File Nos. 33-30270
33-25384
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, SERIES 224 AND THE MUNICIPAL BOND
TRUST, CALIFORNIA INSURED SERIES 7A
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 April 22, 1998) pursuant to paragraph
(b) of Rule 485.
E. Total and amount of securities being registered:
An indefinite number of units of Beneficial Interest pursuant to Rule
24f-2 under the Investment Company Act of 1940.
F. Proposed maximum offering price to the public of the securities being
registered:
Indefinite pursuant to Rule 24f-2
G. Amount of filing fee, computed at one-thirty-fourth of 1 percent of the
proposed maximum aggregate offering price to the public:
In accordance with Rule 24f-2, a fee in the amount of $0 was paid on
March 20, 1998 in connection with the filing of the Rule 24f-2 Notice
for the Trust's most recent fiscal year.
H. Approximate date of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT.
THE MUNICIPAL BOND TRUST, SERIES 224 AND THE MUNICIPAL
BOND TRUST, CALIFORNIA INSURED SERIES 7A
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
(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
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.
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
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.
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.
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.
THE MUNICIPAL BOND TRUST, SERIES 224
THE MUNICIPAL BOND TRUST,
CALIFORNIA INSURED, SERIES 7A
This Prospectus consists of two parts. Part A
contains Essential Information Regarding the
Trusts including descriptive material relating
to the Trusts, Financial Statements of the
Trusts, and Schedules of Investments. Part B
contains general information about the Trusts.
Part A may not be distributed unless accompanied
by Part B.
Interest income to the Trusts and to
Certificateholders is excludable, in
the opinion of counsel, from gross income 12,126
for Federal income tax purposes and exempt UNITS
from California income taxes for resident
purchasers of the Municipal Bond Trust,
California Insured, Series 7A, 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,
SERIES 224 AND THE MUNICIPAL BOND TRUST,
CALIFORNIA INSURED, SERIES 7A-The Municipal Bond
Trust, Series 224 ("Series 224") and The
Municipal Bond Trust, California Insured, Series
7A (the "California Insured Trust") are two
separate unit investment trusts formed for the
purpose of gaining Federally tax-exempt interest
income consistent with the preservation of
capital and diversification of risk through
investment in a fixed portfolio of "investment
grade" (as of the Initial Date of Deposit)
interest-bearing municipal bonds (the "Bonds").
The payment of interest and the preservation of
capital is dependent upon the continuing ability
of the respective issuers of such Bonds to meet
their obligations. Since PaineWebber
Incorporated (the "Sponsor") and Investors Bank
and Trust Company and The First National Bank of
Chicago (the "Co-Trustees") do not have control
over the source of payment of the Bonds, they
cannot guarantee that the objectives of the
Trust will be achieved. Each Trust will be
administered as a distinct entity with separate
certificates, expenses, books and records.
Each Unit of each Trust represents a fractional
undivided interest in the principal amount of
the underlying bonds and net income of such
Trust in the ratio of 1 Unit for each $922.98
and $993.72 principal amount of underlying bonds
deposited in Series 224 and the California
Insured Trust, respectively.
Units Principal Amount
Series 224 7,985 $7,370,000
California Insured Series 7A 4,141 $4,115,000
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 (5.50%
of the Public Offering Price). Units are offered
at the Public Offering Price plus accrued
interest. (See "Public Offering 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" in Part B).
Investors should note that the terms
"Certificateholders" and "Unitholders" are used
interchangeably in this prospectus.
DISTRIBUTIONS-Distributions of interest received
by the Trust, less expenses, will be made on a
monthly basis. See "Distribution to Unitholders"
in Part B for details of 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 and Estimated Long Term Return" in Part B
and "Essential Information" in Part A).
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION 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.
Prospectus Part A dated April 22, 1998
ESSENTIAL INFORMATION REGARDING THE TRUSTS
Securities in the Trust Portfolios
Each of the Trusts 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 Trusts
were, as of the Initial Date of Deposit,
"investment grade" municipal bonds.
