File No. 33-01159
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 8
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:
THE MUNICIPAL BOND TRUST, INSURED SERIES 31
B. Name of Depositor:
PAINEWEBBER INCORPORATED
C. Complete address of Depositor's principal executive office:
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
D. Name and complete address of agents for service:
PAINEWEBBER INCORPORATED
Attention: Mr. Robert E. Holley
1200 Harbor Blvd.
Weehawken, New Jersey 07087
(x) Check if it is proposed that this filing should become effective
(immediately upon filing or on March 9, 1994) pursuant to paragraph
(b) of Rule 485.
E. Total and amount of securities being registered:
4,703 Units
F. Proposed maximum offering price to the public of the securities being
registered:
$4,896,575.48*
* Estimated solely for the purpose of calculating the registration fee, at
$1,041.16 per unit.
G. Amount of filing fee, computed at one-twenty-ninth of 1 percent of the
proposed maximum aggregate offering price to the public:
$100.00*
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
* The method of calculation is made pursuant to Rule 24e-2 under the
Investment Company Act of 1940.The total amount of units redeemed or
repurchased during the previous fiscal year ending 1993 is 4,426. There
have been no previous filings of post-effective amendments during the
current fiscal year 4,426 redeemed or repurchased units are being used
to reduce the filing fee for this amendment.
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THE MUNICIPAL BOND TRUST, INSURED SERIES 31
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction 1
as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a)Name of Trust ) Front Cover
(b)Title of securities issued )
2. Name and address of ) Back Cover
Depositor
3. Name and address of ) Back Cover
Trustee
4. Name and address of ) Back Cover
Principal
Underwriter )
5. Organization of Trust ) Nature of Trust
6. Execution and ) Nature of Trust
termination of
Trust Agreement ) Termination of the Trust
7. Changes of name ) *
8. Fiscal Year ) *
9. Litigation ) *
II. General Description of the Trust and Securities of the Trust
10. General Information ) The Trust Portfolio
regarding
Trust's Securities and ) Rights of Certificate-
Rights
of Holders ) holders
(a) Type of Securities ) Nature of Trust
(Registered or Bearer) )
(b) Type of Securities ) Nature of Trust
(Registered or Bearer) )
* Not applicable, answer negative or not required.
(c) Rights of Holders as to ) Rights of Certificate-
Withdrawal or ) holders
Redemption
) Redemption of Units by
) the Trustee
) The Municipal Bond Trust
) Reinvestment Program
(d) Rights of Holders as to ) Secondary Market for
conversion, transfer, etc. ) Units Exchange Option
(e) Rights of Trust issues )
periodic payment plan ) *
certificates )
(f) Voting rights as to ) Rights of Certificate-
Securi-
ties, under the Indenture ) holders
(g) Notice to Holders as to )
change in )
(1)Assets of Trust ) Amendment of the
Indenture
(2)Terms and Conditions ) Supervision of Trust
of Trust's Securities ) Investments
(3)Provisions of Trust ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the and
Trustee
) Trust
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(h) Consent of Security )
Holders
required to change )
(1)Composition of assets ) Amendment of the
Indenture
of Trust )
(2)Terms and conditions ) Amendment of the
Indenture
of Trust's Securities )
(3)Provisions of Indenture ) Amendment of the
Indenture
(4)Identity of Depositor ) Administration of the Trust
and Trustee )
(i) Other provisions ) The Trust-Part B
11. Type of Securities ) Front Cover-The Trust-
Comprising Units Portfolio
12. Type of securities ) *
comprising
periodic payment )
certificates
13. (a)Load, fees, expenses, etc. ) Public Offering Price of
) Units; Expenses of the
) Trust
* Not applicable, answer negative or not required.
(b)Certain information ) *
regarding periodic payment ) *
certificates )
(c)Certain percentages ) *
(d)Certain other fees, etc. ) Expenses of the Trust
payable by holders )
(e)Certain profits receivable ) Public Offering Price of
by depositor, principal ) Units
underwriters, trustee or ) Public Offering of Units
affiliated persons )
(f)Ratio of annual charges to ) *
income )
14. Issuance of Trust's ) Nature of the Trust
securities
) Public Offering of Units
15. Receipt and handling of ) *
payments from )
purchasers
16. Acquisition and ) Acquisition of Securities
disposition of
underlying securities ) for the Trust; Supervision
) of Trust Investments.
17. Withdrawal or ) Redemption of Units
redemption
) by Trustee
18. (a)Receipt and disposition of ) Distributions of Certifi-
income ) cateholders
(b)Reinvestment of distritions ) *
(c)Reserves or special fund ) Distributions to Certifi-
) cateholders
(d)Schedule of distribution ) *
19. Records, accounts and ) Statements to Certificate-
report
) holders; Administration
) of the Trust
20. Certain miscellaneous ) Administration of the Trust
pro-
visions of Trust )
agreement
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21. Loans to security ) *
holders
22. Limitations on liability ) Limitation of Liabilities
23. Bonding arrangements ) Included in Form N-8B-2
24. Other material ) *
provisions of
trust agreement )
* Not applicable, answer negative or not required.
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III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of ) Sponsor
Depositor
26. Fees received by ) Public Offering Price of
Depositor
) Units Expenses of the Trust
27. Business of Depositor ) Sponsor
28. Certain information as to ) Sponsor
officials and affiliated )
persons of Depositor )
29. Voting securities of ) *
Depositor
30. Persons controlling ) Sponsor
Depositor
31. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
32. Payments by Depositor ) *
for
certain other services )
rendered to Trust )
33. Remuneration of ) *
employees of
Depositor for certain )
services
rendered to Trust )
34. Remuneration of other ) *
persons
for certian services )
rendered
to Trust )
IV. Distribution and Redemption of Securities
35. Distribution of Trust's ) Public Offering of Units
securities by states )
36. Suspension of sales of ) *
Trust's
securities )
37. Revocation of authority ) *
to
distribute )
38. (a)Method of distribution ) Public Offering of Units
(b)Underwriting agreements )
(c)Selling agreements )
* Not applicable, answer negative or not required.
39. (a)Organization of principal ) Sponsor
underwriter )
(b)N.A.S.D. membership of ) Sponsor
principal underwriter )
40. Certain fees received by ) Public Offering Price of
principal underwriter ) Units
41. (a)Business of principal ) Sponsor
underwriter )
(b)Branch officers of ) *
principal underwriter )
(c)Salesman of principal ) *
underwriter )
42. Ownership of Trust's ) *
securities
by certain persons )
43. Certain brokerage ) *
commissions
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received by principal )
underwriter )
44. (a)Method of valuation ) Public Offering Price of
) Units
(b)Schedule as to offering ) *
price )
(c)Variation in Offering ) Public Offering Price of
price to certain persons ) Units
45. Suspension of ) *
redemption rights
46. (a)Redemption valuation ) Redemption of Units by
) Trustee
(b)Schedule as to redemption ) *
price )
V. Information concerning the Trustee or Custodian
47. Maintenance of position ) Secondary Market for Units
in
underlying securities ) Redemption of Units by
) Trustee
) Evaluation of the Trust
48. Organization and ) Administration of the Trust
regulation of
Trustee ) Trustee
49. Fees and expenses of ) Expenses of the Trust
Trustee
50. Trustee's lien ) Expenses of the Trust
* Not applicable, answer negative or not required.
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VI. Information concerning Insurance of Holders of Securities
51. (a)Name and address of ) *
Insurance Company )
(b)Type of policies ) *
(c)Type of risks insured and ) *
excluded )
(d)Coverage of policies ) *
(e)Beneficiaries of policies ) *
(f)Terms and manner of ) *
cancellation )
(g)Method of determining ) *
premiums )
(h)Amount of aggregate ) *
premiums paid )
(i)Who receives any part of ) *
premiums )
(j)Other material provisions ) *
of the Trust relating to )
insurance )
VII. Policy of Registrant
52. (a)Method of selecting and ) Acquisition of Securities
eliminating securities ) for the Trust
from the Trust )
(b)Elimination of securities ) *
from the Trust )
(c)Policy of Trust regarding ) Supervision of Trust
substitution and ) Investments
elimination of securities )
(d)Description of any funda- ) Acquisition of Securities
mental policy of the Trust ) for the Trust
) Supervision of Trust
) Investments
53. (a)Taxable status of the ) Tax status of the Trust
Trust )
(b)Qualification of the Trust ) Tax status of the Trust
as a mutual investment )
company )
* Not applicable, answer negative or not required.
<PAGE>
VIII. Financial and Statistical Information
54. Information regarding ) *
the
Trust's past ten fiscal )
years
55. Certain information ) *
regarding
periodic payment plan )
certificates )
56. Certain information ) *
regarding
periodic payment plan )
certificates )
57. Certain information ) *
regarding
periodic payment plan )
certificates )
58. Certain information ) *
regarding
periodic payment plan )
certi-
ficates )
59. Financial statements ) Statement of Financial
(Instruction 1(c) to ) Condition
Form S-6)
* Not applicable, answer negative or not required.
<PAGE>
THE MUNICIPAL BOND TRUST
INSURED SERIES 31
This Prospectus consists of two parts. Part A contains Essential
Information Regarding the Trust including descriptive material relat-
ing to the Trust, Financial Statements of the Trust and a Schedule
of Investments. Part B contains general information about the Trust.
Part A may not be distributed unless accompanied by Part B.
Interest income to the Trust and to Certificateholders is 8,775
excludable, in the opinion of counsel, from gross income UNITS
for Federal income tax purposes under existing law, but
may be subject to state and local taxation. Capital gains, if
any, are subject to tax.
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.
THE OBJECTIVES OF THE MUNICIPAL BOND TRUST, IN-
SURED SERIES 31 --The Municipal Bond Trust, Insured Series
31 (the "Trust") is a unit investment trust formed for the
purpose of gaining Federally tax-exempt interest income con-
sistent with the preservation of capital and diversification of
risk through investment in a fixed insured portfolio comprised
of "AAA rated" (at the Date of Deposit) insured interest-bearing
municipal bonds (the "Bonds"). (At times, the Bonds depos-
ited in the portfolio are referred to in this Prospectus as the
"Securities"). The payment of interest and the preservation of
capital is dependent upon the continuing ability of the respec-
tive issuers of the Bonds or the respective insurers thereof to
meet their obligations. Since PaineWebber Incorporated (the
"Sponsor") and United States Trust Company of New York
(the "Trustee") do not have control over the source of pay-
ment of the Bonds or insurance policies, they cannot guarantee
that the objectives of the Trust will be achieved. Each unit at
the date hereof represents 1/8,775th fractional undivided inter-
est in the $8,435,000 principal amount of bonds and net
income of the Trust in the ratio of 1 Unit for each $961.25 par
value of Bonds in the Trust. (See "Nature of Trust" in Part B.)
The aggregate market value, based on the bid side of the
market, of the Bonds in the Trust was, as of January 1, 1994,
$9,194,066.
INSURANCE--Insurance guaranteeing the payment of principal
and interest, at their stated payment dates, on all of the Bonds
<PAGE>
in the Trust has been obtained from bond insurers indicated
herein. The insurance policies are noncancellable and will
remain in force as long as the Bonds insured by such policies
remain outstanding. Because of this Insurance the Units are
rated AAA by Standard & Poor's Corporation (see "Summary
of Portfolio").
PUBLIC OFFERING PRICE--The Public Offering Price of Units
is equal to the aggregate of the bid prices of the underlying
Bonds divided by the number of Units outstanding plus a sales
charge of up to 5.82% of the net amount invested (up to
5.50% of the Public Offerng Price). Units are offered at the
Public Offering Price plus accrued interest. (See "Public Offer-
ing Price of Units" and "Secondary Market for Units" in Part
B).
MARKET FOR UNITS--Although under no obligation to do so,
the Sponsor intends to maintain a market for Units at prices
based on the aggregate bid price of the Bonds in the Trust. If
such market is terminated, a Certificateholder may be able to
dispose of his Units only through redemption (See "Secondary
Market for Units" and "Redemption of Units by Trustee" in
Part B).
DISTRIBUTIONS--Distributions of interest received by the Trust,
less expenses, will be made on a monthly basis unless the
Certificateholder elects to receive interest on a semi-annual
basis. Distribution of principal, if any, will be made on a
semi-annual or more frequent basis. See "Essential Information
Regarding The Trust" in Part A and "Distributions to Cer-
tificateholders" in Part B for details of optional distributions.
ESTIMATED CURRENT RETURN--The Estimated Current Return
per Unit is determined by dividing the net annual interest
income per Unit by the Public Offering Price per Unit. Any
change in either amount will result in a change in Estimated
Current Return (See "Estimated Current Return per Unit" in
Part B).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAP-
PROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SPONSOR:
PaineWebber
Incorporated
Read and retain both parts of this prospectus for future reference.
<PAGE>
ESSENTIAL INFORMATION REGARDING THE TRUST
Securities in the Trust Portfolio
The Trust consists of the Securities indicated under "Schedule
of Investments", all undistributed interest received or accrued on
the Securities, and any undistributed cash realized from the sale,
redemption or other disposition of the Securities. The Trust portfolio
contains 12 issues of interest-bearing Bonds issued by or on behalf
of states, counties and municipalities within the United States, and
its authorities, agencies and other political subdivisions. The issuers
of the Bonds are located in 9 states of the United States. All of the
Bonds in the Trust were, as of the Date of Deposit, AAA rated
municipal bonds.
An investment in the Trust should be made with an understand-
ing that the value of the underlying Trust portfolio may decline with
interest rates.
On January 1, 1994, the aggregate market value of the Securi-
ties in the Trust, based on the bid side of the market, was
$9,194,066.
Insurance
Insurance guaranteeing the payment of principal and interest, at
their stated payment dates, on all of the Bonds in the Trusts has
been obtained from the bond insurers indicated below and on the
Schedules of Investments, and has been paid for by the issuers of
all the Bonds in the Trusts or third parties and will remain in force
for so long as the Bonds insured by such policies remain outstand-
ing. Insurance does not protect against changes in the market value
of Units due to changes in prevailing interest rates. The ratings
assigned to the Units is not a recommendation to purchase, sell or
hold Units, in as much as the rating does not comment as to
market price of the Units or suitability for a particular investor.
The Trust consists of the Securities indicated under "Schedule
of Investments", all undistributed interest received or accrued on
the Securities, and any undistributed cash realized from the sale,
redemption or other disposition of the Securities. All of the Bonds in
the trust are insured as to scheduled payment of interest and
principal. In the event the issuer of these bonds defaults, the
insurance company insuring the bond would be required to pay to
the Trustee any interest or principal payments due. Only bonds
covered by an insurance policy may be deposited in the Trust
portfolio. The Bonds in the Trust are insured by the following
insurers (See "Summary of the Portfolio-Insurance on the Bonds in
the Portfolio" in Part B for a description of each of the Approximate
Percentage of
Aggregate
Market
Category of Bond Lot Nos. Value
AMBAC 2, 3, 4 & 5 32%
MBIA 1, 6, 7, 8
11 & 12 50
1
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Financial Guaranty 9 & 10 18
The principal and interest on the Bonds are payable either from
ad valorem taxes, from revenues to be derived by an issuer from a
specific project or projects or from other revenues to be received by
an issuer. A general obligation bond is a bond secured by the
power of an issuer to levy taxes. Other types of Bonds are payable
from revenues to be derived by issuers from specific projects or
from other revenues, possibly from more than one source but are
not supported by the respective issuer's power to levy taxes. A
discussion of such other types of bonds is set forth under "Sum-
mary of Portfolio-- Additional Considerations Regarding the Trusts".
The Trust consists of the types of Bonds set forth below.
Category Number of
Issues
Water & Sewer 1
Electric & Power 1
Refunded 9
Escrowed to Maturity 1
An investment in the Trust should be made with an understand-
ing that the value of the underlying Trust portfolio may decline with
increases in interest rates. In addition, the Trust may be considered
concentrated in the categories of bonds identified below:
Approximate
Percentage of
Aggregate
Category Market Value
Refunded 78%
See "Summary of Portfolio" contained in Part B for a summary of
the Investment risks associated with the Securities contained in the
Trust.
Ratings-
On January 1, 1994 the percentage of the total aggregate
market value of bonds in the portfolio in each rating category was
as follows: AAA, 100%.
Standard & Poor's Corporation rated the Units of the Trust
"AAA" because the bond insurers have issued insurance policies in
respect of such Bonds. The assignment of such "AAA" rating is
due solely to Standard & Poor's assessment of the creditworthiness
of the bond insurers and their ability to pay claims on their policies
of insurance at the date of deposit. This is the highest rating
assigned by Standard & Poor's. (See "Bond Ratings", herein). This
rating should not be construed as an approval of the offering of the
2
<PAGE>
Units by Standard & Poor's Corporation or as a guarantee of the
market value of the Trust or of the Units. Standard & Poor's has
been compensated by the Sponsor for its services in rating Units of
the Trust.
Tax Status of the Trust
At the time of issuance of the Securities, opinions regarding the
validity of such Securities and the exemption from federal income
tax of interest on such Securities were or will be rendered by bond
counsel to the respective issuers. Except in certain instances in
which Orrick, Herrington & Sutcliffe acted as bond counsel to
issuers of Securities, neither the Sponsor, the Trustee, nor counsel
to either has made any review of the proceedings relating to the
issuance of the Securities or the basis for such opinions. In the
case of certain Securities in the Trust, the opinions of bond counsel
indicate that interest on such obligations received by a "substantial
user" of the facilities being financed with the proceeds of such
obligations, or "related person," for periods such obligations are
held by such "substantial user" or "related person," will not be
exempt from federal income tax. Interest income attributable to such
Securities received by a Unitholder who is a "substantial user" or
"related person" may be taxable to such Unitholder.
In the opinion of Orrick, Herrington & Sutcliffe, counsel to the
Sponsor, under existing law:
1. The Trust is not an association taxable as a corporation for
Federal income tax purposes. Under the Internal Revenue Code of
1986, as amended (the "Code"), each holder of a certificate of
ownership (a "Certificateholder") will be treated as the owner of a
pro rata portion of the Trust, and income of the Trust will be treated
as income of the Certificateholders. Interest on Securities in the
Trust that is excludable from gross income for federal income tax
purposes when received by the Trust will retain its status as
excludable when distributed to Certificateholders, except that no
opinion is expressed regarding the character of interest on any
Security in the case of any Certificateholder whois a "related
person" or a "substantial user", both as defined in Code Section
147(a).
