, (see discussion below).
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 Seller, unlike most entities, is not covered by the United States
bankruptcy law in the event the Seller becomes insolvent. If the Seller should
become insolvent, the ability of the Trustee to exercise its rights under the
Seller's Repurchase Commitments or the respective Collateral Agreement could be
significantly impaired. 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 Seller can predict the
effect on the Trust, or the value of the Units in the Trust, if such a stay were
imposed. In the event a receiver or conservator repudiated the Seller's
repurchase
A-7
<PAGE>
commitments and liquidated or reclaimed the collateral, the collateral would be
unavailable to back the Seller's repurchase commitments. Such event could result
in a loss to Unit Holders to the extent the amount realized by the Trust on the
sale of a Bond is less than the Trust paid for such Bond.
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 2007 and
end in 2008) 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. Any Collateral in excess of the
Repurchase Commitments would remain property of 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 2007 to 2008), 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.)
A-8
<PAGE>
The predecessor sponsor entered into an arrangement with the Trustee whereby
certain of the Bonds may be transferred to a trust (a 'Participation Trust') in
exchange for certificates of participation in such Participation Trust which may
be sold in order to meet redemptions of Units. The certificates of participation
may be issued in readily marketable denominations of $5,000 each or any greater
multiple thereof and the holder thereof would be fully entitled to the repayment
protections afforded by the Collateral arrangements to any holder of the
underlying Bonds.
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 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 of 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 another 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
A-9
<PAGE>
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.')
The Repurchase Commitments of the Seller are secured by a security interest
in the various types of Eligible 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 the 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 later 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
A-10
<PAGE>
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 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.
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.
A-11
<PAGE>
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.
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.
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
A-12
<PAGE>
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 by its purchase at par of below
market interest rate mortgages.
In a 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 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 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.
A-13
<PAGE>
U.S. Governments--Direct obligations of the United States that mature within
30 years 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 with 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
and Short Term U.S. Governments 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 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 acceptance of appointment by the successor. The
Collateral Agent shall not be liable 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
A-14
<PAGE>
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 interests of such holders, with the written consent of the holders of 51% of
the Units outstanding (100% in the 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 a recent date 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 1954 Code was in effect,
redesignation of the Code as the 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).
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
A-15
<PAGE>
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 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.
Capital gain of individuals, estates and trusts from a Bond held for more
than 1 year is generally subject to a maximum nominal tax rate of 20%.
Net capital gain may 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 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' or 'related person' of the facilities financed
by the proceeds of such underlying Bonds (or a related person to such a
'substantial
A-16
<PAGE>
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 issued 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 Bonds 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 in the
Portfolio 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 Bond 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
Bonds by the Trust over the sum of the issue price and the accrued original
issue discount on the acquisition date). The tax basis in such Bonds is
increased by the amount of original issue discount that is deemed to accrue
while the Bonds are held. The difference between the amount realized on a
disposition of the Bonds at currently accrued interest and the adjusted tax
basis of the Bonds will give rise to taxable gain or deductible loss upon a
disposition of the Bonds 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 will include 75% of the
amount by which adjusted current earnings (which would include tax-exempt
interest) of the taxpayer exceeds the alternative minimum taxable income of the
taxpayer before any amount is added to alternative minimum taxable income
because of this adjustment.
The Code also imposed an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined without
regard to any alternative tax net operating loss deduction) of a corporation in
excess of $2,000,000 for each taxable year beginning before January 1, 1996. The
Clinton Administration has proposed to reinstate the environmental tax, most
recently in its 1999 budget proposal, which was released on February 2, 1998, to
taxable years after December 31, 1997 and before January 1, 2009. The
environmental tax was an excise tax and was deductible for United States Federal
income tax purposes (but not for purposes of the environmental tax itself).
Although the environmental tax was based on alternative minimum taxable income,
the environmental tax had to be paid in addition to any Federal income taxes
payable by the corporation.
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.