The aggregate market values of the Bonds in
each Trust as of December 31, 1997, based on the
bid side of the market, were as follows:
California
Insured
Series 224 Trust
Aggregate Market Value $7,792,466 $4,366,987
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. One of the bonds in the
Trust is a general obligation of the issuer
secured by the power of such issuer to levy ad
valorem taxes. Each Trust consists of the types
of Bonds set forth below:
Number of Issues
California
Category Series 224 Insured Trust
Electric and Power 1 1
Health and Hospitals - 2
Refunded Bonds 8 7
Housing 2 -
Water & Sewer 1 -
General Obligation Bonds 1 -
Pension - 1
In addition, each Trust may be considered
concentrated in the categories of bonds
identified below:
Approximate Percentage of
Aggregate Market Value
California
Category Series 224 Insured Trust
Refunded Bonds 58% 61%
A discussion of the types of Bonds is set forth
under "Summary of Portfolio" in Part B and "Tax
Status of the Trust" in Part A.
Insurance
All of the Bonds in the California Insured
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. The Bonds in the Trust are insured by the
following insurers (See "Insurance on the Bonds
in the Portfolio" in Part B for a description of
each of the Insurers):
California Insured
Trust
Approximate
Percentage of
Lot Aggregate
Insurer Nos. Market Value
Insurance to Maturity
AMBAC 1, 4, 9 & 11 37%
MBIA 2, 5, 6, 8 & 10 46
Financial Guaranty 7 14
BIGI 3 3
Ratings
Each of the Bonds in the Trusts were, as of the
Initial Date of Deposit, rated "A" or higher by
either Standard & Poor's Corporation or Moody's
Investors Service, Inc. (See "Schedule of
Investments"). Ratings indicated on the Schedule
of Investments are Standard & Poor's Corporation
ratings unless no rating was given to a Bond by
such rating service or the rating category
assigned by Moody's Investors Service, Inc. was
higher, in which case the Moody's Investors
Service, Inc. rating was indicated. The
percentage of the aggregate market value of the
Bonds in each Trust portfolio in each rating
category as of December 31, 1997 is set forth
below:
Percentage
California Insured
Series 224 Trust
AAA (Standard & Poor's) 24% 100%
AA (Standard & Poor's) 24 --
A (Standard & Poor's) 15 --
Aaa (Moody's) 17 --
Aa (Moody's) 10 --
NR 10 --
See "Summary of Portfolio" contained in Part B
for a summary of the Investment risks associated
with the Securities contained in the Trust.
SPECIAL CONSIDERATIONS REGARDING CALIFORNIA
SECURITIES
The financial condition of the State of
California (the "State"), its public authorities
and local governments could affect the market
values and marketability of, and therefore the
net asset value per share and the interest
income of, the Portfolio, or result in the
default of existing obligations, including
obligations which may be held by the Portfolio.
The following section provides only a brief
summary of the complex factors affecting the
financial condition of California, and is based
on information obtained from the State, as
publicly available on the date of this
Prospectus. The information contained in such
publicly available documents has not been
independently verified. It should be noted that
the creditworthiness of obligations issued by
local issuers may be unrelated to the
creditworthiness of obligations issued by the
State, and that there is no obligation on the
part of the State to make payment on such local
obligations in the event of default in the
absence of a specific guarantee or pledge
provided by the State.
During the early 1990's, California experienced
significant financial difficulties, which
reduced its credit standing, but the State's
finances have improved since 1994. The ratings
of certain related debt of other issuers for
which California has an outstanding lease
purchase, guarantee or other contractual
obligation (such as for state-insured hospital
bonds) are generally linked directly to
California's rating. Should the financial
condition of California deteriorate again, its
credit ratings could be further reduced, and the
market value and marketability of all
outstanding notes and bonds issued by
California, its public authorities or local
governments could be adversely affected.
Economic Factors
California's economy is the largest among the
50 states and one of the largest in the world.