2. Each Certificateholder will have a taxable event when the
Trust disposes of a Security (whether by sale, exchange, redemp-
tion, or payment at maturity), or when the Certificateholder redeems
or sells its Certificates. For purposes of determining gain or loss,
the total tax cost of each Unit to a Certificateholder is allocated
among each of the Securities in accordance with the proportion of
the Trust comprised by each Security, to determine the Cer-
tificateholder's per Unit tax cost for each Security. Further, the tax
cost reduction requirements of the Code relating to amortization of
bond premium will apply separately to the per Unit tax cost of each
Security.
3. The Trust is not an association taxable as a corporation for
New York State income tax purposes. Under New York State law,
each Certificateholder will be treated as the owner of a pro rata
3
<PAGE>
portion of the Trust, and income of the Trust will be treated as
income of the Certificateholders. Interest on Securities in the Trust
that is exempt from personal income tax under New York State law
when received by the Trust will retain its tax-exempt status when
distributed to Certificateholders.
4. Any proceeds representing maturing interest on defaulted
obligations derived by Certificateholders from insurance policies will
be excluded from gross income for federal income tax purposes if,
and to the same extent as, such interest would have been so
excluded if paid by the issuer of such defaulted obligations.
Additional Tax Considerations
Recognition of Gain. The Code, by virtue of the Tax Reform Act
of 1986, effects a substantial reduction in the number of income tax
brackets and rate levels for individuals and corporations and ad-
versely modifies the preferential treatment accorded the net gain
from the sale or exchange of capital assets. The maximum rate for
net capital gain of individuals in 1987 is limited to 28%. Net capital
gain recognized by corporations after 1986 and by individuals after
1987 will be taxed at the same tax rates applicable to ordinary
income.
As a result of the tax cost reduction requirements of the Code
relating to amortization of bond premium, under certain circum-
stances Unitholders may realize a taxable gain upon disposition of
Units even though such Units are sold or redeemed for an amount
equal to or less than their original cost.
Original Issue Discount and Market Discount. The portfolio may
contain Securities originally issued at a discount ("original issue
discount"). In general, original issue discount is defined as the
difference between the price at which a bond is issued and its
stated redemption price at maturity. With respect to tax-exempt
obligations issued on or before September 3, 1982, original issue
discount is deemed to accrue (be "earned") as tax-exempt interest
ratably over the life of the obligations 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 is 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 maturity date. With respect
to tax-exempt obligations issued after September 3, 1982, original
issue discount is deemed earned in a geometric progression over
the life of the obligations, taking into account the semi-annual
compounding of accrued interest, resulting in an increasing amount
of interest in each year.
In general, if a Unitholder acquires a pro rata interest in a
Security for a price that is less than its stated redemption price at
maturity (or less than the original issue price plus accrued original
issue discount, if such Security was issued with original issue
discount), such pro rata interest will be treated as having been
purchased at a "market discount". If gain is realized upon the sale
or other disposition of such pro rata interest, the market discount
4
<PAGE>
will constitute taxable gain. Such gain generally will be long-term
capital gain to Unitholders, other than dealers in securities and
certain financial institutions, if the Securities are held by the Trust
for more than six months and such Unitholders have held their
Units for more than one year.
Interest on Borrowed Funds. Interest paid on funds borrowed
to purchase or carry units of a unit investment trust that distributes
tax-exempt interest income during a tax year is not deductible.
Under rules of 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 consid-
ered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Units.
Social Security Benefits. Code Section 86 provides that a
portion of social security benefits received after December 31, 1983,
are includible in taxable income for taxpayers whose "modified
adjusted gross income", combined with 50% of their social security
benefits, exceeds a base amount. The base amount is $25,000 for
an individual, $32,000 for a married couple filing a joint return, and
zero for married persons filing separate returns. Under Code Section
86, interest on tax-exempt bonds is to be added to adjusted gross
income for purposes of determining whether an individual's income
exceeds the base amount above which a portion of the benefits
would be subject to tax. The amount of social security benefits that
could be includible in taxable income would be the lesser of
one-half of the benefits or one-half of the excess of the taxpayer's
combined income (modified adjusted gross income plus one-half of
benefits) over the base amount.
Tax Reform Act of 1986--Effects on Tax-Exempt Interest. The
Tax Reform Act of 1986, among other items, provided for the
following: (1) Effective for taxable years beginning after December
31,1986, the alternative minimum tax rate for individuals is in-
creased to 21%, and the interest on certain Private Activity Bonds
issued after August 7, 1986 is included in the calculation of the
individual alternative minimum tax. Each Security in the Trust
received or will receive an opinion of bond counsel to the effect that
it is not a Private Activity Bond the interest on which is subject to
the alternative minimum tax. (2) Effective for taxable years begin-
ning after December 31, 1986, the alternative minimum tax rate for
corporations is increased from 15% to 20%, and for purposes of
this tax, interest on certain Private Activity Bonds issued after
August 7, 1986, and 50% of the excess of a corporation's net book
income (adjusted) over its alternative minimum taxable income
(adjusted) are classified as tax preference items. Net book income
includes interest on all tax-exempt bonds, such as the Securities. In
taxable years beginning after 1989, the use of adjusted net book
income in determining such alternative minimum tax is to be
replaced by the use of adjusted current earnings, and 75% of the
amount by which adjusted current earnings exceed alternative mini-
mum taxable income, as modified for this calculation, will be
included in alternative minimum taxable income. Interest on the
5
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Securities is includible in the adjusted net book income and ad-
justed current earnings of a corporation for purposes of such
alternative minimum tax. The Tax Reform Act of 1986 does not
otherwise require corporations, and does not require taxpayers other
than corporations, including individuals, to treat interest on the
Securities as an item of tax preference in computing alternative
minimum tax. (3) Subject to certain exceptions, financial institutions
may not deduct that portion of the institution's interest expense
allocable to tax-exempt interest on tax-exempt bonds acquired after
August 7, 1986. (4) The amount of the deduction allowed to
property and casualty insurance companies for underwriting loss is
decreased by an amount determined with regard to tax-exempt
interest income and the deductible portion of dividends received by
such companies, effective for taxable years beginning after Decem-
ber 31, 1986. (5) All taxpayers are required to report for informa-
tional purposes on their federal income tax returns the amount of
tax-exempt interest they receive, effective for taxable years begin-
ning after December 31, 1986. (6) An issuer must meet certain
requirements on a continuing basis in order for interest on a
tax-exempt bond to be tax exempt; failure to meet such require-
ments results in loss of tax exemption. (7) For taxable years
beginning after December 31, 1986, a branch profits tax is imposed
on the U.S. branches of foreign corporations which, because of the
manner in which the branch profits tax is calculated, may have the
effect of subjecting the U.S. branch of a foreign corporation to
federal income tax on the interest on bonds otherwise exempt from
such tax.
The Tax Reform Act of 1986 also significantly curtailed a
taxpayer's ability to offset income with deductions and losses. In
general, a lower overall rate of income taxation could make tax-
exempt bonds less attractive to investors and could decrease the
value of tax-exempt Securities held by the Trust, while the limita-
tions on the ability to offset taxable income may have the opposite
effect. In addition, certain "S Corporations" may have a tax im-
posed on passive income including tax-exempt interest, such as
interest on the Securities.
Alternative Minimum Tax. Interest on the Securities in the Trust
is not treated as a preference item for purposes of calculating the
individual and corporate alternative minimum tax. However, the Code
provides that for taxable years 1988 and 1989, 50% (75% for
taxable years beginning after 1989) of the excess of a corporation's
adjusted net book income over its adjusted alternative minimum
taxable income will be treated as a preference item in the calcula-
tion of alternative minimum taxable income. For taxable years
beginning after 1989, the use of adjusted net book income will be
replaced by the use of adjusted current earnings. The adjusted net
book income and adjusted current earnings of a corporation include
the amount of any income received that is otherwise exempt from
tax, such as interest on the Securities.
Superfund Revenue Act of 1986. The Superfund Revenue Act of
1986 (the "Superfund Act") imposed a deductible, broad-based tax
6
<PAGE>
on a corporation's alternative minimum taxable income (before net
operating losses and any deduction for the tax) at a rate of $12 per
$10,000 (0.12%) of alternative minimum taxable income in excess
of $2,000,000. The tax is imposed for tax years beginning after
1986 and beginning before 1992. The tax is imposed even if the
corporation pays no alternative minimum tax. For purposes of the
Superfund Act, alternative minimum taxable income includes interest
on all tax-exempt bonds to the same extent and in the same
manner as does the Tax Reform Act of 1986. The Superfund Act
does not impose an alternative minimum tax on taxpayers other
than corporations.
Branch Profits Tax. The Code provides that interest on exempt
obligations such as the Securities is included in effectively con-
nected earnings and profits for purposes of computing the branch
profits tax on certain foreign corporations doing business in the
United States.
Property and Casualty Companies. The Code contains provi-
sions relating to property and casualty companies whereunder the
amount of certain loss deductions otherwise allowed is reduced (in
certain cases below zero) by a specified percentage of, among other
things, interest on tax-exempt obligations acquired after August 7,
1986.
Financial Institutions. The Code provides that commercial
banks, thrift institutions and other financial institutions may not
deduct the portion of their interest expense allocable to tax-exempt
obligations after August 7, 1986 (other than certain "qualified"
obligations). The Securities are not qualified for this purpose.
S Corporations. The Code imposes a tax on excess net passive
income of certain S corporations that have subchapter C earnings
and profits. Passive investment income includes interest on tax-
exempt obligations.
Information Reporting. All taxpayers are required to report for
informational purposes on their federal income tax returns the
amount of tax-exempt interest they receive.
Future Legislation.Various proposals have been introduced be-
fore Congress from time to time to restrict or eliminate the federal
income tax exemption for interest on municipal securities such as
those deposited in the Trust. Such proposals may be introduced in
the future. The Sponsor cannot predict what additional legislation, if
any, may be proposed with respect to the tax-exempt status of
interest on municipal securities, nor can it predict whether any
legislation, if enacted, would apply to Securities in the Trust.
State Tax. The exemption from gross income of interest on
municipal bonds for federal income tax purposes does not nec-
essarily result in an exemption under the income tax laws of any
state or local government. The laws of the several states vary with
respect to the taxation of municipal bonds, and Unitholders are
advised to consult with their tax advisors regarding such taxation.
7
<PAGE>
Plan of Distribution-
Certificateholders may elect to receive interest distributions on a
monthly or semi-annual basis and may make such election at the
time of purchase during the initial public offering period and prior to
the initial Record Date. The plan of distribution selected by such
Certificateholders will remain in effect until changed as provided
below. Those not indicating a choice will be deemed to have
chosen the monthly distribution plan. See "Essential Information"
for information concerning interest distributions under the optional
payment plans. The amounts of such distributions may change as
Securities mature, are called for redemption, or are sold or if the
expenses of the Trust change. Certificateholders purchasing Units in
the secondary market will receive interest distributions in accor-
dance with the election of the prior owner. In January and July of
each year the Trustee will furnish all registered Certificateholders
with a card to be returned to the Trustee not later than the following
March 1 and September 1 respectively. Certificateholders desiring to
change the plan of distribution in which they are participating may
so indicate on the card and return it, with their Certificate, to the
Trustee. If the card and Certificate are returned to the Trustee, the
change in the interest distribution plan will become effective on
March 2 and September 2 for the following 6 months. If the card is
not returned to the Trustee, the Certificateholder will be deemed to
have elected to continue with the same plan for the following 6
months.
Trustee-
The Trustee is United States Trust Company of New York, 770
Broadway, New York, New York 10003. The Trustee is a member of
the New York Clearing House Association and is subject to supervi-
sion and examination by the Superintendent of Banks of the State
of New York, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
8
<PAGE>
ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF JANUARY 1, 1994
Date of Deposit and of Trust Indenture and
Agreement
January 9, 1986
Principal amount of Bonds in Trust
$8,435,000
Number of Units Outstanding
8,775
Minimum Purchase
1 Unit
Fractional undivided interest in Trust represented by
each Unit
1/8,775th
Public Offering Price
Aggregate Bid Price of Bonds in Trust $9,193,663 *~
Divided By 8,775 Units $1,047.71 *~
Plus Sales Charge of
3.23% of Public Offering Price $34.97
Public Offering Price per Unit $1,082.68 *~
<PAGE>
Redemption Value per Unit
$1,047.71 *~
Excess of Public Offering Price per Unit over
Redemption Value Per Unit
$34.97
Sponsor's Repurchase Price per Unit
$1,047.71 *~
Excess of Public Offering Price per Unit over
Sponsor's Repurchase Price Per Unit
$34.97
Minimum Principal Distribution
No distribution need be made from
Principal Account if balance in Account is
less than $10,000.
Evaluation Time
4 P.M N.Y. Time
Mandatory Termination Date**
January 1, 2036
Discretionary Termination
Indenture may be terminated if value of
Trust is less than $2,000,000.
<TABLE>
INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED
<CAPTION>
Monthly Semi-Annual
Option Option
<S> <C> <C>
Gross annual interest income per unit $78.70 $78.70
Less estimated annual fees and expenses per unit**** 1.67 1.06
Estimated net annual interest income per unit $77.03 $77.64
Estimated interest distribution per unit $6.41 $38.82
Daily rate at which estimated net interest accrues per $.2136 $.2156
unit
Estimated current return*** 7.11% 7.17%
Record dates 1st of Apr./Oct. 1
each month
Interest distribution dates 15th of Apr./Oct. 15
each month
Trustee's annual fee per $1,000 principal amount of $1.06 $.58
bonds
Evaluator's daily fee per bond .30 .30
* Plus accrued interest.
** The actual termination of the trust may be considerably earlier (see "Termination of the Trust" in Part B).
*** The estimated current return is increased for transactions entitled to a reduced sales charge (see "Public
Offering Price of Units" in Part B.)
**** See "Expenses of the Trust" in Part B.
~ Includes undistributed principal funds.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL SUMMARY
The following sets forth a summary of distributions and redemption values per unit for The Municipal Bond
Trust, Insured Series 31.
<CAPTION>
INCOME
DISTRIBUTIONS
YEAR ENDING PER UNIT
<S> <C> <C>
MONTHLY January 1, 1992 $79.15
January 1, 1993 79.13
January 1, 1994 78.02
SEMI-ANNUAL January 1, 1992 79.69
January 1, 1993 79.69
January 1, 1994 78.99
PRINCIPAL January 1, 1992 ---
January 1, 1993 ---
January 1, 1994 36.66
As of December 31, 1992, 1993 and January 1, 1994, the redemption values per unit were $1,085.31,
$1,047.71, $1,047.71 plus accrued interest to the respective dates.
</TABLE>
<PAGE>
<TABLE>
REPORT OF INDEPENDENT AUDITORS
<C> <S>
THE CERTIFICATEHOLDERS, SPONSOR AND TRUSTEE
THE MUNICIPAL BOND TRUST, INSURED SERIES 31:
We have audited the accompanying statement of financial condition, including the schedule of investments, of
The Municipal Bond Trust, Insured Series 31 as of January 1, 1994 and the related statements of operations and
changes in net assets for each of the three years in the period then ended. These financial statements are the
responsibility of the Trustee. 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 January
1, 1994 as shown in the statement of financial condition and schedule of investments by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and significant estimates made by the
Trustee, as well as evaluating the overall financial statement presentation. We believe that our 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 Municipal Bond Trust, Insured Series 31 at January 1, 1994 and the results of its operations and
changes in its net assets for each of the three years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG
New York, New York
March 2, 1994
</TABLE>
<PAGE>
<TABLE>
THE MUNICIPAL BOND TRUST
INSURED SERIES 31
STATEMENT OF FINANCIAL CONDITION
January 1, 1994
ASSETS
<S> <C> <C>
Investment in municipal bonds - at market value (Cost $8,382,085)
(note 3 to schedule of investments) $9,194,066
Accrued interest receivable 145,243
Cash 38,644
Total Assets $9,377,953
LIABILITIES AND NET ASSETS
Distribution payable (note E) $97,848
Accrued expenses payable 1,059
Total Liabilities 98,907
Net assets ( 8,775 units of fractional undivided interest outstanding)
Cost to Investors (note B) $8,869,922
Less gross underwriting commissions (note C) (487,837)
8,382,085
Net unrealized market appreciation (depreciation) of investments (note D) 811,981
9,194,066
Undistributed investment income-net 85,383
Undistributed proceeds from bonds sold or redeemed (403)
Net Assets 9,279,046
Total Liabilities and Net Assets $9,377,953
Net Asset Value Per Unit $1,057.44
STATEMENT OF OPERATIONS
<CAPTION>
Year Ended January 1 ,
1994 1993 1992
<S> <C> <C> <C>
Investment Income - Interest $708,295 $750,369 $770,784
Less Expenses:
Trustee's fees and expenses 12,745 12,808 12,086
Evaluator's fees 1,042 1,167 1,071
Total expenses 13,787 13,975 13,157
Investment Income-net 694,508 736,394 757,627
Realized and unrealized gain (loss) on
investments-net:
Net realized gain (loss) on securities transactions 83,211 51,940 7,691
Net change in unrealized market appreciation (depreci- (89,734) (124,347) 410,589
ation)
Net gain (loss) on investments (6,523) (72,407) 418,280
Net increase (decrease) in net assets resulting from $687,985 $663,987 $1,175,907
operations
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
THE MUNICIPAL BOND TRUST
INSURED SERIES 31
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended January 1 ,
1994 1993 1992
<S> <C> <C> <C>
Operations:
Investment Income-net $694,508 $736,394 $757,627
Net realized gain (loss) on securities transactions 83,211 51,940 7,691
Net change in unrealized market appreciation (depreci- (89,734) (124,347) 410,589
ation)
Net increase (decrease) in net assets resulting from 687,985 663,987 1,175,907
operations
Less: Distributions to Certificateholders
Investment income-net 691,935 730,264 829,140
Proceeds from securities sold or redeemed 326,457 --- ---
Total Distributions 1,018,392 730,264 829,140
Less: Units Redeemed by Certificateholders (Note F)
Value of units at date of redemption 361,587 414,520 94,180
Accrued interest at date of redemption 7,334 10,291 2,205
Total Redemptions 368,921 424,811 96,385
Increase (decrease) in net assets (699,328) (491,088) 250,382
Net Assets:
Beginning of period 9,978,374 10,469,462 10,219,080
End of period $9,279,046 $9,978,374 $10,469,462
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
January 1, 1994
(A) The financial statements of the Trust are prepared on the accrual basis of accounting. Security transactions are
accounted for on the date the securities are purchased or sold.