A-17
<PAGE>
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. At any time Congress may have under consideration various proposals to
revise the tax system in the United States including current proposals to impose
a flat tax system. Any flat tax system may have the effect of reducing or
eliminating the benefit presently received in connection with the receipt of
interest on municipal debt obligations as compared to the receipt of interest on
other obligations. Moreover, a flat tax system, if implemented, may have an
adverse effect on the value of the securities held in the portfolio of the
trust. The Sponsor cannot predict whether a flat tax or similar system will be
enacted nor can it predict the impact any such system would have on the
portfolio of the Trust.
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 bore 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 (set forth in Part
A--'Summary of Essential Information') per $1,000 face amount of Bonds in the
Trust, may exceed the actual costs of providing Portfolio supervisory services
for such Trust, but at no time will the total amount the Sponsor and/or an
affiliate thereof receive for Portfolio supervisory services rendered to all
series of National Municipal Trust 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.
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.'
There is no minimum fee and, except as hereinafter set forth, no maximum fee.
For
A-18
<PAGE>
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 Seller is obligated to reimburse the Trustee for expenses relating to
the Trust up to $1.30 per Unit annually (including $1.02 per Unit for the
Trustee's fee). (See 'Summary of Essential Information.')
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
calculated as follows:
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.
A-19
<PAGE>
<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 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 3 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 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 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 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.')
A-20
<PAGE>
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 certain
States, 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.')
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.
A-21
<PAGE>
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 Monthly Interest Distribution per
Unit will change as Bonds are exchanged, redeemed, paid or sold. The difference
between the estimated net interest accrued from the first settlement date on the
Units to the first Record Date and the first interest distribution to investors
is an asset of the Unit holder and will be realized in subsequent distributions
or upon the earlier of the sale of his Units or the maturity, redemption or sale
of Bonds in the Trust.
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 the Trustee 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 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
A-22
<PAGE>
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),
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 4 New York Plaza,
New York, New York 10004, upon payment of any relevant tax. At the present time
there are no specific taxes related to the redemption of the Units. No
redemption fee will be charged by the Sponsor or the Trustee. Units redeemed by
the Trustee will be 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 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
A-23
<PAGE>
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.')
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.
A-24
<PAGE>
Exchange Trusts may have different investment objectives; a Unit Holder
should read the prospectus for the applicable Exchange Trust carefully to
determine the investment objective prior to the exercise of this option.
This option will be available provided 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 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, upon an exchange of Units of this
series of the National Municipal Trust for units of any other series of Exchange
Trusts which are grantor trusts for U.S. Federal income tax purposes the
Internal Revenue Service may seek to disallow any loss incurred upon such
exchange to the extent that the underlying securities in each trust are
substantially identical and the exchange of units occurs within a
A-25
<PAGE>
thirty day period. 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 series of Prudential
Government Securities Trust, The BlackRock Government Income Trust, Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. Prudential Allocation Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Dryden Fund, Prudential
Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Genesis
Fund, Inc., The Global Government Plus Fund, Inc., Prudential Global Limited
Maturity Fund, Inc., Prudential Global Natural Resources Fund, Inc., The Global
Total Return Fund, Inc., Prudential Government Income Fund, Prudential High
Yield Fund, Inc., Prudential Institutional Liquidity Portfolio, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Jennison Series Fund, Inc.,
Prudential MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential
Pacific Growth Fund, Inc., Prudential Small Companies Fund, Inc., Prudential
Special Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential Tax-Free Money Fund, Inc., Prudential Utility Fund, Inc., and
Prudential World Fund, Inc.
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 'The Trust--Portfolio' and
'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.
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.
A-26
<PAGE>
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, the 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 The Chase Manhattan Bank, a New York Bank with its principal
executive office at 270 Park Avenue, New York, New York, 10017 and its unit
investment trust office at 4 New York Plaza, New York, New York 10004. The
Trustee is subject to supervision by the Superintendent of Banks of the State of
New York, the Federal Deposit Insurance Corporation and the Board of Governors
of the Federal Reserve System. In connection with the storage and handling of
certain Securities deposited in the Trust, the Trustee may use the services of
The Depository Trust Company. These services may include safekeeping of the
Securities and coupon-clipping, computer book-entry transfer and institutional
delivery services. The Depository Trust Company is a limited purpose trust
company organized under the Banking Law of the State of New York, a member of
the Federal Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.