The State's population of more than 32.9 million
represents over 12% of the total United States
population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated
$760 billion in 1995, accounts for almost 13% of
all personal income in the nation. Total
employment is over 14 million, the majority of
which is in the service, trade and manufacturing
sectors.
From mid-1990 to late 1993, the State suffered
a recession with the worst economic, fiscal and
budget conditions since the 1930s, with over
700,000 jobs lost. The worst job losses were,
in Southern California, led by declines in the
aerospace and construction industries, and
significantly related to cuts in federal defense
spending. Since the start of 1994, the California
economy has been in a steady recovery in all parts
of the State. The State Department of Finance has
reported strong net job growth, particularly in
construction, high technology and electronic
manufacturing and services, wholesale and retail
trade, exports, entertainment and tourism.
Prerecession job levels were reached in 1996,
and have been growing since then at faster than
the national average rate. Unemployment is down
to half the rate of the recession peak, but
still remains higher than the national average.
The Asian economic crisis is expected to have
some moderating effect on the State's economy,
as exports to the region will be reduced, but
there are also expected to be some offsetting
factors, and State exports to other areas, like
Latin America, have been growing rapidly.
Constitutional Limitations on Taxes, Other
Charges and Appropriations
Limitation on Property Taxes. Certain
California Municipal Obligations may be
obligations of issuers which rely in whole or in
part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The
taxing powers of California local governments
and districts are limited by Article XIIIA of
the California Constitution, enacted by the
voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits
to 1% of full cash value of the rate of ad
valorem property taxes on real property and
generally restricts the reassessment of property
to 2% per year, except under new construction or
change of ownership (subject to a number of
exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay
debt service on voter-approved bonded
indebtedness.
Under Article XIIIA, the basic 1% ad valorem
tax levy is applied against the assessed value
of property as of the owner's date of
acquisition (or as of March 1, 1975, if acquired
earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of
tax on similarly situated properties. Several
lawsuits have been filed challenging the
acquisition-based assessment system of
Proposition 13, but it was upheld by the U.S.
Supreme Court in 1992.
Article XIIIA prohibits local governments from
raising revenues through ad valorem taxes above
the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to
levy and "special tax." Court decisions,
however, allowed a non-voter approved levy of
"general taxes" which were not dedicated to a
specific use.
Limitations on Other Taxes, Fees and Charges.
On November 5, 1996, the voters of the State
approved Proposition 218, called the "Right to
Vote on Taxes Act." Proposition 218 added
Articles XIIIC and XIIID to the State
Constitution, which contain a number of
provisions affecting the ability of local
agencies to levy and collect both existing and
future taxes, assessments, fees and charges.
Article XIIIC requires that all new or
increased local taxes be submitted to the
electorate before they become effective. Taxes
for general governmental purposes require a
majority vote and taxes for specific purposes
require a two-thirds vote. Further, any general
purpose tax which was imposed, extended or
increased without voter approval after December
31, 1994 must be approved by a majority vote
within two years.
Article XIIID contains several new provisions
making it generally more difficult for local
agencies to levy and maintain "assessments" for
municipal services and programs. Article XIIID
also contains several new provisions affecting
"fees" and "charges", defined for purposes of
Article XIIID to mean "any levy other than an ad
valorem tax, a special tax, or an assessment,
imposed by a [local government] upon a parcel or
upon a person as an incident of property
ownership, including a user fee or charge for a
property related service." All new and existing
property related fees and charges must conform
to requirements prohibiting, among other things,
fees and charges which generate revenues
exceeding the funds required to provide the
property related service or are used for
unrelated purposes. There are new notice,
hearing and protest procedures for levying or
increasing property related fees and charges,
and, except for fees or charges for sewer, water
and refuse collection services (or fees for
electrical and gas service, which are not
treated as "property related" for purposes of
Article XIIID), no property related fee or
charge may be imposed or increased without
majority approval by the property owners subject
to the fee or charge or, at the option of the
local agency, two-thirds voter approval by the
electorate residing in the affected area.