(B) Cost to the investors represents the initial public offering price as of the date of deposit computed on the
basis set forth under "Public Offering Price of Units" included in Part B , adjusted for bonds called or sold since the
date of deposit.
(C) The aggregate sales charge was computed on the basis set forth under "Public Offering Price of Units"
included in Part B.
(D) At January 1, 1994 the gross unrealized market appreciation was $838,196 and the gross unrealized market
depreciation was ($26,215). The net unrealized market appreciation was $811,981.
(E) Distributions of the net interest income to Certificateholders are declared and paid in accordance with the
distribution option (monthly or semi-annually) selected by the investor. See the Financial Summary included in Part
A.
(F) The following units were redeemed with proceeds of bonds sold as follows:
<CAPTION>
Year Ended January 1 ,
1994 1993 1992
<S> <C> <C> <C>
Number of units redeemed 336 378 88
Redemption amount $368,921 $424,811 $96,385
</TABLE>
<PAGE>
<TABLE>
THE MUNICIPAL BOND TRUST, INSURED SERIES 31
Schedule of Investments as of January 1, 1994
<CAPTION>
Coupon Redemption
Aggregate Rate / Features(2)
Lot Principal Maturity C.--Callable Market
No. Amount Description Rating(1) Date(4) S.F.--Sinking Value(3)
Fund
<C><C> <S> <C> <C> <C> <C>
1. $885,000 MUNICIPALITY OF ANCHORAGE, ALASKA
JUNIOR LIEN REFUNDING WATER REVENUE
BONDS 1985 (MBIA INS.) (REFUNDED) AAA 9.00% C.08/01/94@102 $932,188
08/01/1994 S.F. NONE
2. 750,000 JACKSONVILLE HEALTH FACILITIES AUTHORITY
(FLORIDA) HEALTH FACILITIES REFUNDING
REVENUE BONDS (ST. VINCENT DE PAUL
HEALTH SYSTEM PROJECT) SERIES 1985
(AMBAC INS.) (REFUNDED) AAA 9.10% C.12/01/97@100 897,270
12/01/1997 S.F. NONE
3. 1,010,000 KISSIMMEE (FLORIDA) UTILITY AUTHORITY
ELECTRIC REFUNDING REVENUE BONDS
SERIES 1985 (AMBAC INS.) (REFUNDED) AAA 6 1/2% C.10/01/94@100 1,035,270
10/01/1994 S.F. NONE
4. 500,000 TAMARAC (FLORIDA) WATER AND SEWER
UTILITY REVENUE REFUNDING BONDS, 1985
(AMBAC INS.) AAA 9.10% C.02/03/94@102 511,930
10/01/2010 S.F. 10/01/01
5. 485,000 MUNICIPAL ELECTRIC AUTHORITY OF GEORGIA
POWER REVENUE BONDS, SERIES K (AMBAC
INS.) AAA 9.00% C.01/01/95@102 520,124
01/01/2020 S.F. 01/01/18
6. 215,000 HOSPITAL AUTHORITY OF ST. JOSEPH COUNTY
(INDIANA) INSURED HOSPITAL REVENUE
BONDS, SERIES 1985 (MEMORIAL HOSPITAL OF
SOUTH BEND PROJECT) (MBIA INS.)
(REFUNDED) AAA 9 1/8% C.11/01/95@102 241,877
11/01/1995 S.F. NONE
7. 500,000 HOSPITAL AUTHORITY OF ST. JOSEPH COUNTY
(INDIANA) INSURED HOSPITAL REVENUE
BONDS, SERIES 1985 (MEMORIAL HOSPITAL OF
SOUTH BEND PROJECT) (MBIA INS.)
(REFUNDED) AAA 9 1/4% C.11/01/95@102 563,610
11/01/1995 S.F. NONE
8. 1,000,000 NEW ORLEANS (LOUISIANA) INTERNATIONAL
AIRPORT REVENUE BONDS, SERIES 1985 (MBIA
INS.) (REFUNDED) AAA 9.00% C.08/01/95@103 1,118,670
08/01/1995 S.F. NONE
9. 705,000 CITY OF KALAMAZOO HOSPITAL AUTHORITY
(MICHIGAN) HOSPITAL REVENUE
IMPROVEMENT AND REFUNDING BONDS
(BORGESS MEDICAL CENTER), SERIES 1985
(FINANCIAL GUARANTY INS.) (REFUNDED) AAA 9 1/8% C.07/01/95@102 780,026
07/01/1995 S.F. NONE
(Continued)
</TABLE>
<PAGE>
<TABLE>
THE MUNICIPAL BOND TRUST, INSURED SERIES 31
Schedule of Investments as of January 1, 1994
<CAPTION>
Coupon Redemption
Aggregate Rate / Features(2)
Lot Principal Maturity C.--Callable Market
No. Amount Description Rating(1) Date(4) S.F.--Sinking Value(3)
Fund
<C> <C> <S> <C> <C> <C> <C>
10. $775,000 FLORENCE COUNTY, SOUTH CAROLINA
HOSPITAL REVENUE BONDS (MCLEOD
REGIONAL MEDICAL CENTER PROJECT) SERIES
1985B (FINANCIAL GUARANTY INS.) AAA 8 3/4% C.11/01/95@102 $866,745
(REFUNDED)
11/01/1995 S.F. NONE
11. 940,000 SAM RAYBURN MUNICIPAL POWER AGENCY
(TEXAS) POWER SUPPLY SYSTEM REVENUE
REFUNDING BONDS SERIES 1985 (MBIA INS.)
AAA 6.00% C.(5) 1,023,124
09/01/2010 S.F. 09/01/09
12. 670,000 INTERMOUNTAIN POWER AGENCY (A POLITICAL
SUBDIVISION OF THE STATE OF UTAH) POWER
SUPPLY REVENUE REFUNDING BONDS, 1985
SERIES J (MBIA INS.) (REFUNDED) AAA 6 1/2% C.07/01/95@100 703,232
07/01/1995 S.F. NONE
$8,435,000 $9,194,066
(1) All ratings are by Standard & Poor's Corporation unless otherwise indicated. A brief description of applicable
rating symbols is given under "Bond Ratings" included in Part B. For concentration of credit risk, see Securities in
the Trust Portfolio in Part A. .
(2) C.--Indicates the first year in which an issue of bonds is redeemable in whole, or in part, by the operation of
the optional call provisions, and the redemption price for that year; unless otherwise indicated, each issue continues
to be redeemable at declining prices thereafter but not below par. S.F.--Indicates the first year in which an issue of
bonds is subject to scheduled sinking fund redemption and the redemption price for that year; unless otherwise
indicated, such issue of bonds is subject to scheduled sinking fund redemption at par.
Bonds listed as non-callable, as well as those listed as callable, may also be redeemable at par, under certain
circumstances, from special redemption payments.
(3) The Market Value is determined by the Evaluator on the bid side of the market, on a basis identical to that
set forth under "Public Offering Price of Units" included in Part B.
(4) The Maturity Date noted for all Refunded Bonds is the date on which such Bonds have been irrevocably
called for redemption by the issuers thereof.
(5) Escrowed to Maturity.
</TABLE>
<PAGE>
MUNICIPAL BOND TRUST
INSURED SERIES PROSPECTUS PART B
PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY PART A.
NATURE OF THE TRUST
Each series of The Municipal Bond Trust, Insured Series, is a
unit investment trust formed for the purpose of obtaining federally
tax-exempt interest consistent with the preservation of capital and
diversification of risk through investment in a fixed portfolio com-
prised of "investment grade" (as of the Date of Deposit) insured
interest-bearing Bonds. State Trusts were formed for the additional
purpose of obtaining interest income exempt from state income
taxes for purchasers who qualify as residents of the state for which
each such Trust is named. The Sponsor and the Trustee do not
have control over the course of payment of the principal of and
interest on the Securities, or any insurance proceeds due thereon;
therefore, they cannot guarantee that the objectives of the Trust will
be achieved. The interest on the Bonds, in the opinion of counsel to
the issuers of such Bonds, is, or upon their issuance and delivery
will be, exempt from present Federal income taxes. Capital gains, if
any, will be subject to taxation.
The portfolio of the Trust consists of interest-bearing Securities,
issued by or on behalf of states, counties and municipalities within
the United States, and their authorities, agencies and other such
political subdivisions.
CREATION OF THE TRUST
The Trust was created under the laws of the State of New York
pursuant to a Trust Indenture and Agreement* (the "Indenture"),
dated as of the Date of Deposit, among PaineWebber Incorporated,
as Sponsor, the Trustee identified in Part A of this prospectus and
Kenny Information Systems, Inc. as Evaluator.
On the Date of Deposit, the Sponsor deposited with the Trustee
the Securities or confirmations of contracts for the purchase of the
Bonds at prices determined by the Evaluator on the basis of current
offering prices of the Securities. Confirmations of contracts for the
purchase of the Bonds were delivered to the Trustee together with
an irrevocable letter of credit drawn on a commercial bank in an
amount sufficient for their purchase. Following the deposit, the
Trustee delivered to the Sponsor registered Certificates for Units
evidencing entire ownership of the Trust. On the date of Deposit
each Unit represented a fractional undivided interest in the Trust in
an amount equal to one divided by the total number of Units
outstanding. On the Date of Deposit there was one Unit for each
$1,000 face amount of Securities deposited in the appropriate Trust.
SUMMARY OF PORTFOLIO
<PAGE>
An investment in Units of the Trust should be made with an
understanding of the risks which an investment in fixed rate long-
term debt obligations may entail, including the risk that the value of
the Trust portfolio and hence of the Units will decline with increases
in interest rates. The recent period of high inflation, together with
the fiscal measures adopted to attempt to deal with it, has seen
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.
As set forth under "Essential Information" and "Schedule of
Investments" in Part A, the Trust may contain or be concentrated in
one or more of the categories of Securities referred to below. The
types of issuers and percentages of any concentrations for this
Trust are set forth in Part A. These categories are described in Part
B because an investment in Units of the Trust should be made with
an understanding of the risks which these investments may entail.
Part B also contains a description of the features of this Trust.
The Portfolio
Insurance guaranteeing the payment of principal and interest,
on their stated payment dates, in respect of the Bonds has been
obtained either by the issuer at the time of issuance of the Bonds
from one of the independent insurance companies described herein,
by third-party purchasers of the Securities or by the Sponsor on the
Date of Deposit from the insurers identified in Part A in an effort to
protect Unitholders against loss of principal and against non-
payment of interest. The insurance policies are non-cancellable and
certain policies (as more fully disclosed under "Essential Informa-
tion" in Part A) will continue in force so long as the Bonds so
insured are outstanding (regardless of whether the Bonds remain in
the Trust) (hereinafter "Insurance to Maturity"). The remainder of
the insurance policies will continue in force only so long as the
Bonds so insured are held in the Trust (hereinafter "Portfolio
Insurance"). The premium for the Insurance to Maturity has been
paid either by the issuer at the time of issuance, by third-party
purchasers of the Securities or by the Sponsor and therefore is not
an expense of the Trust. Portfolio Insurance premiums are an
expense of the Trust.
*References are hereby made to said Trust Indenture and
Agreement and any statements contained herein are qualified in
their entirety by provisions of said Trust Indenture and Agreement.
<PAGE>
There is no assurance that the objectives of the Trust will be
met because they are subject to the continuing ability of the issuers
of the Securities held in the Trust (the "Issuers" or the "Issuer") to
meet their principal and interest payments and of the insurers to
meet their obligations under the insurance policies. (See "Essential
Information Regarding the Trust-Insurance".) On the Date of De-
posit, an insurance policy or policies were obtained by the Sponsor
in respect of certain of the Securities listed in the "Schedule of
Investments" herein. That policy takes effect for each Security
which it covers as and when it is delivered to the Trustee for
deposit in the Trust.
General Obligation Bonds
General obligation debt of an issuer that is a political subdivi-
sion or instrumentality of a state is typically secured by the full faith
and credit of the issuer, encompassing its ability to levy an
unlimited ad valorem tax on real property or other revenue streams,
such as sales or income taxes. The fiscal condition of an Issuer
may be affected by socioeconomic factors beyond the Issuer's
control (such as relocation by a major employer) or other unan-
ticipated events, including: imposition of tax rate decreases or
appropriations limitations by legislation or initiative; increased ex-
penditures mandated by federal or state law or by judicial decree;
reduction of unrestricted federal or state aid and of revenue-sharing
programs due to subsequent legislative changes in appropriations
or aid formulas; or disallowances by the federal or state govern-
ments for categorical grants. The fiscal condition of an Issuer that
is a political subdivision or instrumentality of a state (such as a
county, city, school district or other entity providing public services)
is related to the size and diversification of its tax and revenue base
and to such other factors as: the effect of inflation on the general
operating budget and of other costs, including salaries and fringe
benefits, energy and solid waste disposal; changes in state law and
statutory interpretations affecting traditional home rule powers
(which vary from state to state); levels of unrestricted state aid or
revenue-sharing programs and state categorical grants subject to
annual appropriation by a state legislature; increased expenditures
mandated by state law or judicial decree; and disallowances for
expenses incurred under Federal or state categorical grant pro-
grams. The local economy may be or become concentrated (i) in a
single industry, which may be affected by natural or other disasters
or by fluctuations in commodity prices, or (ii) in a particular
company, the operations of which may be impaired due to labor
disputes, relocation, bankruptcy or corporate take-over. Such eco-
nomic factors may, in turn, affect local tax collections and service
demands. The ability of an Issuer to levy additional taxes may be
subject to state constitutional provisions, assent of the state legisla-
ture or voter approval in a local referendum, or constrained by
economic or political considerations.
<PAGE>
Housing Facility Securities
These Securities are typically secured by mortgage revenues
derived by state housing finance agencies, municipal housing
authorities or certain non-profit organizations from repayments on
mortgage and home improvement loans made by such entities.
Special considerations affecting housing securities include: the con-
dition of the local housing market, competition from conventional
mortgage lenders, fluctuations in interest rates, increasing construc-
tion costs and the ability of the Issuers, lenders, servicers and
borrowers to maintain program compliance under applicable statu-
tory provisions. Securities issued on or before April 24, 1979 are
subject to few restrictions on the use of proceeds. Federal tax
legislation adopted during the 1980s imposed progressively more
restrictive requirements for post-issuance compliance necessary to
maintain the tax exemption on both single family and multi-family
housing securities. IRS regulations provide, however, that retroactive
taxation will not occur if the issuer corrects any noncompliance
occurring after the issuance of a security within a reasonable period
after such noncompliance is first discovered or should have been
discovered by the Issuer. To maintain the security's tax exemption,
the Issuer may be required pursuant to the legal documents
governing the Security to redeem all or a portion of such ob-
ligations at par from (i) unexpended proceeds of the issue within a
stated period that typically does not exceed three years from the
date of issuance of such security or (ii) optional prepayments by
mortgagors. If the Issuers of such securities are unable to or
choose not to reloan these monies, they will generally redeem such
securities at par in an amount approximately equal to such unex-
pended proceeds or prepayments. The Sponsor is unable to predict
whether such redemptions will occur, or what effect, if any, such
redemptions would have on any such Securities in the Trust.
Single Family Housing Securities
Securites issued after April 24, 1979 and prior to August 15,
1986 are subject to the requirements of Section 103A of the Internal
Revenue Code of 1954, as amended (the "1954 Code"). Enacted in
1980 and subsequently amended, Section 103A established strin-
gent criteria for the origination or assumption of mortgage loans
and subjected Issuers to annual IRS reporting requirements. The
Techenical and Miscellaneous Revenue Act of 1988 may inhibit the
ability of Issuers to make home mortgage loans after December 31,
1990 (and thereby increase the likelihood of redemptions from
unexpended proceeds). Additional considerations include: the under-
writing and management ability of the Issuers, lenders and servicers
(i.e., the initial soundness of the loan and the effective use of
available remedies should there be a default in loan payments); the
financial condition and credit rating of the private mortgage insurer
underwriting the insurance on the underlying mortgage or pool of
mortgages; and special risks attendent to lending to mortgagors,
most of whom are first time home buyers of low or moderate
means.
<PAGE>
During periods of declining interest rates, there may be in-
creased redemptions of single family housing securites from unex-
pended proceeds due to insufficient demand, because conventional
mortgage loans may become available at interest rates equal to or
less than the interest rates charged on the mortgage loans made
available from bond proceeds. In addition, certain mortgage loans
may be prepaid earlier than their maturity dates, because mortgage
loans made with bonds proceeds usually do not carry prepayment
penalties.
Multi-Family Housing Securities
Enacted in 1980, Section 103(b)(4)(A) of the 1954 Code,
among other things, required that at least 20% of the units in each
rental housing project financed pursuant to its provisions be oc-
cupied, in effect, by persons with low and moderate incomes. The
1986 Code further restricted the amount of bond proceeds that can
be spent on unqualified costs in a housing project, and extended
existing and added certain post-issuance compliance requirements,
such as the low or moderate income occupancy requirements, the
determination of income limitations, continuous rental requirements,
annual current income determinations and the arbitrage rebate
requirement. The IRS has undertaken a review of a representative
statistical sample of multi-family housing bonds issued in 1984,
primarily to determine post-issuance compliance matters. If a bond
issue is determined by the IRS to not be in compliance with the
Code, income derived from such securities may be deemed to be
taxable income. The Sponsor is unable to determine whether the
IRS will expand its review, the outcome of any such review, or
whether such review will have an impact on any of the Securities in
the Trust. Authorizing state statutes may have imposed additional
program requirements. Additional considerations include: increasing
operating costs; the ability or failure to increase rental charges; and
the financial condition of housing authority Issuers and their ability
to meet certain requirments under the Section 8 program of the
United States Housing Act of 1937, as amended.
Multi-family housing securities may also be subject to full or
partial redemption at par from the proceeds of the sale, assignment
or disposition of a defaulted mortgage loan or acceleration of
principal payments thereunder; a condemnation or insurance award;
or a result of the reduction of a required reserve fund.