The Chase Manhattan Bank 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 depreciation
(which would ordinarily not occur) or loss incurred by reason of the disposition
or the failure to dispose 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 Collateral 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 personally liable for any taxes or other
governmental charges imposed upon or in respect of the Trust which the Trustee
may be required to pay under current or future law of the United States or any
other taxing authority having jurisdiction. (See 'The Trust--Portfolio.')
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.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services a division of J.J. Kenny Co.,
Inc. with main offices located at 65 Broadway, New York, New York 10006.
Limitations on Liability
The Trustee, Sponsor and Unit holders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the 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
A-27
<PAGE>
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 shown on the last
business day of December or June in any year 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 professional corporations, 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 LLP, 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.
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.
- ------------
* As described by Standard & Poor's.
A-28
<PAGE>
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.
A-29
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
We have audited the statement of financial condition and schedule of
investments of the National Municipal Trust, Second PUT Series (14 Day
Repurchase - Collateral Backed) as of March 31, 1998, 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 March 31,
1998 as shown in the statement of financial condition and schedule of
investments by correspondence with The Chase Manhattan Bank, 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, Second PUT Series (14 Day Repurchase - Collateral Backed) as of
March 31, 1998, 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
July 7, 1998
New York, New York
</AUDIT-REPORT>
F-1
<PAGE>
STATEMENT OF FINANCIAL CONDITION
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
<TABLE>
TRUST PROPERTY
<S> <C>
Investments in securities at market value (cost $8,888,587)
(Note (a) and Schedule of Investments Notes (3) and (4)) $8,888,587
Accrued interest receivable 208,844
Due from Seller 5,130
Due from Broker 11,152
Total 9,113,713
LIABILITY AND NET ASSETS
Less Liability:
Due to Trustee 22,942
Net Assets:
Balance applicable to 24,430 Units of fractional
undivided interest outstanding (Note (c)):
Capital $8,888,587
Undistributed principal and net investment
income (Note (b)) 202,184
Net assets $9,090,771
See notes to financial statements
</TABLE>
F-2
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<CAPTION>
For the years ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Investment income $710,748 $818,459 $1,127,408
Less Expenses:
Trust fees and expenses 9,831 6,738 8,425
Total expenses 9,831 6,738 8,425
Net increase in net assets resulting from
operations $700,917 $811,721 $1,118,983
See notes to financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
<CAPTION>
For the years ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Operations:
Investment income $ 700,917 $ 811,721 $1,118,983
Net increase in net assets
resulting from operations 700,917 811,721 1,118,983
Less Distributions to Unit Holders:
Principal (496,907) (5,337,711) (598,291)
Investment income - net (709,507) (756,454) (1,128,192)
Total distributions (1,206,414) (6,094,165) (1,726,483)
Net decrease in net assets (505,497) (5,282,444) (607,500)
Net assets:
Beginning of year 9,596,268 14,878,712 15,486,212
End of year (including undistributed prin-
cipal and net investment income of
$202,184, $212,401, and $231,816, respec-
tively) $ 9,090,771 $ 9,596,268 $14,878,712
See notes to financial statements
</TABLE>
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
(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 - 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 3 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
Trustee's fees, including estimated expenses and Evaluator's fees,
are partially paid by the Seller as explained under "Expenses and
Charges" in Part I of this Prospectus. The remainder of such fees
will be paid by the Trust.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on 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 (May 30, 1984) exclusive of
accrued interest.