In addition to the provisions described above,
Article XIIIC removes limitations on the
initiative power in matters of local taxes,
assessments, fees and charges. Consequently,
local voters could, by future initiative,
repeal, reduce or prohibit the future imposition
or increase of any local tax, assessment, fee or
charge. It is unclear how this right of local
initiative may be used in cases where taxes or
charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of
Proposition 218 will ultimately be determined by
the courts with respect to a number of matters,
and it is not possible at this time to predict
with certainty, the outcome of such
determinations. Proposition 218 is generally
viewed as restricting the fiscal flexibility of
local governments, and for this reason, some
ratings of California cities and counties have
been, and others may be, reduced.
Appropriations Limits. The State and its local
governments are subject to an annual
"appropriations limit" imposed by Article XIIIB
of the California Constitution, enacted by the
voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990,
respectively. Article XIIIB prohibits the State
or any covered local government from spending
"appropriations subject to limitation" in excess
of the appropriations limit imposed.
"Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes,"
which consist of tax revenues and certain other
funds, including proceeds from regulatory
licenses, user charges or other fees, to the
extent that such proceeds exceed the cost of
providing the product or service, but "proceeds
of taxes" exclude most State subventions to
local governments. No limit is imposed on
appropriations of funds which are not "proceeds
of taxes," such as reasonable user charges or
fees, and certain other non-tax funds, including
bond proceeds.
Among the expenditures not included in Article
XIIIB appropriations limit are (1) the debt
service cost of bonds issued or authorized prior
to January 1, 1979, or subsequently authorized
by voters, (2) appropriations arising from
certain emergencies declared by the Governor,
(3) appropriations for certain capital outlay
projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and
vehicle weight fees, and (5) appropriations made
in certain cases of emergency.
The appropriations limit for each year is
adjusted annually to reflect changes in cost of
living and population, and any transfers of
service responsibilities between government
units. The definitions for such adjustments
were liberalized in 1990 to follow more closely
growth in the State's economy.
"Excess" revenues are measured over a two year
cycle. Local governments must return any excess
to taxpayers by rate reductions. The State must
refund 50% of any excess, with the other 50%
paid to schools and community colleges. With
more liberal annual adjustment factors since
1988, and depressed revenues since 1990 because
of the recession, few governments are currently
operating near their spending limits, but this
condition may change over time. Local
governments may by voter approval exceed their
spending limits for up to four years. State
appropriations were more than $6.0 billion under
the limit for fiscal year 1997-98.
Because of the complex nature of Articles
XIIIA, XIIIB, XIIIC and XIIID of the California
Constitution, the ambiguities and possible
inconsistencies in their terms, and the
impossibility of predicting future
appropriations or changes in population and cost
of living, and the probability of continuing
legal challenges, it is not currently possible
to determine fully the impact of these Articles
on California Municipal Obligations or on the
ability of the State or local governments to pay
debt service on such California Municipal
Obligations. It is not possible, at the present
time, to predict the outcome of any pending
litigation with respect to the ultimate scope,
impact or constitutionality of these Articles or
the impact of any such determinations upon State
agencies or local governments, or upon their
ability to pay debt service on their
obligations. Further initiatives or legislative
changes in laws or the California Constitution
may also affect the ability of the State or
local issuers to repay their obligations.
Obligations of the State of California.
Under the California Constitution, debt service
on outstanding general obligation bonds is the
second charge to the General Fund after support
of the public school system and public
institutions of higher education. As of
February 1, 1998, the State had outstanding
approximately $18.5 billion of long-term general
obligation bonds, plus $1.051 billion of general
obligation commercial paper which will be
refunded by long-term bonds in the future, and
$6.4 billion of lease-purchase debt supported by
the State General Fund. The State also had
about $9 billion of authorized and unissued
general obligation bonds and lease-purchase
debt. In FY 1996-97, debt service on general
obligation bonds and lease purchase debt was
approximately 5.0% of General Fund revenues.