Airport Facilities
Bonds in the airport facilities category are payable from and
secured by revenues derived from the gross airport operating
income. The major portion of gross airport operating income is
generally derived from fees received from signatory airlines pursuant
to use agreements which consist of annual payments for airport
use, occupancy of certain terminal space, facilities, service fees,
concessions and leases. Airport operating income may be affected
by local economic conditions, air traffic patterns, noise abatement
restrictions or the ability of the airlines to meet their obligations
<PAGE>
under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic due to deregulation,
recent consolidations through mergers and acquisitions, fair com-
petition, excess industry capacity, fluctuations in fuel and other
costs, traffic constraints and other factors. In particular, facilities
with use agreements involving airlines experiencing financial dif-
ficulty may experience a reduction in revenue due to the possible
inability of these airlines to meet their use agreement obligations.
Additionally the FAA has established a schedule for retrofiling certain
existing aircraft to comply with operating noise standards. The
Sponsor is now unable to predict what effect, if any, air transport
industry conditions will have on the airport Bonds in the Trust.
Hospital Facility Securities
Bonds in the hospital facilities category are payable from
revenues derived from hospital and health care facilities which,
generally, were constructed or are being constructed from bond
proceeds. The continuing availability of sufficient revenues is depen-
dent upon several factors affecting all such facilities generally,
including, among other factors: utilization rates; the cost and avail-
ability of malpractice insurance and the outcome of malpractice
litigation; curtailment of operations due to shortages in qualified
medical staff or labor disputes; and changes in federal, state and
private insurance reimbursement regulations and health care delivery
programs. The extent of the AIDS epidemic is undetermined, and
the Sponsor cannot predict its full impact on the health care system
or particular issuers. Utilization rates for a particular facility may be
determined by cost containment programs implemented by third
party governmental providers or private insurers; long-term ad-
vances in health care delivery reducing demand for in-patient
services; technological developments which may be effectively ra-
tioned by the scarcity of equipment or specialists; governmental
approval and the ability to finance equipment acquisitions; increased
competition due to elimination of certain certificate of need require-
ments in some states; and physicians' and public perceptions as to
standards of care. Requirements for Federal or state licenses,
certifications and contract eligibility and for accreditation are subject
to change, and may require participating facilities to effect costly
modifications in operations. Prior to June 30, 1984, participating
facilities in the Medicare program were reimbursed for their reason-
able costs of furnishing services; thereafter, the Social Security
Amendments Act of 1983 mandated implementation over a four year
period of a prospective payment system, based upon diagnosis
related groups ("DRGs"), for most in-patient services. DRG re-
imbursement rates, because they are set by the Federal government,
may not fully cover the actual cost of furnishing services by any
particular hospital, and Federal law prohibits health care providers
from passing along the excess costs to Medicare beneficiaries.
Medicare payments have been, and may continue to be, reduced
under legislation adopting deficit reduction measures. Additionally,
certain states have recently implemented prospective payment sys-
<PAGE>
tems for their Medicaid programs, and have adopted other changes,
including enrollment restrictions. The Sponsor cannot predict the
effect, if any, of the DRG system or of further reductions in
Medicare and Medicaid payments on the revenues of Issuers of
hospital Securities in the Trust. Many hospitals, including certain
Issuers (or the conduit obligors) of Securities in the Trust, have
been experiencing significant financial difficulties in recent years.
The number of hospital closings has increased during the late
1980s, particularly among smaller institutions located in rural or
inner-city areas. Hospital revenues nationwide are primarily derived
from private insurers, many of which have experienced significant
operating lossess in recent years. The Medicare program accounts
for an increasing share of hospital revenues nationwide, and is
financed by the Hospital Insurance Trust Fund through payroll taxes.
Based upon preliminary projections including increased payroll taxes
effective in 1991 (but not accounting for any recession) the Fund's
trustees have forecast that expenditures will exceed tax revenues by
1995 and that the Fund will be insolvent in 2005. Generally, a
number of additional legislative proposals concerning health care
may be introduced in Congress at any time. Recently, these propos-
als have covered a wide range of topics, including cost controls,
national health insurance, incentives for competition in the provi-
sions of health care services, tax incentives and penalties related to
health care insurance premiums, and promotion of prepaid health
care plans. The Sponsor is unable to predict the effect of any of
these proposals, if enacted, on any of the Bonds in the Trust
portfolio.
Power and Electric Facility Securities
These Securities are typically secured by revenues derived from
power generating facilities, which generally include revenues from
the sale of electricity generated and distributed by power agencies
using hydroelectric, nuclear, fossil fuel or other power sources.
Certain aspects of the operation of such facilities, particularly with
regard to generation and transmission at the wholesale level, are
regulated by the Federal Energy Regulartory Commission ("FERC");
more extensive regulation (affecting retail rate structures) is pro-
vided by state public service commissions. Special condiseratons
include: restrictions on operations and increased costs and delays
attributable to environmental statutes and regulations; the difficulties
of the utilities in financing or refinancing large construction pro-
grams and of the capital markets in absorbing utility debt and
equity securities; fluctuations in fuel supplies and costs, and costs
associated with conversion to alternate fuel sources; uncertainties
with regard to demand projections due to changing economic
conditions, implementation of energy conservation measures and
competitive cogeneration projects; and other technical and cost
factors. Recent scientific breakthroughs in fusion energy and super-
conductive materials may cause current technologies for the genera-
tion and transmission of electricity to become obsolete during the
life of the Securities in the Portfolio. Issuers relying upon hydroelec-
<PAGE>
tric generation may encounter contests when applying for periodic
renewal of licenses from FERC to operate dams. Issuers relying
upon coal as a fuel source may be subject to significant costs and
operating restrictions to comply with emission standards which may
be adopted to alleviate the problems associated with acid rain.
Issuers relying upon fossil fuel sources and located in air quality
regions designated as nonattainment areas may become subject to
pollution control measures (which could include abandonment of
construction projects in progress, plant shutdowns or relocation of
facilities) ordered pursuant to the Clean Air Act. In addition, such
Securities are sometimes secured by payments to be made to state
and local joint action power agencies pursuant to "take or pay"
agreements. Such agreements have been held unenforceable by
state courts in Idaho, Vermont and Washington, which may cause
an examination of the legal structure of certain projects in other
states and could possibly lead to litigation challenging the enfor-
ceability of such agreements.
Some of the Issuers of Securities in the Trust may own,
operate or participate on a contractural basis with nuclear generat-
ing facilities, which are licensed and regulated by the Nuclear
Regulatory Commission (the "NRC"). Issuers of such securities
may incur substantial expenditures as a result of complying with
NRC requirements. Additional considerations include; the frequency
and duration of plant shutdowns and associated costs due to
maintenance or safety considerations; the problems and associated
costs related to the use and disposal of radiocactive materials and
wastes in compliance with Federal and local law; the implementation
of emergency evacuation plans for areas surrounding nuclear facili-
ties; and other issues associated with construction, licensing, regu-
lation, operation and eventual decommissioning of such facilities.
These Securities may be subject to industry-wide fluctuations in
market value as a consequence of market perception of certain
highly publicized events, as in the Washington Public Power Supply
System's defaults on its Project 4 and 5 revenue bonds and the
1988 bankruptcy filing by the Public Service Corporation of New
Hampshire. Federal, state or municipal governmental authorities, or
voters by initiative, may from time to time impose additional
regulations or take such other governmental action which might
cause delays in the licensing, construction or operation of nuclear
power plants, or the suspension or cessation of operations of
facilities which have been or are being financed by proceeds of
certain Securities in the Trust.
Industrial Development/Pollution Control Securities
These Securities were generally issued prior to the enactment
of 1986 Code restrictions, and are typically secured by payments
made under a loan agreement entered into between the Issuer and
the obligor. In some cases, the Securities were additionally secured
by guarantees provided by corporate guarantors or by a stand-by
letter of credit issued by a bank. Special considerations include: the
<PAGE>
financial condition of the corporate obligor (or guarantor), especially
as it may be affected by subsequent corporate restructuring or
changes in corporate control.
Public Facilities Securities
These Securities are typically secured by revenues derived from
either (i) payments appropriated by governmental entities for the
use of equipment or facilities, such as administrative or correctional
buildings, or (ii) user charges or other revenues derived from such
operations as parking facilites, convention centers or sports arenas.
In the first instance, the pledged revenues may be subject to annual
appropriation by a legislative body. In the latter case, the collection
of revenues may be dependent upon the reliability of feasibility
forecasts and assumptions concerning utilization rates.
Resource Recovery/Solid Waste Securities
These Securities are typically secured by revenues derived from
the sale of electricity or steam generated as a by-product of the
process of incinerating solid waste, and from contractual tipping
fees, user charges and ancillary recycling earnings. Special consid-
erations include: the supply of solid waste at levels sufficient for the
facility to operate at design capacity; the frequency and duration of
plant shutdowns for maintenance; the treatment and disposal of fly
ash which contains toxic substances, especially dioxin; compliance
with air pollution control standards; unanticipated problems asso-
ciated with the use of developing technologies; and the continuation
of FERC policies facilitating congeneration and its certification of any
particular qualifying facility. Governmental service contract payments
may be subject to annual appropriation by a legislative body. Older
facilites may require retrofitting to accommodate new technological
developments or to comply with environmental standards.
Water and Sewer Facility Securities
Bonds described as "water and sewer" facilities Bonds are
typically secured by a pledge of the net revenues derived from
connection fees and user charges imposed by the enterprise. Such
Bonds are subject to the risks typically associated with construction
projects. Among the factors which may affect net revenues are the
destruction of facilities due to natural or other disasters; relocation
out of the service area by a major customer or customers due to
economic factors beyond the Issuer's control; or costs incurred due
to prior periods of deferred maintenance or compliance with Federal
or state environmental standards. Water system revenues may be
additionally affected by the terms of supply allocations and service
agreements with major wholesale customers and the imposition of
mandatory conservation measures in response to drought. Sewer
system revenues may be additionally affected by costs to comply
with effluent and other standards pursuant to the Federal and State
laws.
<PAGE>
Refunded Bonds
Refunded bonds (including bonds escrowed to a call date or
maturity date) are bonds that originally had been issued generally
as revenue bonds but have been refunded for reasons which may
include changing the issuer's debt service requirements and remov-
ing restrictive bond covenants. Typically, a refunded bond is no
longer secured by a pledge of revenues received by an issuer but
rather by an escrow fund consisting of U.S. Government Ob-
ligations. In such cases the issuer establishes an escrow fund
which is irrevocable and which cannot be depleted by the issuer so
long as debt service on the refunded bonds is required to be paid.
Each escrow fund is funded with U.S. Government Obligations
which are designed to make payments on the refunded bonds and
which cannot be affected by a default of the issuer. An escrow
agent pays principal, redemption premium, if any, and interest on
the refunded bond from the principal of and interest on the U.S.
Government Obligations in the escrow fund. The Trust, as holder of
the refunded bonds, is entitled to receive such payment of principal,
redemption premium, if any, and interest on the refunded bonds as
it is paid by the escrow agents out of the respective refunded bond
escrow funds.
Student Loan Securities
Student loan revenue securities are issued either by non-profit
corporations organized for the purpose of acquiring student loans
originated under the Higher Education Act or public agencies or
instrumentalities of a state created to provide loans for educational
purposes. Proceeds of securities issued by such entities generally
are used to make or acquire student loans which are guaranteed by
guaranty agencies; the obligation of such guaranty agency is re-
insured by the U.S. Secretary of Education (the "Secretary"); such
reinsurance obligation may range from 80% to 100% based on the
default levels for loans serviced by such a guaranty agency. In
addition, some loans may be insured directly by the Secretary.
Bonds issued by such entities are generally secured by and depen-
dent upon such state guarantee programs, Federal insurance and
reimbursement programs, the proceeds from payment of principal
and interest on the underlying student loans and federal interest
subsidy and/or special allowance payments. Failure by the servicers
of student loans or the guaranty agencies guaranteeing such loans
to properly service and enforce the loans may cause the reimburse-
ments to decline or be withheld by the Secretary.
Both the Higher Education Act and the regulations promulgated
thereunder have been the subject of extensive amendments in
recent years, and the Sponsor can give no assurance that further
amendment will not materially change the provisions or the effect
thereof. There can be no assurance that the other provisions of the
Higher Education Act affecting the Federal Guaranteed Student Loan
Program will be continued in their present form.
The availability of various Federal payments in connection with
the Federal Guaranteed Student Loan Program is subject to federal
<PAGE>
budgetary appropration. In recent years, legislation has been en-
acted which has provided, subject to certain Federal budget expen-
ditures (including expenditures in connection with the Federal Guar-
anteed Student Loan Program), for the recovery of certain advances
previously made by the Federal government to state guaranty
agencies in order to achieve deficit reduction. No representation is
made as to the effect, if any, or future Congressional appropriation
or legislation upon expenditures by the Department of Education or
upon the financial condition of any guaranty agency.
Lease Payment Bonds
Certain Bonds may be principally secured by governmental
lease payments which in turn are subject to the budget appropri-
ations of the participating governmental entity. A governmental entity
that enters into a lease agreement cannot obligate future govern-
ments to make lease payments but generally will covenant to take
such action as is necessary to include all lease payments due
under an agreement in its annual budgets and to make the appro-
priations therefor. The failure of a governmental entity to meet its
obligations under a lease could result in an insufficient amount of
funds to cover payment of the Bonds secured by such lease
payments.
Tax Allocation Bonds
Bonds described as "tax allocation" securities are payable from
and secured by incremental (increased) tax revenues collected on
property within the areas where redevelopment projects, financed by
bond proceeds, are located ("project areas"). Payments on these
bonds are expected to be made from projected increases in tax
revenues derived from higher assessed value of property resulting
from development in the particular project area and not from an
increase in the tax rates. Among the factors which could result in a
reduction of the allocated tax revenues which secure a tax allocation
Bond are: (i) reduction of, or a less than anticipated increase in,
taxable values of property in the project area, caused either by
economic factors beyond the Issuer's control (such as a relocation
out of the project area by one or more major property owners) or
by destruction of property due to natural or other disasters; (ii)
successful appeals by property owners of assessed valuations; (iii)
substantial delinquencies in the payment of property taxes; or (iv)
imposition of any constitutional or legislative property tax rate
decrease. Such reduction of tax revenues could have an adverse
effect on an Issuer's ability to make timely payments of principal
and of interest on the Bonds.
Crossover Refunding Bonds
Certain Bonds in the Trust may be cross-over refunding Bonds.
Prior to a specified date, (the "Crossover Date"), such bonds are
payable solely from an escrow fund invested in specified securities.
<PAGE>
After the Crossover Date the Bonds are payable from a designated
source of revenues. Such bonds are categorized in Part A as
payable from such source of revenues.
Bonds Backed by Letters of Credit
The Trust may contain securities that are secured by letters of
credit issued by commercial or savings banks which may be drawn
upon (i) if an Issuer fails to make payments of principal of,
premium, if any, or interest on a Bond backed by such a letter of
credit or (ii) in the event interest on a Bond is deemed to be
taxable and full payment of principal and any premium due is not
made by the Issuer. The letters of credit are irrevocable obligations
of the issuing banks. Banks are subject to extensive governmental
regulations. The profitability of the banking industry is largely
dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an im-
portant part in the operations of the banking industry and exposure
to credit losses arising from possible financial difficulties of bor-
rowers or other issuers having letters of credit might affect a bank's
ability to meet its obligations under a letter of credit.
****
An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or
public agency or instrumentality of any state, including municipal-
ities, became effective in 1979. Among other things, this amend-
ment facilitates the use of proceedings under the Federal Bank-
ruptcy Act by any such entity to restructure or otherwise alter the
terms of its obligations, including those of the type comprising the
Trust's Portfolio. The Sponsor is unable to predict at this time what
effect, if any, this legislation will have on the Trust.
****
Insurance on the Bonds in the Portfolio
Certain of the Bonds in the Trust may have been insured to
maturity by AMBAC, MBIA, MBIAC, Financial Guaranty, BIG, Capital
Guaranty, National Union or USFG as to payment of principal and
interest by the issuer at the time of issuance, or by a third party
purchaser of Bonds subsequest to issuance. For those bonds which
were not so insured at the time of issuance, the Sponsor has
obtained an insurance policy or policies (except as otherwise set
forth in Part A). The policies obtained by the Sponsor provide either
for insurance as long as the Bonds so insured remain outstanding
("Insurance to Maturity") or which continue in force only so long
as the Bonds so insured remain in the Trust ("Portfolio Insur-
ance"). (See Part A, "Essential Information-Insurance"). Portfolio
Insurance, if any, has been obtained from Financial Guaranty. Any
Trust which has obtained Portfolio Insurance has additionaly ob-
<PAGE>
tained an irrevocable commitment (the "Irrevocable Commitment")
of Financial Guaranty to provide insurance to maturity ("Permanent
Insurance") upon the sale of any Bond covered by the Portfolio
Insurance from the Trust and upon payment of a premium (the
"Permanent Insurance Premium") under certain conditions set forth
in Part A under the heading "Essential Information Regarding the
Trust". The value of the Bonds covered by the Portfolio Insurance
and, therefore, the Units may decline in the event of declining credit
quality. However, because of the Irrevocable Commitment to provide
Permanent Insurance, whenever the value of a Bond which is below
investment grade and which is covered by the Portfolio Insurance
and insured to its maturity (less the Permanent Insurance Premium)
exceeds the value of that Bond without such insurance, the value of
that Bond will be higher, insured to maturity value (See "Evaluation
of the Trust"). The insurance policies are non-cancellable and will
remain in force as long as the Bonds insured by such policies
remain outstanding. Premiums for Insurance to Maturity has been
paid either at the time of issuance by the Issuer, by third-party
purchasers or by the Sponsor on the Date of Deposit (see "Sum-
mary of Portfolio-Insurance Premiums"). Premiums for Portfolio
Insurance are an expense of the Trust. (See "Expenses of the
Trust"). Insurance does not guarantee the market value of the
Bonds or the value of the Units. Although the insurance represents
an element of market value with respect to the Bonds covered by
Insurance to Maturity, the exact effect, if any, of this insurance on
the market value cannot be predicted. No value is attributed to
Portfolio Insurance unless the Bond so insured is rated below
investment grade. See "Essential Information Regarding the Trust-
Securities in the Trust Portfolio" in Part A for information on the
insurance features of this Trust and a description of the percent-
ages of the Bonds covered by each of the insurers.