<TABLE>
<CAPTION>
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of March 31, 1998 follows:
<S> <C>
Original cost to investors $ 33,502,852
Less: Gross underwriting commissions (sales charge) (1,172,600)
Net cost to investors 32,330,252
Principal distributions (23,441,665)
Net amount applicable to investors $ 8,888,587
</TABLE>
(d) OTHER INFORMATION
<TABLE>
Selected data for a Unit of the Trust:
Net Assets as of March 31, 1998 represented by:
<CAPTION>
Monthly Quarterly Semiannual
distribution distribution distribution
plan plan plan
<S> <C> <C> <C>
Net Asset Value $372.02 $376.64 $376.64
Units Outstanding 23,931 366 133
</TABLE>
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
(d) OTHER INFORMATION (continued)
<TABLE>
Distributions of net investment income and principal per Unit:
<CAPTION>
For the years ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Net investment income:
Monthly Distribution Plan $29.04 $ 30.90 $46.16
Quarterly Distribution Plan $29.16 $ 33.61 $46.80
Semiannual Distribution Plan $29.16 $ 33.63 $46.81
Principal $20.34 $218.49 $24.49
</TABLE>
F-7
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
<CAPTION>
Port- Optional
folio Face Interest Maturity Disposition Refunding Market
No. Title of Securities Amount Rate Date Year<F4> Redemptions<F1> Value<F2><F3>
<C> <S> <C> <C> <C> <C> <C> <C>
1. New York State Housing
Finance Agency, Shore Hill
Revenue Housing Bonds (Sec-
tion 8 Assisted) $6,080,000 7.500% 05/01/08 2007 NONE $6,088,451
2. Lake Placid Housing Devel-
opment Funding Corporation,
(Lake Placid, New York),
Section 8 Housing Revenue
Bonds (Lake Placid Apart-
ments Project), Series A <F5> 2,783,075 8.125 06/01/10 2008 NONE 2,800,136
$8,863,075 $8,888,587
</TABLE>
See notes to schedule of investments
F-8
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
(14 DAY REPURCHASE - COLLATERAL BACKED)
March 31, 1998
<F1> 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.
<F2> The market value of the Bonds as of March 31, 1998 was determined
by the Evaluator on the basis of bid side evaluations for the Bonds
at such date, considering the repurchase commitment of the Seller.
<F3> The Seller (refer to "Bonds-Repurchase Commitments" in Part I of
this Prospectus) has committed to repurchase on fourteen calendar
days' notice 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 Chase
Manhattan Bank, 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.
<F4> 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.
<F5> Bonds provide for equal monthly payments of principal and interest;
consequently, each payment made by the issuer of the Bond includes
an amount of principal (which, although at first nominal, increases
in amount with the payment at maturity being substantially all
principal) and interest (which, although substantially all of the
monthly payment at first, decreases in amount but not in rate, with
the payment at maturity including only a nominal amount of
interest).
F-9
<PAGE>
PROSPECTUS--PART II
Risk Factors Relating to New York Bonds
Potential purchasers of the Units of the New York Trust should consider the
fact that the New York Trust's portfolio consists primarily of securities issued
by the State of New York (the 'State') or its municipalities or authorities and
realize the substantial risks associated with an investment in such securities.
The Sponsor believes the information summarized below describes some of the
more significant aspects of the New York Trust. The sources of such information
are the official statements of issuers. 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 economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, can vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State but also by entities, such as the federal
government, that are outside the State's control. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections.
The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
State economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the business
and personal income taxes, are consistent with estimates of total liability
under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the federal
government and changes in the demand for and use of State services.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs.
Other actions taken in 1997-98 adopted budget add further pressure to future
budget balance in New York State. For example, the fiscal effects of tax
reductions adopted in the 1997-98 budget are projected to grow more
substantially beyond the 1998-99 fiscal year, with incremental costs averaging
in excess of $1.3 billion annually over the last three years of the tax
reduction program. These incremental costs reflect the phase-in of State-funded
school property tax and local income tax relief, the phase-out of the
assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
B-1
<PAGE>
To address a potential imbalance in any given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution, the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursements in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The State is a defendant in numerous legal proceedings and the monetary
damages sought are substantial. These proceedings could affect adversely the
financial condition of the State in the 1997-98 fiscal year or thereafter.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, the City or any of the public 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. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing State assistance in the future.
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 short-falls
or spending increases beyond its projections.
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.
During recent fiscal years, as a result of the slowing economy, the City
experienced significant shortfalls from earlier projections in almost all of its
major tax sources, and was required to take exceptional measures to close
substantial budget gaps in order to maintain balanced budgets. There can be no
assurance that the City will continue to maintain a balanced budget as required
by State law without additional tax or other revenue increases or additional
reductions in City services or entitlement programs, which could adversely
affect the City's economic base. The City's Financial Plan for the 1998-2002
fiscal years, sets forth actions to close a projected budget gap of $1.8 billion
for the 2000 fiscal year. The Financial Plan also outlines projected budget gaps
of $2.0 billion, $1.9 billion for the 2001 and 2002 fiscal years, respectively.