Recent Financial Results.
The principal sources of General Fund revenues
in 1996-1997 were the California personal income
tax (47% of total revenues), the sales tax
(34%), and bank and corporation taxes (12%).
The State maintains a Special Fund for Economic
Uncertainties (the "SFEU"), derived from General
Fund revenues, as a reserve to meet cash needs
of the General Fund, but which is required to be
replenished as soon as sufficient revenues are
available. Year-end balances in the Economic
Uncertainties Fund are included for financial
reporting purposes in the General Fund balance.
General. Throughout the 1980's, State spending
increased rapidly as the State population and
economy also grew rapidly, including increased
spending for many assistance programs to local
governments, which were constrained by
Proposition 13 and other laws. The largest
State program is assistance to local public
school districts. In 1988, an initiative
(Proposition 98) was enacted which (subject to
suspension by a two-thirds vote of the
Legislature and the Governor) guarantees local
school districts and community college districts
a minimum share of State General Fund revenues
(currently about 35%).
Since the start of the 1990-91 fiscal year, the
State has faced adverse economic, fiscal, and
budget conditions. The economic recession
seriously affected State tax revenues. It also
caused increased expenditures for health and
welfare programs.
Recent Budgets. As a result of these factors,
among others, from the late 1980's until 1992-
93, the State had a period of nearly chronic
budget imbalance, with expenditures exceeding
revenues in four out of six years, and the State
accumulated and sustained a budget deficit in
the SFEU approaching $2.8 billion at its peak at
June 30, 1993. For several years, each budget
required multibillion dollar actions to bring
projected revenues and expenditures into balance
and to close large "budget gaps" which were
identified. The Legislature and Governor
eventually agreed on a number of different steps
to produce Budget Acts in the Years 1991-92 to
1995-96, (although not all of these actions were
taken in each year):
* significant cuts in health and welfare
program expenditures;
* transfers of program responsibilities and
some funding sources from the State to local
governments, coupled with some reduction in
mandates on local government;
* transfer of about $3.6 billion in annual
local property tax revenues from cities,
counties,
redevelopment agencies and some other
districts to local school districts, thereby
reducing State
funding for schools;
* reduction in growth of support for higher
education programs, couples with increases in
student
fees;
* revenue increases (particularly in the 1992-
93 Fiscal Year budget), most of which were for a
short
duration;
* increased reliance on aid from the federal
government to offset the costs of incarcerating,
educating and providing health and welfare
services to undocumented aliens (although these
efforts have produced much less federal aid
than the State Administration had requested);
and
* various one-time adjustment and accounting
changes.
The combination of stringent budget actions
cutting State expenditures, and the turnaround
of the economy by late 1993, finally led to the
restoration of positive financial results, with
revenues equaling or exceeding expenditures
starting in FY 1992-93. As a result, the
accumulated budget deficit of about $2.8 billion
was eliminated by June 30, 1997, when the State
showed a positive balance of about $408 million,
on a budgetary basis, in the SFEU.
A consequence of the accumulated budget
deficits in the early 1990's, together with
other factors such as disbursement of funds to
local school districts "borrowed" from future
fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's
cash resources available to pay its ongoing
obligations. The State's cash condition became
so serious that from late spring 1992 until
1995, the State had to rely on issuance of short
term notes which matured in a subsequent fiscal
year to finance its ongoing deficit, and pay
current obligations. For a two-month period in
the summer of 1992, pending adoption of the
annual Budget Act, the State was forced to issue
registered warrants (IOUs) to some of its
suppliers, employees and other creditors. The
last of these deficit notes was repaid in April,
1996.
The 1995-96 and 1996-97 Budget Acts reflected
significantly improved financial conditions, as
the State's economy recovered and tax revenues
soared above projections. Over the two years,
revenues averaged about $2 billion higher than
initially estimated. Most of the additional
revenues were allocated to school funding, as
required by Proposition 98, and to make up
shortfalls in federal aid for health and welfare
costs and costs of illegal aliens. The budgets
for both these years showed strong increases in
funding for K-14 public education, including
implementation of initiatives to reduce class
sizes for lower elementary grades to not more
than 20 pupils. Higher education funding also
increased. Spending for health and welfare
programs was kept in check, as previously-
implemented cuts in benefit levels were
retained.