Payment under all of these insurance policies will be made in
respect of principal of and interest on Bonds which shall be due for
payment under the provisions of each policy, but shall be unpaid.
All such policies provide for payment of the principal or interest due
to a trustee or paying agent on the date such payment is due. In
turn, such trustee or paying agent will make payment to the
bondholder (in this case, the Trustee) upon presentation of satisfac-
tory evidence of such Bondholder's right to receive such payment.
Policies issued by Industrial Indemnity Insurance Company prior to
December 17, 1984 permit the Company, at its option, to accelerate
payments under the insurance policies.
Financial Guaranty. Financial Guaranty, a New York stock insur-
ance company, is located at 551 Fifth Avenue, New York, New York
10017. In determining whether to insure the Bonds, Financial
Guaranty has applied its own standards which correspond generally
to the standards it has established for determining the insurability of
new issues of municipal Bonds and which are not necessarily the
criteria used in regard to the selection of Bonds by the Sponsor. To
the extent standards of Financial Guaranty are more restrictive than
those of the Sponsor, the Sponsor's investment criteria have been
<PAGE>
limited to the more restrictive standards.
Financial Guaranty is a wholly-owned subsidiary of FGIC Cor-
poration, a Delaware holding company. General Electric Capital
Corporation and J.P. Morgan & Co. Incorporated own approximately
85% of the stock of FGIC Corporation, with the remainder publicly
held. The investors of FGIC Corporation are not obligated to pay the
debts of or the claims against Financial Guaranty. Financial Guaranty
is domiciled in the State of New York and is subject to regulation
by the State of New York Insurance Department. As of September
30, 1990, the total capital and surplus of Financial Guaranty was
approximately $470.4 million. Financial Guaranty is licensed in
Vermont, currently authorized to write insurance in 49 states and
the District of Columbia, files reports with state insurance regulatory
agencies, and is subject to audit and review by such authorities.
Standard & Poor's Corporation has rated the claims-paying ability of
Financial Guaranty "AAA".
AMBAC Indemnity Corporation. AMBAC Indemnity is a Wiscon-
sin-domiciled stock insurance company, regulated by the Insurance
Department of Wisconsin, and licensed to do business in various
states, with admitted assets (unaudited) of approximately $1.247
billion and statutory capital (unaudited) of approximately $741.5
million as of September 30, 1990. AMBAC Indemnity is a wholly-
owned subsidiary of AMBAC Inc., a financial holding company
which is owned by an investor group which includes the manage-
ment of AMBAC Indemnity, Citibank, N.A., Xerox Financial Services
Inc. and Stephens Inc. The address of AMBAC Indemnity admin-
istrative offices and its telephone number are One State Street Plaza,
17th Floor, New York, New York 10004 and (212) 668-0340. Copies
of certain statutorily required filings of AMBAC Indemnity can be
obtained through AMBAC Indemnity at the address and telephone
number specified in this paragraph. Standard & Poor's Corporation
has rated the claims-paying ability of AMBAC Indemnity "AAA".
Bonds insured by AMBAC Indemnity are rated "AAA" by Moody's
Investors Service, Inc.
Municipal Bond Insurance Association The insurance com-
panies comprising the Municipal Bond Insurance Association
("MBIA") and their respective percentage liability are as follows:
The Aetna Casualty and Surety Company, thirty-three percent (33%);
Fireman's Fund Insurance Company, thirty percent (30%); The
Travelers Indemnity Company, fifteen percent (15%); Aetna Insur-
ance Company, twelve percent (12%); and The Continental Insur-
ance Company, ten percent (10%). As an obligor, each such
insurance company will be obligated only to the extent of its
percentage of any claim under the policy or policies and will not be
obligated to pay any unpaid obligation of any other member. All
policies are individual obligations of the participating insurance
companies and their obligations thereunder cannot be increased
beyond their percentage commitment, each company's participation
is backed by its entire resources. The total assets of the participat-
ing insurance companies as of December 31, 1989 is approximately
$37.105 billion (unaudited). The total statutory liabilities were
<PAGE>
$30.602 billion (unaudited) and the total policyholders' surplus was
$6.504 billion (unaudited). The MBIA companies listed above or
their parent organizations have been in the insurance business from
seventy to well over a hundred years. Each MBIA company enjoys
the highest policyholder rating accorded insurers (Excellent, A, or
A-plus) by the nationally recognized insurance company rating
authority, A. M. Best Company Inc. Standard & Poor's Corporation
has rated the claims-paying ability of MBIA "AAA".
Municipal Bond Investors Assurance Corporation. Municipal
Bond Investors Assurance Corporation ("MBIAC") is the principal
operating subsidiary of MBIA, Inc. The shareholders of MBIA, Inc.,
which own approximately 85% of its outstanding common stock,
are Aetna Life and Casualty Company, Fireman's Fund Insurance
Company, subsidiaries of CIGNA Corporation and The Continental
Insurance Company and one of its affiliates. Neither MBIA, Inc. nor
its shareholders are obligated to pay the debts of or claims against
MBIAC. MBIAC, which commenced municipal bond insurance oper-
ations on January 5, 1987, is a limited liability corporation rather
than a several liability association. MBIAC is domiciled in the State
of New York and licensed to do business in all 50 states, the
District of Columbia, and the Commonwealth of Puerto Rico. As of
September 30, 1990, MBIAC had admitted assets (unaudited) of
approximately $1.747 billion, total liabilities (unaudited), approxi-
mately $1.184 billion, and total capital and surplus (unaudited) of
approximately $563 million, in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorit-
ies. Copies of MBIAC's financial statement prepared in accordance
with statutory accounting practices are available from MBIAC. The
address of MBIAC is 445 Hamiliton Avenue, White Plains, New York
10601. Some of the shareholders of MBIA, Inc. are among the
members of MBIA; however, MBIAC is a separate and distinct entity
from MBIA. Standard & Poor's Corporation rates all new issues
insured by MBIAC "AAA" Prime Grade. Moody's Investors Service,
Inc. rates all bond issues insured by MBIAC "Aaa", designated to
be one of the highest quality.
Bond Investors Guaranty Insurance Company. In 1989, Bond
Investors Guaranty Insurance Company (BIG), was purchased by
Municipal Bond Investors Assurance Corporation (MBIAC). Bonds
originally insured by BIG have been reinsured by MBIAC (see
MBIAC above).
United States Fidelity and Guaranty Company. United States
Fidelity and Guaranty Company ("USF&G") is a Maryland-domiciled
property and casualty insurance company and a wholly-owned
subsidiary of USF&G Corporation. The administrative offices of
USF&G Company are located at 100 Light Street, Baltimore, Mary-
land 21202 (telephone (301) 547-3000). As of December 31, 1989,
USF&G had total assets (unaudited) of approximately $13.604 bil-
lion and stockholder's equity of approximately $2.007 billion.
USF&G is subject to regulation by the Maryland Insurance Commis-
sion and other governmental authorities, and is required to make
certain public filings with such authorities. Copies of such filings
<PAGE>
may be obtained from USF&G upon request. Bonds insured by
USF&G are rated "BBB+" by Standard & Poor's Corporation.
Reinsurance and assumption agreements effectively replace USF&G
with Capital Guaranty Insurance Co. as the primary insurer. See
"Capital Guaranty" for a discussion of reinsurance arrangements
with USF&G.
National Union. National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union"), a wholly-owned subsidiary of
American International Group, Inc., was organized in 1901, is a
stock insurance company and is incorporated in Pennsylvania. In
addition to municipal bond insurance, National Union's business
includes fire and casuality insurance. National Union's claims-paying
ability is rated AAA by Standard & Poor's Corporation and as of
December 31, 1990, its total capital and surplus as regards
policyholders was approximately $1,162. million (unaudited) as
reported to the State of New York Insurance Department. National
Union is currently licensed to provide insurance in 50 states and
the District of Columbia, files reports with the state insurance
regulatory agencies and is subject to regulation, audit and review by
such authorities including the State of New York Insurance Depart-
ment.
Industrial Indemnity Insurance Company. Certain of the Bonds
in the Portfolio may be insured under the Health Industry Bond
Insurance ("HIBI") Program of Industrial Indemnity Company ("In-
dustrial Indemnity"). Industrial Indemnity is a wholly-owned subsid-
iary of Crum & Forester, Inc., ("Crum & Forester") which is
ultimately owned by Xerox Corporation. Effective September 30,
1985, Xerox Corporation announced that the operations of Industrial
Indemnity Corporation would be discontinued, but that Industrial
Indemnity Corporation would fully honor all insurance contracts.
Crum & Forester accrued $86,400,100, net of an income tax benefit
of $73,600,000, for expected operating losses during the phase-out
period. Industrial Indemnity's results of operations and the provision
for estimated losses during the phase-out period resulted in a 1985
charge, after income tax benefits of $111,300,000. At December 31,
1985, Industrial Indemnity had a $212.2 million excess of liabilities
over assets. Crum & Forester's claim-paying ability rating is "A+"
and the short term liquidity rating for commercial paper backed by
surety bonds from Industrial Indemnity Insurance Company is "A-
1+". Crum & Forester is required by statute to maintain a net
premium/statutory surplus ratio of 3:1. Xerox Corporation contri-
buted $366 million to Crum & Forester during the years 1984 and
1985 to maintain that ratio. For the fiscal years ending December
31, 1988 and 1989, Crum & Forester, Inc. generated statutory net
income of (in millions) $340. and $364., and statutory policyholders
surplus amounted to (in millions) $1,409 and $1,551, respectively.
Capital Guaranty Insurance Company. Capital Guaranty Insur-
ance Company ("Capital Guaranty") is a wholly-owned subsidiary of
Capital Guaranty Corp. and a California-domiciled insurance com-
pany. The investors of Capital Guaranty Corp. are Constellation
Investments Inc., Fleet Financial Group, Inc., Norstar Bancorp Inc.,
<PAGE>
Safeco Corporation, Sibag Finance Corporation and United States
Fidelity and Guaranty Company. These investors are not obligated to
pay the debts or claims against Capital Guaranty. As of June 30,
1990, Capital Guaranty had total admitted assets of $167.2 million
and policyholders surplus of approximately $94.4 million (unaudit-
ed). Standard & Poor's Corporation has assigned "AAA" claims-
paying ability to Capital Guaranty. The successful structuring of
reinsurance and assumption agreements in 1987 effectively replaced
USF&G with Capital Guaranty Insurance Co. as the primary insurer.
Capital Guaranty services the portfolio and will honor any claims.
The address of Capital Guaranty's administrative offices and its
telephone number are 601 Montgomery Street, Suite 1410, San
Francisco, California 94111-2618 and (415)392-4913.
The financial information relating to the above insurance com-
panies has been obtained from publicly available information. No
representation is made herein as to the accuracy or adequacy of
such information, or as to the absence of material adverse changes
in such information subsequent to the dates thereof, but the
Sponsor is not aware that the information herein is inaccurate or
incomplete.
Ratings
On the Date of Deposit Standard & Poor's Corporation rated
each of the Bonds in the Portfolio and the Units of the Trust "AAA"
because the insurers have issued insurance policies to insure each
of the Bonds. The Units of the Trust (with the exception of Units of
the Trusts identified in part A) continue to be rated "AAA". See Part
A for the current ratings on the Bonds and Units. (See also "Bond
Ratings", herein). The Bond and Unit ratings should not be con-
strued as an approval of the offering of the Units by Standard &
Poor's Corporation or as a guarantee of the market value of the
Trust or of the Units. Standard & Poor's has been compensated by
the Sponsor for its services in rating Units of the Trust.
Insurance Premiums
The cost of the Insurance to Maturity has been paid either by
the issuers at the time of issuance, by third-party purchasers or by
the Sponsor. Portfolio Insurance premiums are a Trust expense.
ACQUISITION OF SECURITIES FOR THE TRUST
In selecting Securities for deposit in the Trust, many factors
were considered, and based upon the experience and judgment of
the Sponsor, the following requirements, among others, were
deemed to be of primary importance.
1. Insurance guaranteeing scheduled payments of principal and
interest and a Standard & Poor's Corporation's rating of "AAA" or,
in the case of Securities not insured when acquired by the Sponsor,
(i) a minimum of Standard & Poor's Corporation's rating of "A", (ii)
a minimum Moody's Investors Service, Inc.'s rating of "A" or (iii)
Bonds which the Sponsor reasonably believes will obtain such
<PAGE>
minimum ratings in the near future.
2. Reasonable value relative to other issues of similar quality
and maturity;
3. Diversification as to the purpose of each issue and the
location of each issuer;
4. Availability and cost of insurance for the scheduled payment
of principal and interest on the Securities not insured when ac-
quired by the Sponsor; and
5. Income to the Unitholders of the Trust.
Cash, if any, received from Unitholders prior to the settlement
date for the purchase of Units or prior to the payment for Bonds
upon their delivery may be used in the Sponsor's business subject
to the limitations of 17 C.F.R., Section 240, 15c3-3 under the
Securities and Exchange Act of 1934 and may be of benefit to the
Sponsor.
The Trustee has not participated in the selection of Securities
for the Trust, and neither the Sponsor nor the Trustee will be liable
in any way for any default, failure or defect in any Securities.
To the best knowledge of the Sponsor, there is no litigation
pending as of the Date of Deposit in respect of any Securities which
might reasonably be expected to have a material adverse effect
upon the Trust. At any time after the Date of Deposit, litigation may
be initiated on a variety of grounds with respect to Securities in the
Trust. Such litigation may affect the validity of such Securities or
the tax-exempt status of the interest thereon. While the outcome of
litigation of such nature cannot be predicted, opinions of bond
counsel are delivered with respect to each Security on the date of
issuance to the effect that such Security has been validly issued
and that the interest thereon is exempt from Federal income tax. If
legal proceedings are instituted after the Date of Deposit seeking,
among other things, to restrain or enjoin the payment of any of the
Securities or attacking their validity or the authorization or existence
of the Issuer, the Sponsor may, in accordance with the Indenture,
direct the Trustee to sell such securities and distribute the proceeds
of such sale to Unitholders. In addition, other factors may arise
from time to time which potentially may impair the ability of Issuers
to meet obligations undertaken with respect to Securities.
PUBLIC OFFERING PRICE OF UNITS
The Public Offering Price per Unit during the secondary market
will be computed by dividing the aggregate of the bid prices of the
Bonds in the Trust plus any money in the principal account other
than money required to redeem the tendered Units, by the number
of Units outstanding, and then adding the appropriate sales charge.
In the primary offering period, the Public Offering Price was deter-
mined on the basis of the offering prices of bonds plus a sales
charge ranging from 3.5% to 5.5% of the Public Offering Price.
The sales charge is determined in accordance with the table set
forth below based upon the number of years remaining to the
maturity of each Bond. There is no sales charge with respect to
<PAGE>
cash held in the Interest or Principal Accounts. For purposes of this
calculation, Bonds will be deemed to mature on their stated maturity
dates unless: (a) the Bonds have been called for redemption or
funds or securities have been placed in escrow to redeem them on
an earlier call date ("Refunded Bonds"), in which case such call
date shall be deemed to be the date upon which they mature; or (b)
such Bonds are subject to a "mandatory put", in which case such
mandatory put date shall be deemed to be the date upon which
they mature.
The effect of this method of sales charge calculation will be
that different sales charge rates will be applied to the various Bonds
in a Trust portfolio based upon the maturities of such Bonds, in
accordance with the following schedule:
Maximum
Percent of
Remaining Public Percent of
Years to Offering Net Amount
Maturity Price Invested
Less than 1 0 % 0 %
1 but less than 6 3.50 3.63
6 but less than 11 4.00 4.17
More than 11 5.50 5.82
For example, the sales charge on a Trust consisting entirely of
Bonds maturing in 13 to 16 years would be 5.50% (5.82% of the
net amount invested) and that on a Trust consisting entirely of
Bonds maturing in three to five years would be 3.50% (3.63% of
the net amount invested). The actual sales charge included in the
Public Offering Price of any particular Trust will depend on the
maturities of the Bonds in the portfolio of such Trust.
Due to the realization of economies of scale in sales effort and
sales-related expenses with respect to the purchase of Units by
employees of the Sponsor, the Sponsor intends to permit employ-
ees of the Sponsor and certain of their relatives to purchase Units
of the Trust at a price equal to the bid side evaluation of the
Securities in the Trust, divided by the number of Units outstanding
plus a reduced sales charge of $5.00 per Unit.
A proportionate share of accrued interest and undistributed
interest on the Units to the Unitholder's settlement date (the
Unitholder's settlement date is the date so specified in the con-
firmation of sale of the Units to a Unitholder, normally five business
days after purchase) is added to the Public Offering Price. Such
proportionate share will be an asset of the Unitholder and will be
received in subsequent distributions and upon the sale of his Units.
Aggregate bid prices of the Securities will be determined for the
Trust by the Evaluator on the basis of: (1) the current bid prices for
<PAGE>
the Securities; (2) the current bid prices for comparable bonds, if
bid prices are not available for any of the Securities; (3) determining
the value of the Securities on the bid side of the market by
appraisal; or (4) any combination of the above. Evaluations for
purposes of secondary market transactions by the Sponsor and
redemptions by the Trustee will be made each business day as of
the Evaluation Time, effective for all sales or redemptions made
subsequent to the last preceding determination.
In addition to the sales charge on the Date of Deposit, the
Sponsor will realize a profit or loss resulting from the difference
between the purchase price paid by the Sponsor to buy the
Securities and the cost of the securities to the Trust as determined
by the Evaluator. In addition, the Sponsor may receive placement
fees or may realize profits or sustain losses with respect to
Securities acquired from underwriting syndicates of which the Spon-
sor is a member. The Sponsor may realize additional profit or loss
as a result of the possible change in the daily evaluation of the
Bonds in the Trust. All proceeds received from purchasers of Units
of the Trust will be retained by the Sponsor.
PUBLIC OFFERING OF UNITS
The Sponsor intends to qualify Units for sale in all of the states
of the United States, except that for state trusts, the Sponsor
intends to qualify Units for sale only to residents of that state. Sales
may be made to dealers who are members of the National Associ-
ation of Securities Dealers, Inc. at prices which include a conces-
sion of 75% of the applicable sales charge, subject to change from
time to time. The difference between the dealer concession and
sales charges will be retained by the Sponsor. The Sponsor re-
serves the right to reject, in whole or part, any order for the
purchase of Units.