As of June 30, 1997, the City estimated that its potential future liability
on account of outstanding claims against it amounted to approximately $3.5
billion and while the outcome of the proceedings and claims are not currently
predictable, adverse determinations in certain of them might have a material
adverse effect upon the City's ability to carry out the 1998-2002 Financial
Plan.
On July 10, 1995, Standard and Poor's revised its rating of City bonds
downward to 'BBB+' and continued its negative rating outlook assessment. In
February 1991, Moody's Investors Service lowered its rating on the City's
general obligation bonds from 'A' to 'Baa1.'
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.
B-2
<PAGE>
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 evaluator; all other consents were previously
filed.
The following Exhibits:
****EX-3.(i) Restated Certificate of Incorporation of Pru-
dential Securities Incorporated dated March
29, 1993.
*****EX-3.(ii) Revised By-Laws of Prudential Securities Incor-
porated as amended through June 21, 1996.
+EX-4 _ Trust Indenture and Agreement dated Septem-
ber 6, 1989.
*EX-23 _ Consent of Kenny S&P Evaluation Services, a di-
vision of J.J. Kenny Co., Inc. (as evalua-
tor).
***EX-24 _ Powers of Attorney executed by a majority of
the Board of Directors of Prudential Securi-
ties Incorporated.
*Ex-27 _ Financial Data Schedule.
Ex-99 _ Information as to Officers and Directors of
Prudential Securities Incorporated is incor-
porated by reference to Schedules A and D of
Form BD filed by Prudential Securities Incor-
porated pursuant to Rules l5b1-1 and l5b3-1
under the Securities Exchange Act of 1934
(1934 Act File No. 8-16267).
**EX-99.2 Affiliations of Sponsor with other investment
companies.
**EX-99.3 Broker's Blanket Policies, Standard Form No. 39
in the aggregate amount of $62,500,000.
+EX-99.4 Investment Advisory Agreement.
_________________________
* Filed herewith.
** Incorporated by reference to exhibit of same designation
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement under the Securi-
ties Act of 1933 of Prudential Unit Trusts, Insured Tax-
Exempt Series 1, Registration No. 2-89263.
*** Incorporated by reference to exhibits of same designa-
tion filed with the Securities and Exchange Commission
as an exhibit to the Registration Statement under the
II-1
<PAGE>
Securities Act of 1933 of National Municipal Trust Se-
ries, Series 172, Registration No. 33-54681 and National
Equity Trust, Top Ten Portfolio Series 3, Registration
No. 333-15919, and National Equity Trust, Low Five Port-
folio Series 17, Registration No. 333-44543.
**** Incorporated by reference to exhibit of same designation
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement under the Securi-
ties Act of 1933 of Government Securities 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 Registration Statement under the Securi-
ties Act of 1933 of National Municipal Trust, Series
186, Registration No. 33-54697.
+ Incorporated by reference to exhibit of same designation
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement under the Securi-
ties 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, Second Put Se-
ries (14 Day Repurchase-Collateral Backed) certifies that it
meets all of the requirements for effectiveness of this Regis-
tration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Registration 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 23rd day of July, 1998.
NATIONAL MUNICIPAL TRUST,
Second 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
A. Laurence Norton, Jr.
Leland B. Paton
Martin Pfinsgraff
Vincent T. Pica II
James D. Price
Hardwick Simmons
Lee B. Spencer, Jr.
Brian M. Storms
By __/s/ Richard R. Hoffmann
(Richard R. Hoffmann
First Vice President,
Unit Investment
Trust Department,
as 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 July 7, 1998, accompanying the
financial statements of the National Municipal Trust, Second 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
July 21, 1998
New York, New York
II-5
<PAGE>
Exhibit 23
Letterhead of Kenny S&P Evaluation Services
(a division of J.J. Kenny Co., Inc.)