Initial Offering of Units. During the initial public offering period,
Units will be offered to the public by the Sponsor at the Public
Offering Price calculated on each business day, plus accrued inter-
est.
Secondary Offering of Units. Upon the termination of the initial
public offering period, unsold Units or Units acquired by the
Sponsor in the secondary market referred to below may be offered
to the public by the Sponsor by this Prospectus at the then current
Public Offering Price, calculated daily, plus accrued interest.
SECONDARY MARKET FOR UNITS
While not obligated to do so, it is the Sponsor's present
intention to maintain, at its expense, a secondary market for Units
of this Series and to continuously offer to repurchase Units from
Unitholders at the "Sponsor's Repurchase Price". The Sponsor's
Repurchase Price is computed by dividing the value of the Trust
(see "Evaluation of the Trust") by the number of Units outstanding
(see "Evaluation of the Trust"). There is no sales charge incurred
<PAGE>
when a Unitholder sells Units back to the Sponsor. Any Units
repurchased by the Sponsor at the Sponsor's Repurchase Price
may be reoffered to the public by the Sponsor at the then current
Public Offering Price, plus accrued interest. Any profit or loss
resulting from the resale of such Units will belong to the Sponsor.
If the supply of Units exceeds demand, or for some other
business reason, the Sponsor may at any time or occasionally from
time to time discontinue the repurchase of Units of this Series at
the Sponsor's Repurchase Price. In such event, although under no
obligation to do so, the Sponsor may, as a service to Unitholders,
offer to repurchase Units at the "Redemption Value", a price based
on the current bid price for the Securities, plus accrued interest. If
the Sponsor repurchases Units in the secondary market at the
"Redemption Value", it may reoffer these Units in the secondary
market at the "Public Offering Price". In no event will the price
offered by the Sponsor for the repurchase of Units be less than the
current Redemption Value for those Units. See "Redemption of
Units by Trustee" and "Comparison of Public Offering Price and
Redemption Value".
Estimated Current Return and Estimated Long Term Return-
The Sponsor may from time to time give investors Estimated
Current Return and Estimated Long Term Return information, each
of which give investors different information about the return.
Estimated Current Return on a Unit represents annual cash receipts
from coupon-bearing debt obligations in the Trust (after estimated
annual expenses) divided by the Public Offering Price (including the
sales charge).
Unlike Estimated Current Return, Estimated Long Term Return
is a measure of the estimated return to the investor earned over the
estimated life of the Trust. Estimated Long Term Return is cal-
culated using a formula which (1) takes into consideration, and
determines and factors in the relative weightings of, the market
values, yields (which takes into account the amortization of premi-
ums and the accretion of discounts) and estimated retirements of
all of the Securities in the Trust and (2) takes into account the
expenses and maximum sales charge associated with each Unit.
The Estimated Long Term Return calculation does not take into
account certain delays in distributions of income and the timing of
other receipts and distributions on Units and may, depending on
maturities, over or understate the impact of sales charges. Both of
these factors may result in a lower figure.
Both Estimated Current Return and Estimated Long Term Re-
turn are subject to fluctuation with changes in Trust composition,
changes in market value of the underlying Securities and changes in
fees and expenses, including sales charges. The size of any dif-
ference between Estimated Current Return and Estimated Long Term
Return can also be expected to fluctuate at least as frequently. In
addition, both return figures may not be directly comparable to yield
<PAGE>
figures used to measure other investments, and, since the return
figures are based on certain assumptions and variables, the actual
returns received by a Unitholder may be higher or lower.
<PAGE>
ESTIMATED NET ANNUAL INTEREST INCOME PER UNIT
The estimated Net Annual Interest Income per Unit of the Trust
is computed by dividing the total gross annual interest income to
the Trust by the number of Units outstanding and then subtracting
the per Unit estimated annual fees and expenses of the Trustee, the
Sponsor and the Evaluator (see "Essential Information"). The es-
timated Net Annual Interest Income per Unit will be higher for
Unitholders electing the semi-annual interest distribution plan than
those electing the monthly plan. This is the result of the differing
expenses and fees of the Trustee in administering the distributions
of interest. See "Essential Information" and "Distributions to Un-
itholders".
The estimated Net Annual Interest Income per Unit will change
whenever Securities mature, are called for redemption, or are sold.
In addition, any change in the Trustee's or Evaluator's fees or
expenses will result in a change in the estimated Net Annual
Interest Income per Unit (see "Expenses of the Trust").
DISTRIBUTIONS TO UNITHOLDERS
The Trustee will collect the interest on the Securities as it
becomes payable (including all interest accrued and unpaid prior to
the Date of Deposit of the Securities and including that part of
proceeds of the sale, liquidation or maturity of any Security which
represents accrued interest thereon including interest attributable to
a Failed Security for which no Replacement Security has been
obtained and including all moneys paid, if any, pursuant to the
Insurance policy providing for such payment, representing interest
on Securities in the Trust) and credit such interest to a separate
Interest Account created by the Indenture. All moneys received by
the Trustee from sources other than interest will be credited to a
separate Principal Account. All funds collected or received will be
held by the Trustee in trust without interest to Unitholders as part
of the Trust or the Reserve Account referred to below until required
to be disbursed in accordance with the provisions of the Indenture.
Such funds will be segregated by separate recordation on the Trust
ledger of the Trustee so long as such practice preserves a valid
preference under applicable law, or if such preference is not
preserved, the Trustee shall handle such funds in such other
manner as shall constitute the segregation and holding thereof in
trust within the meaning of the Investment Company Act of 1940,
as the same may be from time to time amended. To the extent
permitted by the Indenture and applicable banking regulations, such
funds are available for use by the Trustee pursuant to normal
banking procedures.
The Trustee is authorized by the Indenture to withdraw from the
Principal and/or Interest Accounts such amounts as it deems
necessary to establish a reserve for any taxes or other governmen-
tal charges that may be payable out of the Trust, which amounts
<PAGE>
will be deposited in a separate Reserve Account. If the Trustee
determines that the amount that is in the Reserve Account is greater
than the amount necessary for payment of any taxes or other
governmental charges, it will promptly deposit the excess in the
Account for which it was withdrawn.
The settlement date for the purchase of Units must occur on or
prior to the Record Date in order for a purchaser to receive a
distribution on the next Distribution Date. If the settlement date for
the purchase of Units occurs after the Record Date, distribution will
not occur until the second following Distribution Date.
Interest Account
After deduction of the fees and expenses of the Trustees and
the Evaluator, the Trustee will distribute on each Distribution Date or
shortly thereafter, to Unitholders of record on the preceding Record
Date, an amount approximately equal to either one-twelfth or one-
half of such Unitholder's pro rata share (depending on the plan of
distribution selected) of the estimated annual amount to be depos-
ited in the Interest Account, computed as of the preceding Record
Date. However, all Unitholders of record on the initial Record Date
will receive the initial interest distribution on the initial Interest
Distribution Date. The Trustee's fee and expenses will be higher for
monthly interest distributions than for semi-annual interest distribu-
tions. Therefore, the amount distributed per Unit to Unitholders
electing the monthly plan will be correspondingly lower than under
the semi-annual plan. All interest distributions following the initial
interest distribution will be in approximately the amounts shown
under "Essential Information", depending on the plan of distribution
selected. See "Essential Information-Plan of Distribution" in Part A
for details on selecting interest distributions.
Because the Securities in the Trust pay interest at varying
semi-annual intervals and Units pay interest at constant monthly or
semi-annual intervals, the interest accrued on Units of the Trust will
be greater than the amount available for distribution from the
Interest Account. The Trustee will distribute on each Distribution
Date an amount which will be less than the interest accrued to each
Unitholder on a Record Date. Pursuant to the Indenture, in order to
accomodate regular interest distributions, the Trust will contain
undistributed cash balances. The difference between the amount
accrued to each Unitholder on a Record Date and the amount
distributed on the following Distribution Date is an asset of the
Unitholder and will be included as part of accrued interest which
will be received in subsequent interest distributions, upon the sale
of his Units or, in part, upon the sale, redemption, or maturity of
Securities in the Trust.
Principal Account
The Trustee will distribute on each semi-annual Distribution
Date, or shortly thereafter, to Unitholders of record on the preceding
Record Date, an amount equal to such Unitholder's pro rata share
of the cash balance, if any, in the Principal Account computed as of
<PAGE>
the proceeding Record Date. Except for monies used to redeem
tendered Units, proceeds received upon the disposition of any
Securities subsequent to a Record Date and prior to the following
semi-annual Distribution Date will be held in the Principal Account
and will not be distributed until the next succeeding semi-annual
Distribution Date. However, in the event of an early redemption of
bonds, sale of bonds upon the occurrence of events set forth under
"Supervision of Trust Investments", or maturity of bonds, there may
occur a special principal distribution. Any special principal distribu-
tion will be made within 60 days of such event to Unitholders of
record on the Record Date selected therefore by the Trustee as
provided in the Indenture. No distribution need be made from the
Principal Account if the cash balance therein is less than one-tenth
of one per cent of the total principal amount of the Securities on
the Date of Deposit.
Certain of the Bonds in the Trust are subject to sinking fund or
special redemption by their issuers, as set forth under "Redemption
Features" on the "Schedule of Investments". The redemption price
for Bonds in the Trust called by an issuer pursuant to sinking fund
or special redemption is normally equal to the principal amount of
such Bonds, while the redemption price for Bonds called at the
option of the issuer may include a redemption premium. In most
cases Bonds are selected from among Bonds of like series and
maturity either by lot or by such method as the bond trustee may
adopt. A capital gain or loss may occur depending upon the price at
which a Bond called was acquired by the Trust and the amount
received by the Trust upon redemption (see "Tax Status of the
Trust"). In general, optional redemption provisions are more likely
to be exercised by an Issuer when the offering side valuation is
greater than par than when offering side valuation is less than par.
If future interest rates decline, an issuer of Bonds might find it
advantageous to exercise its option to call Bonds prior to maturity
even though, in most cases, the Issuer must pay a premium.
Reinvestment Program
Distributions are made to Unitholders monthly. The Unitholder
has the option of receiving the monthly interest interest and/or
principal distribution or reinvesting at net asset value in the
PaineWebber Tax-Exempt Income Fund (the "Fund") an open-end
investment company registered under the Investment Company Act.
The Fund's investment objective is to provide high current income
exempt from federal income tax, consistent with the preservation of
capital and liquidity within the Fund's quality standards. Except
under unusual market conditions, the Fund will invest at least 80%
of its assets in municipal obligations with varying maturities, the
interest from which, in the opinion of bond counsel to their
respective issuers, is exempt from both federal income tax and the
federal alternative minimum tax. There can be no assurance that the
Fund will achieve its objective. For more information about the Fund,
including a prospectus, Unitholders should contact their PaineWeb-
ber Investment Executive or call the Fund's shareholder service
<PAGE>
number at 1(800)544-9300.
To participate in the Reinvestment Program, Unitholders must
hold Units in their own name, must fill out an application establish-
ing an account and notify the Trustee of the account number at
least 10 days before the Record Date. Elections may be revoked
upon similar notice.
EXCHANGE OPTION
Unitholders may elect to exchange any or all of their Units of
this series for units of one or more of any series of PaineWebber
Municipal Bond Fund First Series; PaineWebber Municipal Bond
Fund Second Series; PaineWebber Municipal Bond Fund Third Se-
ries (the "PaineWebber Series"); The Municipal Bond Fund, Series
One through Series Forty-Three; The Municipal Bond Trust, Series
Forty-Four and subsequent series (the "Multi-State Series"); The
Municipal Bond Trust, California Series A and subsequent series
(the "California Series"); The Corporate Bond Trust, Series One and
subsequent series (the "Corporate Series"); The Municipal Bond
Trust, Insured Series 1 and subsequent series (the "Insured Se-
ries"); and The PaineWebber Pathfinders Trust Treasury and Growth
Stock Series 1 and subsequent series (the "Pathfinders Series"),
The PaineWebber Federal Government Trust, GNMA Series 1 and
subsequent series (the "Federal Government Series") or the
PaineWebber Equity Trust, Growth Stock Series 1 and subsequent
series (the "Equity Trust") (collectively referred to as the "Exchange
Trusts") at a Public Offering Price for the units of the Exchange
Trusts to be acquired based on a reduced sales charge of $15 per
unit.
The purpose of such reduced sales charge is to permit the
Sponsor to pass on to the Unitholder who wishes to exchange
Units the cost savings resulting from reductions in time and
expense related to advice, financial planning and operational ex-
pense required for the Exchange Option. Each Exchange Trust has
different investment objectives, therefore a Unitholder should read
the prospectus for the applicable Exchange Trust carefully prior to
exercising this option. Exchange Trust having as their objective the
receipt of tax exempt interest income would not be suitable for tax
deferred investment plans, such as Individual Retirement Accounts
and a Unitholder who purchased Units of a series and paid a per
unit sales charge that was less than the per unit sales charge of the
series of Exchange Trusts into which such Unitholder desires to
exchange, will be allowed to exercise the Exchange Option at the
Unit Offering Price plus the reduced sales charge, provided the
Unitholder has held the Units for at least five months. Any such
Unitholder who has not held the Units to be exchanged for the
five-month period will be required to exchange them at the Unit
Offering Price plus a sales charge based on the greater of the
reduced sales charge, or an amount which, together with initial
sales charge paid in connection with the acquisition of the Units
being exchanged, equals the sales charge of the series of the
<PAGE>
Exchange Trust for which such Unitholder desires to exchange into,
determined as of the date of the exchange.
The Sponsor will permit exchanges at the reduced sales charge
provided there is a market maintained by the Sponsor in both the
Units of this series and units of the applicable Exchange Trust, and
there are units of applicable Exchange Trust available for sale. While
the Sponsor has indicated that it intends to maintain a market for
the units of the respective Trusts, there is no obligation on its part
to maintain such a market. Therefore, there is no assurance that a
market for units will in fact exist on any given date at which a
Unitholder wishes to sell his Units of this series and thus there is
no assurance that the Exchange Option will be available to a
Unitholder. Exchanges will be effected in whole units only. Any
excess proceeds from Unitholders' units being surrendered will be
returned. Unitholders will be permitted to advance new money in
order to complete an exchange.
An exchange of units pursuant to the Exchange Option will
generally constitute a "taxable event" under the Code, i.e., a
Unitholder will recognize a tax gain or loss at the time of exchange.
However, under the position taken by the Internal Revenue Service
in Revenue Ruling 81-204 (relating to the exchange of pools of
residential mortgage loans by several savings and loan associ-
ations), an exchange of units for units of any other similar series of
the PaineWebber Municipal Bond Trust, may not constitute a taxable
event if the units exchanged do not differ materially either in kind or
in extent from each other or if the exchange has no significant
economic or business purpose or utility apart from the anticipated
tax consequences. Unitholders are advised to consult their own tax
advisors as to the tax consequences of exchanging Units in their
particular case.
The Sponsor reserves the right to modify, suspend or terminate
this plan at any time without further notice to Unitholders. In the
event the Exchange Option is not available to a Unitholder at the
time he wishes to exercise it, the Unitholder will be immediately
notified and no action will be taken with respect to his Units without
further instruction from the Unitholder.
To exercise the Exchange Option, a Unitholder should notify the
Sponsor of his desire to exercise the Exchange Opition and to use
the proceeds from the sale of his Units of this series 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, and if such units may lawfully be sold in the state
in which the Unitholder is resident, the Unitholder may select the
series or group of series for which he desires his investment to be
exchanged. The Unitholder will be provided with a current prospec-
tus 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 based on the aggregate bid price per Unit of
the securities in the portofolio of the Trust. Units of the Exchange
<PAGE>
Trust, however, will be sold to the Unitholder at a reduced sales
charge. Units sold under the Exchange Option will be sold at the
bid prices per unit of the underlying securities in the particular
portfolio involved plus a fixed charge of $15 per unit. Exchange
transactions will be effected only in whole units; thus, any proceeds
not used to acquire whole units will be paid to the selling Unithol-
der.
For example, assume that a Unitholder, who has three units of
a trust with a current price of $1,030 per unit based on the bid
prices of the underlying securities, desires to sell his units and
seeks to exchange the proceeds for units of a series of an
Exchange Trust with a current price of $890 per unit based on the
bid prices of the underlying securities. In this example, which does
not contemplate rounding up to the next highest number of units,
the proceeds from the Unitholder's units will aggregate $3,090.
Since only whole units of an Exchange Trust may be purchased
under the Exchange Option, the Unitholder would be able to acquire
three units in the Exchange Trust for a total cost of $2,715 ($2,670
for the units and $45 for the sales charge). The remaining $375
would be returned to the Unitholder in cash.
CONVERSION OPTION
Owners of units of any registered unit investment trust spon-
sored by others which was initially offered at a maximum applicable
sales charge of at least 3.0% ( a Conversion Trust) may elect to
apply the cash proceeds of the sale or redemption of those units
directly to acquire available units of any Exchange Trust at a
reduced sales charge of $15 per Unit, per 100 Units in the case of
Exchange Trusts having a Unit price of approximately $10, or per
1,000 Units in the case of Exchange Trusts having a Unit price of
approximately $1, subject to the terms and conditions applicable to
the Exchange Option (except that no secondary market is required
for Conversion Trust units). To exercise this option, the owner
should notify his retail broker. He will be given a prospectus for
each series in which he indicates interest and for which units are
available. The dealer must sell or redeem the units of the Conver-
sion Trust. Any dealer other than PaineWebber must certify that the
purchase of units of the Exchange Trust is being made pursuant to
and is eligible for the Conversion Option. The dealer will be entitled
to two-thirds of the applicable reduced sales charge. The Sponsor
reserves the right to modify, suspend or terminate the Conversion
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, per 100 Units or per 1,000 Units, as
applicable than the corresponding fee then being charged for the
Exchange Option). For a description of the tax consequences of a
conversion reference is made to the Exchange Option section
herein.
EXPENSES OF THE TRUST
<PAGE>
The cost of the preparation and printing of the Certificates, the
Indenture and this Prospectus, the initial fees of the Trustee and the
Trustee's counsel, the Evaluator's fees during the initial offering
period, advertising expenses incurred in establishing the Trust,
including insurance premiums for the Insurance to Maturity ob-
tained by the Sponsor and legal and auditing fees, are paid by the
Sponsor and not by the Trust. The Sponsor will receive no fee from
the Trust for its services as Sponsor.
The cost of Portfolio Insurance on the Bonds covered thereby
while held in the Trust is accounted for as an expense of the Trust.
Any amount paid for Permanent Insurance on a Bond sold by the
Trust will be accounted for as an offset to the amount received on
the sale.
For services performed under the Indenture, the Trustee will be
paid by the Trust at the rate set forth under "Essential Information"
in Part A. Such compensation will be computed monthly or semi-
annually on the basis of the greatest principal amount of the
Securities in the Trust at any time during the preceding monthly or
semi-annual period. In no event will the Trustee be paid less than
$2,000 in any one year. The Evaluator's fee for each daily evalu-
ation is also set forth under "Essential Information" in Part A. The
fees of the Evaluator will be payable by the Trust. See "Essential
Information" in Part A for the estimated annual fees and expenses
per Unit under the various optional interest distribution plans.
The Trustee's fees are payable monthly and semi-annually, and
the Evaluator's fees are payable monthly on or before each Distribu-
tion Date from the Interest Account, to the extent funds are
available, then from the Principal Account. Any of such fees may be
increased without approval of the Unitholders by an amount not
exceeding a proportionate increase in the category entitled "All
Services Less Rent" in the Consumer Price Index published by the
United States Department of Labor.
In addition to the above, the following charges are or may be
incurred by the Trust and paid from the Interest Account, or, to the
extent funds are not available in such Account, from the Principal
Account: (1) fees for the Trustee for extraordinary services; (2)
expenses of the Trustee (including legal and auditing expenses) and
of counsel; (3) various governmental charges; (4) expenses and
costs of any action taken by the Trustee to protect the Trust and
the rights and interest of the Unitholders; (5) indemnification of the
Trustee for any loss, liabilities or expenses incurred by it in the
administration of the Trust without negligence, bad faith or willful
misconduct on its part; and (6) expenses incurred in contacting
Unitholders upon termination of the Trust. The fees and expenses
set forth above are payable out of the Trust and when unpaid will
be secured by a lien on the Trust.
The accounts of the Trust shall be audited not less than
annually by independent public accountants selected by the Spon-
sor. The expenses of the audit shall be an expense of the Trust. So
long as Sponsor maintains a secondary market. Sponsor will bear
any audit expense which exceeds $.50 per Unit. Unitholders covered
<PAGE>
by the audit during the year may receive a copy of the audited
financials upon request.
DESCRIPTION OF CERTIFICATES
Ownership of Units is evidenced by registered Certificates,
executed by the Trustee and the Sponsor, issued in denominations
of one Unit or any integral multiple thereof. A Unitholder may
transfer his Certificate by presenting it to the Trustee at its cor-
porate trust office. Such Certificate must be properly endorsed or
accompanied by a written instrument or instruments of transfer
executed by the Unitholder or his duly authorized attorney. A
Unitholder may be required to pay $2.00 per Certificate transferred
to cover the Trustee's cost in implementing such transfer and to
pay any tax or other governmental charge that may be imposed in
connection with such transfer. The Trustee is required to execute
and deliver a new Certificate in exchange and substitution for any
Certificate mutilated, destroyed, stolen or lost, if and when the
Unitholder furnishes the Trustee with proper identification and sat-
isfactory indemnity, and pays such expenses as the Trustee may
reasonably incur. Any mutilated Certificate must be presented to the
Trustee before any substitute Certificate will be issued.
STATEMENTS TO UNITHOLDERS
With each distribution from the Interest and Principal Accounts,
the Trustee will furnish each Unitholder with a statement setting
forth the amount being distributed from each Account expressed as
a dollar amount per Unit.
Promptly after the end of each calendar year, the Trustee will
furnish to each person who at any time during the calendar year
was a registered Unitholder a statement setting forth:
1. As to the Interest Account:
(a) the amount of Interest received on the Securities and the
percentage of such amount by states and territories in
which the issuers of the Bonds are located;
(b) the amount paid from the Interest Account representing
accrued interest for any Certificates redeemed;
(c) the deductions from the Interest Account for fees and
expenses of the Trustee, the Sponsor and the Evaluator or for other
various fees, charges or expenses relating to the Trust;
(d) the deductions from the Interest Account for payment into
the Reserve Account; and
(e) the net amount remaining after such payments and deduc-
tions expressed as a total dollar amount outstanding on the last
business day of such calendar year.
2. As to the Principal Account:
(a) the dates of the redemption, sale or maturity of any of the
Securities and the net proceeds received therefrom, excluding
any portion credited to the Interest Account;
<PAGE>
(b) the amount paid from the Principal Account representing
the principal of any Certificates redeemed;
(c) the deductions from the Principal Account for fees and
expenses of the Trustee, the Sponsor and the Evaluator or for other
various fees, charges or expenses relating to the Trust;
(d) the deductions from the Principal Account for payment into
the Reserve Account; and
(e) the net amount remaining after such payments and deduc-
tions expressed as a total dollar amount outstanding on the last
business day of such calendar year.
3. The following information:
(a) a list of the Securities as of the last business day of such
calendar year;
(b) the number of Units outstanding on the last business day
of such calendar year;
(c) the Unit Value based on the last evaluation of the Trust
made on the last business day during such calendar year; and
(d) the amounts actually distributed during such calendar year
from the Interest and Principal Account, separately stated,
expressed both as total dollar amounts and as dollar amounts per
Unit outstanding on the Record Dates for such
distributions.
REDEMPTION OF UNITS BY TRUSTEE
A Unitholder who wishes to dispose of its Units should inquire
through its broker as to the current market price for such Units
prior to making a tender for redemption to the Trustee in order to
determine if there is a market for Units in excess of the then
current Redemption Value or Sponsor's Repurchase Price. After the
initial offering period the Redemption Value will be the same as the
Sponsor's Repurchase Price.
During the period in which the Sponsor maintains a secondary
market for Units as the Sponsor's Repurchase Price, the Sponsor
has agreed to repurchase any Unit presented for tender to the
Trustee for redemption no later than the close of business on the
second business day following such presentation.
The Trustee is irrevocably authorized in its discretion, in lieu of
redeeming Units presented for tender at the redemption value, to
sell such Units in the over-the-counter market for the account of a
tendering Unitholder at prices which will return to the Unitholder
amounts in cash, net after brokerage commissions, transfer taxes
and other charges, equal to or in excess of the Redemption Value
for such Units. In the event of any such sale the Trustee will pay
the net proceeds thereof to the Unitholder on the day he would
otherwise be entitled to receive payment of the Redemption Value.
One or more Units represented by a Certificate may be re-
deemed at the Redemption Value upon tender of such Certificate to
the Trustee at its corporate trust office in the City of New York,
properly endorsed or accompanied by a written instrument of
<PAGE>
transfer in form satisfactory to the Trustee, and executed by the
Unitholder or its authorized attorney. A Unitholder may tender its
Units for redemption at any time after the settlement date for
purchase, whether or not it has received a definitive Certificate. The
Redemption Value per Unit is calculated by dividing the current bid
prices for the Securities in the Trust (see "Evaluation of the Trust")
plus any money in the Principal Account other than money required
to redeem tendered Units, by the number of Units outstanding, plus
a proportionate share of accrued interest and undistributed interest
income on the Securities determined to the day of tender. There is
no sales charge incurred when a Unitholder tenders his Units to the
Trustee for redemption. Subject to the payment of any applicable
tax or governmental charges, the Redemption Value of Units re-
deemed by the Trustee will be paid on the seventh calendar day
following the day of tender. If such day of payments is not a
business day, the Redemption Value will be paid on the first
business day prior thereto.
The Trustee may, in its discretion, and will when so directed by
the Sponsor, suspend the right of redemption, or postpone the date
of payment of the Redemption Value, for more than seven calendar
days following the day of tender for any period during which New
York Stock Exchange, Inc. is closed other than for weekend and
holiday closings; or for any period during which the Securities and
Exchange Commission determines that trading on the New York
Stock Exchange, Inc. is restricted or for any period during which an
emergency exists as a result of which disposal or evaluation of the
Securities is not reasonably practicable; or for such other period as
the Securities and Exchange Commission may by order permit for
the protection of Unitholders. The Trustee is not liable to any
person or in any way for any loss or damages which may result
from any such suspension or postponement.
Any amounts paid on the redemption representing interest will
be withdrawn from the Interest Account to the extent that funds are
available for such purpose. All other amounts paid on redemption
will be withdrawn from the Principal Account. The Trustee is
empowered to sell Securities out of the Portfolio as selected by the
Sponsor in order to make funds available for the redemption of
Certificates, and, to the extent Securities are sold for such purpose,
the size and diversity of the Trust will be reduced. Such sales may
be required at a time when Securities would not otherwise be sold
and may result in lower prices than might otherwise be realized. In
addition, because of the minimum principal amount in which securi-
ties may be required to be sold, the proceeds of such sales may
exceed the amount necessary for payment of Units redeemed. Such
excess proceeds will be distributed pro rata to all remaining Unithol-
ders of record.
EVALUATION OF THE TRUST
The Evaluator is Kenny S&P Evaluation Services, a division of
Kenny Information Systems, Inc., 65 Broadway, New York, New
<PAGE>
York 10006.
The value of the Trust is computed as of the Evaluation Time
shown under "Essential Information" (1) on each June 30 and
December 31 (or at last business day prior thereto), (2) on each
business day as long as the Sponsor is maintaining a bid in the
secondary market, (3) on the day which any Unit is tendered for
redemption and (4) on any other day desired by the Sponsor or the
Trustee, by adding:
1. The aggregate value of Securities in the Trust, as determined
by the Evaluator:
(a) on the basis of current bid prices for the Securities;
(b) on the basis of current bid prices for comparable bonds, if
bid prices are not available for any of the Securities;
(c) by determining the value of the Securities on the bid side of
the market by appraisal; or
(d) by any combination of the above.
2. Money on hand in the Trust, other than money deposited to
purchase Securities or money credited to the Principal Account
which is required to redeem tendered Units; and
3. Accrued but unpaid interest on the Securities at the close of
business on the date of such Evaluation.
The Trustee will deduct from the resulting figure: amounts
representing any applicable taxes or governmental charges payable
by the Trust for the purpose of making an addition to the Reserve
Account; amounts representing estimated accrued expenses of the
Trust; amounts representing unpaid fees of the Trustee, the Sponsor
and the Evaluator; and cash held for distribution to Unitholders of
record as of the business day prior to the Evaluation being made
on the days or dates set forth above.
For the purpose of the redemption of Units, the value per Unit
is computed by the Trustee by dividing the result of the above
computation by the total number of Units outstanding on the date
of such Evaluation.
The Evaluator's evaluation of the Securities takes into account
Insurance to Maturity insurance policies in respect of those Securi-
ties and the rating assigned to those Securities as a result of such
insurance. Insurance to Maturity determined the quality of the
insurance issued by each insurer, and then compared the Securities
to other securities which had comparable insurance and which were
of comparable quality. In addition, in the case of Securities not
insured when acquired by the Sponsor and which are insured by
Portfolio Insurance, the Evaluator has attributed no value to the
Portfolio Insurance. Bonds rated below investment grade and in-
sured by Portfolio Insurance will be valued at the greater of (i) the
market value of such Securities with Permanent Insurance (less the
Permanent Insurance Premium therefor) or (ii) the market value of
such Securities uninsured. In addition, the Evaluator will consider
the ability of Financial Guaranty to meet its commitments under the
Portfolio Insurance, including the ability to issue Permanent Insur-
ance. It is the position of the Sponsor that this is a fair method of
valuing the Securities and reflects a proper valuation method in
<PAGE>
accordance with the provisions of the Investment Company Act of
1940.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION
VALUE
While the Public Offering Price of Units during the initial
offering period is determined on the basis of the current offering
prices of the Securities, the Public Offering Price of Units in the
secondary market and the Redemption Value is determined on the
basis of the current bid prices of such Securities. On the business
day prior to the Date of Deposit, the Public Offering Price per Unit
(which figure includes the sales charge) exceeded the Redemption
Value by the amount shown under "Essential Information". The
difference between the bid and offering prices of the Securities is
expected to average 1 1/2% to 2% of principal amount. This
difference may vary between 3% or more of principal amount for
inactively traded Securities and as little as 1/2 of 1% for actively
traded Securities. For this reason and others, including the fact that
the Public Offering Price includes the sales charge, the amount
realized by a Unitholder upon redemption of Units may be less than
the price paid by the Unitholder for such Units.
SUPERVISION OF TRUST INVESTMENTS
The acquisition by the Trust of any securities other than the
Securities initially deposited (except for the limited right to replace
securities in the case of a fail. Replacement Securities as provided
herein) is prohibited by the Indenture. The Sponsor may direct the
Trustee to sell and to liquidate any of the Securities upon the
happening of any of the following events:
1. Default by an issuer in the payment of principal of or interest
on such Securities, or any other outstanding obligations of such
issuer, when due and payable and such payment is not guaranteed
by a valid Insurance policy which, in the opinion of the Sponsor,
will provide adequate payment;
2. Institution of legal proceedings seeking to restrain or enjoin
the payment of any of the Securities or attacking their validity;
3. A breach of a covenant or warranty which could adversely
affect the payment of debt service on the Securities;
4. In the case of revenue bonds, if the revenues, based upon
official reports, fall substantially below the estimated revenues
calculated to be necessary to pay principal of and interest on the
Bonds;
5. A decline in market price, or such other market or credit
factor, as in the opinion of the Sponsor would make retention of
any of the Securities detrimental to the Unitholders; or
6. In the event that any of the Bonds are the subject of an
advance refunding.
It is not anticipated or expected that disposal of any of the
Bonds in the Trust for the reason described in (1) above will occur
as long as the Bonds are insured. The Trustee will not be liable or
<PAGE>
responsible in any way for depreciation or loss incurred by reason
of any sale made by it either pursuant to a direction of the Sponsor
or by reason of a failure of the Sponsor to give any such direction.
The Sponsor is required 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 the Bonds pursuant to
a refunding or refinancing plan; however, the Sponsor may instruct
the Trustee to accept or reject such an offer or to take any other
action with respect thereto as the Sponsor deems proper if the
Issuer is in default with respect to the Securities or the Issuer will,
in the written opinion of the Sponsor, probably default with respect
to the Bonds in the reasonably foreseeable future.
Any obligations received by the Trust in the event of such an
exchange or substitution will be held by the Trustee and will be
subject to the terms and conditions of the Indenture to the same
extent as the Securities originally deposited. Within five days after
any exchange and deposit, notice of such will be mailed by the
Trustee to each registered Unitholder, which identifies the Securities
eliminated and the Securities substituted.
ADMINISTRATION OF THE TRUST
Records and Accounts. Pursuant to the Indenture, the Trustee
is required to keep proper books or records and accounts of all
transactions relating to the Trust at its office. Such records will
include the name and address of every Unitholder, a list of the
Certificate numbers and the number of Units of each Certificate
issued to Unitholders. The Trustee is also required to keep a
certified copy or duplicate original of the Indenture and current list
of Securities held in the Trust on file at its office which will be open
to inspection by any Unitholder during usual business hours.
The Trustee is required to make annual or other reports as may
from time to time be required under any applicable state or Federal
statute, rule or regulation.
Successor Trustee. Under the Indenture, the Trustee may resign
and be discharged of the trust created by the Indenture by execut-
ing a notice of resignation in writing and filing it with the Sponsor.
The resigning Trustee must also mail a copy of the notice of
resignation to all Unitholders then on record, not less than sixty
days before the effective resignation date specified in such notice.
Such resignation will become effective only upon the appointment of
that acceptance of the Trust by a successor Trustee. The Sponsor,
upon receiving notice of such registration, is obligated to appoint a
successor Trustee promptly.
If within thirty days after notice of resignation has been re-
ceived by the Sponsor, no successor Trustee has been appointed
or, if appointed, has not accepted the appointment, the resigning
Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. In case the Trustee becomes incapable
of acting as such or is adjudged a bankrupt or is taken over by any
public authority, the Sponsor may discharge the Trustee and ap-
<PAGE>
point a successor Trustee as provided in the Indenture. Notice of
such discharge and appointment shall be mailed to each Unitholder
by the Sponsor.
Upon a successor Trustee's execution of a written acceptance
of an appointment as Trustee for the Trust, such successor Trustee
will become vested with all the rights, powers, duties and ob-
ligations of the original Trustee.
A successor Trustee is required to be a corporation organized
and doing business under the laws of the United States or of the
State of New York; to be authorized under such laws to exercise
corporate trust powers; to have at all times an aggregate capital,
surplus and undivided profit of not less than $5,000,000; and to
have its principal office in New York City.
Successor Sponsor. If at any time the Sponsor shall fail to
undertake or perform or become incapable of undertaking or per-
forming any of the duties which by the terms of the Indenture are
required of it to be undertaken or performed, or if the Sponsor
resigns, the Trustee may either appoint a successor Sponsor or
Sponsors as will be satisfactory to the Trustee or it may terminate
the Indenture and liquidate the Trust. Any successor Sponsor may
be compensated at rates deemed by the Trustee to be reasonable.
The dissolution of the Sponsor or its ceasing to exist as a legal
entity from, or for, any cause whatsoever will not cause the
termination of the Indenture of the Trust unless the Trust deems
termination to be in the best interests of Unitholders.
Successor Evaluator. The Evaluator may resign or may be
removed by the Sponsor or the Trustee, and the Sponsor and the
Trustee are to use their best efforts to appoint a satisfactory
successor. Such resignation or removal will become effective upon
the acceptance of appointment by a successor Evaluator. If upon
resignation of the Evaluator no successor has accepted appointment
within thirty days after notice of resignation, the Evaluator may
apply to a court of competent jurisdiction for the appointment of a
successor. Notice of such registration or removal and appointment
will be mailed by the Trustee to each Unitholder.
LIMITATION OF LIABILITIES
The Sponsor. The Indenture provides that the Sponsor will not
be liable to the Trustee, the Trust or to the Unitholders for taking
any action or for refraining from taking any action made in good
faith or for errors in judgment, but will be liable or responsible in
any way for depreciation or loss incurred by reason of the sale of
any Securities in the Trust.