July 24, 1998
Prudential Securities Incorporated
1 New York Plaza
New York, NY 10292
Re: National Municipal Trust
Post-Effective Amendment No. 13
Second Put Series
(14 Day Repurchase-Collateral Backed)
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 2-89666 for the above-captioned
trust. We hereby acknowledge that Kenny S&P Evaluation Serv-
ices, a division of J.J. Kenny Co., Inc., is currently acting
as the evaluator for the trust. We hereby consent to the use
in the Registration Statement of the references to Kenny S&P
Evaluation Services, a division of J.J. Kenny Co., Inc., as
evaluator.
In addition, we hereby confirm that the ratings indi-
cated in the Registration Statement for the respective bonds
comprising the trust portfolio are the ratings currently indi-
cated in our KENNYBASE database as of the date of the evalua-
tion report.
You are hereby authorized to file a copy of this let-
ter with the Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
Frank A. Ciccotto
Vice President
<PAGE>
Exhibit 23
Letterhead of Standard & Poor's Rating Services
(a division of The McGraw-Hill Companies, Inc.)
July 24, 1998
Prudential Securities Incorporated
Unit Investment Trust Department
1 New York Plaza
New York, NY 10292-2014
Re: National Municipal Trust, Second Put Series
(14 Day Repurchase -- Collateral Backed)
It is our understanding that you are filing with the
Securities and Exchange Commission a 13th Post Effective Amend-
ment to the above captioned trust, SEC file number 2-89666.
Because the rating is a direct reflection of the ob-
ligation to repurchase the portfolio of the trust, which obli-
gation is secured by collateral from Anchor Savings Bank FSB,
we reaffirm the assignment of an 'AAA' rating to the units of
the trust.
Please note that a condition for maintaining the rat-
ing 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 pub-
licly distributed financial information. You should also sub-
mit 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 pro-
vided. Finally, Standard & Poor's reserves the right to re-
quest further information, if necessary, in order to review the
rating. Please send all reports to: Standard & Poor's Ratings
Services, Managed Funds Ratings, 25 Broadway, 13th floor, New
York, NY 10004. 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 Services, a division of The McGraw-Hill Compa-
nies, Inc. and the above-assigned ratings in connection with
<PAGE>
-2-
your dissemination of information relating to these units, pro-
vided that it is understood that the ratings are not "market"
ratings nor recommendations to buy, hold, or sell the units of
the trust or the securities in the trust. Further, it should
be understood that the rating on the units 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 pay-
ment to the unit holders of the interest and principal required
to be paid on the portfolio assets. Standard & Poor's reserves
the right to advise its own clients, subscribers, and the pub-
lic of the ratings. Standard & Poor's relies on the sponsor
and its counsel, accountants, and other experts for the accu-
racy and completeness of the information submitted in connec-
tion with the ratings. Standard & Poor's does not independ-
ently verify the truth or accuracy of any such information.
This letter evidences our consent to the use of the
name of Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. in connection with the rating as-
signed to the units in the amendment referred to above. How-
ever, 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 Services, a
division of The McGraw-Hill Companies, Inc. 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 a copy of your final pro-
spectus as soon as it becomes available. Should we not receive
it within a reasonable time after the closing or should it not
conform to the representations 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. If we can be of further help, please do not
hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Sanford B. Bragg
Managing Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<CIK> 0000741265
<NAME> NATIONAL MUNICIPAL TRUST
SECOND PUT SERIES
<SERIES>
<NAME> NATIONAL MUNICIPAL TRUST
PUT SERIES 2
<NUMBER> 1
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-1-1997
<PERIOD-END> Mar-31-1998
<INVESTMENTS-AT-COST> 8,888,587
<INVESTMENTS-AT-VALUE> 8,888,587
<RECEIVABLES> 225,126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,113,713
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,942
<TOTAL-LIABILITIES> 22,942
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,707,277
<SHARES-COMMON-STOCK> 24,430
<SHARES-COMMON-PRIOR> 24,430
<ACCUMULATED-NII-CURRENT> 202,117
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 181,377
<NET-ASSETS> 9,090,771
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 710,748
<OTHER-INCOME> 0
<EXPENSES-NET> 9,831
<NET-INVESTMENT-INCOME> 700,917
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 700,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 709,507
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 496,907
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (505,497)
<ACCUMULATED-NII-PRIOR> 201,980
<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>