The Trustee. The Indenture provides that the Trustee will not be
liable for any action taken in good faith in reliance on properly
executed documents or for the disposition of moneys, Securities or
Certificates, except by reason of its own gross negligence, bad faith
or willful misconduct, nor will the Trustee be liable or responsible in
any way for depreciation or loss incurred by reason of the sale by
the Trustee of any Securities in the Trust. In the event of the failure
<PAGE>
of the Sponsor to act, the Trustee may act and will no be liable for
any such action taken by it in good faith. The Trustee will not be
personally liable for any taxes or other governmental charges
imposed upon or in respect to the Securities or upon the interest
thereon or upon it as Trustee or upon or in respect of the Trust
which the Trustee may be required to pay under a present or future
law of the United States of America or of any other taxing authority
having jurisdiction. In addition, the Indenture contains other cus-
tomary provisions limiting the liability of the Trustee. The Trustee
will be indemnified and held harmless against any loss or liability
accruing to it without negligence, bad faith or willful misconduct on
its part, arising out of or in connection with its acceptance or
administration of the Trust, including the costs and expenses
(including counsel fees) of defending itself against any claim of
liability.
The Evaluator. The Trustee, Sponsor and Unitholders may rely
on any evaluation furnished by the Evaluator and will have no
responsibility for the accuracy thereof. The Indenture provides that
the determinations made by the Evaluator will be made in good faith
upon the basis of the best information available to it provided,
however, that the Evaluator will be under no liability to the Trustee,
Sponsor or Unitholders for errors in judgment, but will be liable
only for its gross negligence, lack of good faith or willful mis-
conduct.
AMENDMENT OF THE INDENTURE
The Indenture may be amended by the Trustee and the Spon-
sor without the consent of any of the Unitholders to cure any
ambiguity or to correct or supplement any provision which may be
defective or inconsistent or to make such other provisions as will
not adversely affect the interest of the Unitholders; provided, how-
ever, that after the deposit of the Securities the Indenture may not
be amended to increase the number of Units issued thereunder or
to permit the deposit or acquisition of securities either in addition to
or in substitution for any of the Securities initially deposited in the
Trust, except for the substitution of certain refunding securities for
the Securities. The Trustee will promptly notify Unitholders of the
substance of any such amendment.
RIGHT OF UNITHOLDERS
A Unitholder may at any time tender his Certificate to the
Trustee for redemption.
The death or incapacity of any Unitholder will not operate to
terminate the Trust nor entitle his legal representatives or heirs to
claim an accounting or to take any action proceeding in any court
for a partition of winding up of the Trust.
No Unitholder will have the right to vote concerning the Trust,
<PAGE>
except with respect to termination, or in any manner control the
operation and management of the Trust, nor shall any Unitholder
ever be liable to any other person by reason of any action taken by
the Sponsor or the Trustee.
TERMINATION OF THE TRUST
The Indenture provides that the Trust will terminate upon the
maturity, redemption, sale or other disposition of the last of the
Securities held in the Trust. If the value of the Trust as shown by
any evaluation is less than twenty per cent (20%) of the par value
of the Securities originally deposited in the Trust, the Trustee may
in its discretion, and will when so directed by the Sponsor, termi-
nate the Trust. The Trust may also be terminated at any time by the
written consent of 100% of the Certficateholders or by the Trustee
upon the resignation or removal of the Sponsor if the Trustee
determines termination to be in the best interest of the Unitholders.
In no event will the Trust continue beyond the Mandatory Termina-
tion Date. Upon termination, the Trustee will sell the Securities then
held in the Trust and credit the moneys derived from such sale to
the Principal Account and the Interest Account. The Trustee will
then, after deduction of any fees and expenses of the Trust and
payment into Reserve Account of any amount required for taxes or
other governmental charges that may be payable by the Trust,
distribute to each Unitholder, upon surrender for cancellation of this
Certificate after due notice of such termination, such Unitholders pro
rata share in the Interest and Principal Accounts. The sale of
securities in the Trust upon termination may result in a lower
amount than might otherwise be realized if such sale were not
required at such time. For this reason, among others, the amount
realized by a Unitholder upon termination may be less than the
principal amount of Securities represented by the Units held by
such Unitholder.
SPONSOR
The Sponsor, PaineWebber Incorporated, is a corporation or-
ganized under the laws of the State of Delaware. The Sponsor is a
member firm of the New York Stock Exchange, Inc. as well as other
major securities and commodities exchanges and is a member of
the National Association of Securities Dealers, Inc. The Sponsor is
engaged in a security and commodity brokerage business as well
as underwriting and distributing new issues. The Sponsor also acts
as a dealer in unlisted securities and municipal bonds and, in
addition to participating as a member of various selling groups or
as agent of other investment companies, 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.
LEGAL OPINION
<PAGE>
The legality of the Units offered hereby has been passed upon
by Orrick, Herrington & Sutcliffe, 599 Lexington Avenue, New York,
New York, as counsel for the Sponsor.
INDEPENDENT AUDITORS
The financial statements, including the schedule of investments,
of the Trust included in Part A of this Prospectus have been audited
by Ernst & Young, and by KPMG Peat Marwick, independent
auditors, each for the periods indicated in their respective reports
appearing herein. The financial statements audited by Ernst &
Young and KPMG Peat Marwick have been included in reliance on
their reports given on their authority as experts in accounting and
auditing.
<PAGE>
BOND RATINGS*
Standard & Poor's Corporation
A Standard & Poor's corporate or municipal bond rating is a
current assessment of the creditworthiness of an obligor with
respect to a specific debt obligation. The assessment of creditworth-
less may take into consideration obligors such as guarantors,
insurers or lessees.
The bond rating is not a recommendation to purchase or sell a
security, inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to
Standard & Poor's by the Issuer and obtained by Standard &
Poor's from other sources it considers reliable. The ratings may be
changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation
II. Nature of and provisions of the obligation
III. Protection afforded by, and relative position of, the obliga-
tion in event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA - This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity to
pay principal and interest.
AA - Bonds rated AA also have quality as high-quality debt
obligations. Capacity to pay principal and interest is very strong,
and in the majority of instances they differ from AAA issuers only in
small degree.
A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic con-
ditions.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
Plus (+) or Minus (-):To provide more detailed indications of
credit quality, the ratings from "AA" to "BB" may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional Ratings:The letter "p" following a rating indicates
the rating is provisional. A provisional rating assumes the success-
ful completion of the project being financed by the issuance of the
<PAGE>
bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no com-
ment on the likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own judg-
ment with respect to such likelihood and risk.
Moody's Investor Service, Inc.
A brief description of the applicable Moody's Investors Service,
Inc.'s rating symbols and their meanings is as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable invest-
ment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds which are rated BAA are considered as medium
grade obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The
numerical modifier 1 indicates that the security ranks at the high
end, 2 in the mid-range, and 3 nearer the low end of the generic
category. These modifiers of rating symbols, Aa, A and Baa, are to
give investors a more precise indication of relative debt quality in
each of the historically defined categories.
*As described by Standard & Poor's Corporation.
<PAGE>
Conditional ratings, indicated by "Con", are given to bonds for
which the security depends upon the completion of some act on
the fulfillment of some condition. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other
limiting condition attaches. A parenthetical rating denotes probable
credit stature upon completion of construction or elimination of
basis of condition.
The following summarizes the applicable designations used by
Moody's for short-term notes and short-term loans:
MIG1 - Loans bearing this designation are of the best quality,
enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG2 - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as the preceding
group.
Description of Rating of Units*
A Standard & Poor's Corporation's rating on the units of an
investment trust (hereinafter referred to collectively as "units" and
"fund") is current assessment of creditworthiness with respect to
the investments held by such fund. The assessment takes into
consideration the financial capacity of the Issuers and of any
guarantors, issuers, lessees, or mortgagors with respect to such
investments. The assessment, however, does not take into account
the extent to which fund expenses or Portfolio asset sales for less
than the Fund's purchase price will reduce payment to the Unithol-
der of the interest and principal required to be paid on the Portfolio
assets. In addition, the rating is not a recommendation to purchase,
sell, or hold Units, inasmuch as the rating does not comment as to
market price of the Units or suitability for a particular investor.
Funds rated "AAA" are composed exclusively of assets that are
rated "AAA", by Standard & Poor's or have, in the opinion of
Standard & Poor's, credit characteristics comparable to assets that
are rated "AAA", or certain short-term investments. Standard &
Poor's defines its "AAA" rating for such assets as the highest
rating assigned by Standard & Poor's to a debt obligation. Capacity
to pay interest and repay principal is very strong. Funds which are
composed of assets that are rated below "AAA" by Standard &
Poor's Corporation do not carry a Standard & Poor's Corporation
rating on their Units.
*As described by Standard & Poor's Corporation.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Prospectus.
The signatures.
The following exhibits:
1. Opinion of Counsel as to legality of securities
being registered.
2. Consent of Kenny Information Systems, Inc.
3. Consent of Standard & Poor's Corporation.
4. Consent of Independent Auditors.
FINANCIAL STATEMENTS
1. Statement of Condition of the Trust as shown in
the current Prospectus for this series.
2. Financial Statements of the Depositor.
PaineWebber Incorporated - Financial Statements
as of December 31, 1992 and March 31, 1993
incorporated by reference to Form 10-k and
Form 10-Q (File No. 1-7367) filed on March 31,
1993 and May 15, 1993, respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, The Municipal Bond Trust, Insured Series 31 certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, and its seal to
be hereunto affixed and attested, all in the City of New York, and the
State of New York on the 9th day of March, 1994.
THE MUNICIPAL BOND TRUST, INSURED
SERIES 31
(Registrant)
By: PaineWebber Incorporated
(Depositor)
/s/ ROBERT E. HOLLEY
Robert E. Holley
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of PaineWebber
Incorporated, the Depositor, by the following persons in the
following capacities and in the City of New York, and State of New
York, on this 9th day of March, 1994.
PAINEWEBBER INCORPORATED
Name Office
Donald B. Marron Chairman, Chief Executive Officer
Director & Member of the Executive
Committee *
Paul B. Guenther President, Chief Administrative Officer,
Director and Member of the Executive
Committee *
Regina Dolan Director of Finance and Control *
John A. Bult Chairman, PaineWebber International
and Member of the Executive Committee *
James Treadway Executive Vice President & Director *
By:/s/ ROBERT E. HOLLEY
Attorney-in-fact*
* Executed copies of the powers of attorney have been filed with the
Securities and Exchange Commission in connection with the Registration
Statements for File No. 2-98712, 33-8919, 33-16569 and 33-49437.
<PAGE>
<PAGE>
March 9, 1994
PaineWebber Incorporated
1200 Harbor Blvd.
Weehawken, New Jersey 07087
Ladies and Gentlemen:
We have served as counsel for PaineWebber Incorporated as
sponsor and depositor (the "Depositor") of The Municipal Bond
Trust, Insured Series 31 (hereinafter referred to as the "Trust"). The
Depositor seeks by means of Post-Effective Amendment No. 8 to
register for reoffering 4,703 Units acquired by the Depositor in the
secondary market (hereinafter referred to as the "Units").
In this regard, we have examined executed originals or copies of the
following:
(a) The Restated Certificate of Incorporation, as amended, and the
By-Laws of the Depositor, as amended;
(b) Resolutions of the Board of Directors of the Depositor adopted on
December 3, 1971 relating to the Trust and the sale of the Units;
(c) Resolutions of the Executive Committee of the Depositor adopted
on September 24, 1984;
(d) Powers of Attorney referred to in the Amendment;
(e) Post-Effective Amendment No. 8 to the Registration Statement on
Form S-6 (File No. 33-01159) to be filed with the Securities and
Exchange Commission (the "Commission") in accordance with
the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder
(collectively, the "1933 Act") proposed to be filed on or about the
date hereof (the "Amendment");
(f) The Notification of Registration of the Trust filed with the
Commission under the Investment Company Act of 1940, as
amended (collectively, the "1940 Act") on Form N-8A, as
amended;
(g) The registration of the Trust filed with the Commission under the
1940 Act on Form N-8B-2 (File No. 811-2599), as amended;
(h) The prospectus included in the Amendment (the "Prospectus");
(i) The Standard Terms and Conditions of the Trust dated as of
February 8, 1984, as amended, among the Depositor, United
States Trust Company of New York (the "Trustee"), and Standard
& Poor's Corporation and Kenny S&P Evaluation Services, a
division of Kenny Information Systems, Inc. (the "Evaluator") (the
"Standard Terms");
(j) The Trust Indenture dated as of the Date of Deposit, among the
Depositor, the Trustee and the Evaluator (the "Trust Indenture"
and, collectively with the Standard Terms, the "Indenture and
Agreement");
(k) The form of certificate of ownership for units (the "Certificate") to
be issued under the Indenture and Agreement; and
(l) Such other pertinent records and documents as we have deemed
necessary.
With your permission, in such examination, we have assumed
the following: (a) the authenticity of original documents and the
genuineness of all signatures; (b) the conformity to the originals of
all documents submitted to us as copies; (c) the truth, accuracy,
and completeness of the information, representations, and warranties
contained in the records, documents, instruments and certificates we
have reviewed; (d) except as specifically covered in the opinions set
forth below, the due authorization, execution, and delivery on behalf
of the respective parties thereto of documents referred to herein and
the legal, valid, and binding effect thereof on such parties; and (e)
the absence of any evidence extrinsic to the provisions of the written
agreement(s) between the parties that the parties intended a
meaning contrary to that expressed by those provisions. However,
we have not examined the securities deposited pursuant to the
<PAGE>
Indenture and Agreement (the "Securities") nor the contracts for the
Securities.
We express no opinion as to matters of law in jurisdictions other
than the States of New York and California and the United States,
except to the extent necessary to render the opinion as to the
Depositor in paragraph (i) below with respect to Delaware law. As
you know we are not licensed to practice law in the State of
Delaware, and our opinion in paragraph (i) and (iii) as to Delaware
law is based solely on review of the official statutes of the State of
Delaware.
Based upon such examination, and having regard for legal
considerations which we deem relevant, we are of the opinion that:
(i) The Depositor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware with full
corporate power to conduct its business as described in the
Prospectus;
(ii) The Depositor is duly qualified as a foreign corporation and is in
good standing as such within the State of New York;
(iii)The terms and provisions of the Units conform in all material
respects to the description thereof contained in the Prospectus;
(iv) The consummation of the transactions contemplated under the
Indenture and Agreement and the fulfillment of the terms thereof
will not be in violation of the Depositor's Restated Certificate of
Incorporation, as amended, or By-Laws, as amended and will not
conflict with any applicable laws or regulations applicable to the
Depositor in effect on the date hereof; and
(v) The Certificates to be issued by the Trust, when duly executed by
the Depositor and the Trustee in accordance with the Indenture
and Agreement, upon delivery against payment therefor as
described in the Prospectus will constitute fractional undivided
interests in the Trust enforceable against the Trust in accordance
with their terms, will be entitled to the benefits of the Indenture
and Agreement and will be fully paid and non-assessable.
Our opinion that any document is valid, binding, or enforceable in
accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency, reorganization,
arrangement, fraudulent conveyance, moratorium, or other laws
relating to or affecting the enforcement of creditors' rights
generally;
(b) rights to indemnification and contribution which may be limited by
applicable law or equitable principles; and
(c) general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We hereby represent that the Amendment contains no disclosure
which would render it ineligible to become effective immediately
upon filing pursuant to paragraph (b) of Rule 485 of the
Commission.
We hereby consent to the filing of this opinion as an exhibit to
the Amendment and to the use of our name wherever it appears in
the Amendment and the Prospectus.
Very truly yours,
/s/ ORRICK, HERRINGTON & SUTCLIFFE
<PAGE>
KENNY S&P EVALUATION
SERVICES
(A Division of Kenny Information
Systems Inc.)
March 9, 1994,
PaineWebber Incorporated
Unit Trust Department
1200 Harbor Blvd.
Weehawken, New Jersey 07087
RE: THE MUNICIPAL BOND TRUST, INSURED SERIES 31
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-01159 for the above-captioned trust. We
hereby acknowledge that Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc. is currently acting as the
evaluator for the trust. We hereby consent to the use in the
Amendment of the reference to Kenny S&P Evaluation Services, a
division of Kenny Information Systems, Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above-referenced Amendment to the Registration Statement for the
respective bonds comprising the trust portfolio are the ratings
currently indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
/s/ F.A. SHINAL
F.A. Shinal
Senior Vice President
<PAGE>
March 9, 1994
Kathleen H. Moriarty
Orrick, Herrington & Sutcliffe
599 Lexington Avenue - 29th Floor
New York, New York 10022
RE: The Municipal Bond Trust, Insured Series 31
We have received the post-effective amendment to the registration
statment SEC file number 33-01159 for the above captioned trust.
Since the portfolio is composed solely of securities covered by bond
insurance policies that insure against default in the payment of
principal and interest on the securities for so long as they remain
outstanding and such policies have been issued by one or more
insurance companies which have been assigned 'AAA' claims paying
ability rating by S&P, we reaffirm the assignment of a 'AAA' rating to
the units of the trust and a 'AA' rating to the securities contained in
the trust.
You have permission to use the name Standard & Poor's
Corporation and the above-assigned ratings in connection with your
dissemination of information relating to these units, provided 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 of the units does not take into account the extent to which
fund expenses or portfiolio asset sales for less than the fund's
purchase price will reduce payment to the unitholders of the interest
and principal required to be paid on the portfolio assets. S&P
reserves the right to advise its own clients, subscribers, and the
public of the ratings. S&P relies on the sponsor and its counsel,
accountants, and other experts for the accuracy and completeness
of the information submitted in connection with the ratings. S&P
does not independently verify the truth or accuracy of any such
information.
This letter evidences our consent to the use of the name of Standard
& Poor's Corporation in connection with the rating assigned to the
units in the amendment referred to above. However, this letter
should not be construed as a consent by us, within the meaning of
Section 7 of the Securities Act of 1933, to the use of the name of
Standard and Poor's Corporation 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.
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.
STANDARD AND POOR'S CORPORATION
/S/Vincent S.Orgo
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption
"Independent Auditors" and to the use of our report in the
Registration Statement and related Prospectus of The Municipal
Bond Trust, Insured Series 31.
/s/ ERNST & YOUNG
New York, New York
March 9, 1994