The final results for FY 1996-97 showed General
Fund revenues of $49.2 billion and expenditures
of $48.9 billion. The improved revenues allowed
the repayment of the last of the recession-
induced budget deficits; the SFEU had a balance
of $408 million on a budgetary basis ($281
million on a cash basis) as of June 30, 1997,
the first significant positive balance in the
decade. In 1996-97, the State implemented its
regular cash flow borrowing program with the
issuance of $3.0 billion of Revenue Anticipation
Notes which matured on June 30, 1997, and did
not require any external borrowing over the end
of the fiscal year.
Fiscal Year 1997-98 Budget. With continued
strong economic recovery and surging tax
receipts, the State entered the 1997-98 Fiscal
Year in the strongest financial position in the
decade. However, in May 1997, the California
Supreme Court ruled that the State had acted
illegally in 1993 and 1994 by using a deferral
of payments to the Public Employees Retirement
Fund to help balance earlier budgets. In
response to this court decision, the Governor
ordered an immediate repayment to the Retirement
Fund of about $1.235 billion, which was made in
late July, 1997, and substantially "used up" the
expected additional revenues for the fiscal
year.
On August 18, 1997, the Governor signed the
1997-98 Budget Act. The Budget Act assumed
General Fund revenues and transfers of $52.5
billion, and contained expenditures of $52.8
billion. As a result, the budget reserve (SFEU)
was reduced to an estimated $112 million at June
30, 1998. The Budget Act also contains $14.4
billion of Special Fund expenditures. Following
enactment of the Budget Act, the State carried
out its normal annual cash flow borrowing,
totaling $3.0 billion to mature June 30, 1998.
The 1997-98 Budget Act provided another year of
rapidly increasing funding for K-14 public
education. Total General Fund support will
reach $5,150 per pupil, more than 20% higher
than the recession-period levels which were in
effect as late as FY 1993-94. The $1.75 billion
in new funding will be spent on class size
reduction and other initiatives, as well as
fully funding growth and cost of living
increases. Support for higher education units
in the State also increased by about 6 percent.
Because of the pension payment, most other State
programs were funded at levels consistent with
prior years, and several initiatives had to be
dropped. These included additional assistance
to local governments, state employee raises, and
funding of a bond bank.
Part of the 1997-98 Budget Act was completion
of State welfare reform legislation to implement
the new federal law passed in 1996. The new
State program, called "CalWORKs," became
effective January 1, 1998, will emphasize
programs to bring aid recipients into the
workforce. As required by federal law, new time
limits will be placed on receipt of welfare aid.
Grant levels for 1997-98 remain at the reduced,
prior years' levels.
Although, as noted, the 1997-98 Budget Act
projects a budget reserve in the SFEU of $112
million on June 30, 1998, the General Fund fund
balance on that date also reflects $1.25 billion
of "loans" which the General Fund made to local
schools in the recession years, representing
cash outlays above the mandatory minimum funding
level. Settlement of litigation over these
transactions in July 1996 calls for repayment of
these loans over the period ending in 2001-02,
about equally split between outlays from the
General Fund and from schools' entitlements.
The 1997-98 Budget Act contained a $200 million
appropriation from the General Fund toward this
settlement
Updated figures from the Department of Finance,
released in early January, 1998, project both
revenues and expenditures will be higher in
1997-98 than estimated when the Budget Act was
passed, reflecting continued strong economic
activity. The Department projects the budget
reserve (SFEU) at June 30, 1998 will be
approximately $329 million.
Proposed 1998-99 Fiscal Year Budget. The
Governor released his proposed FY 1998-99 Budget
on January 9, 1998. It projected General Fund
revenues and transfers of $55.4 billion, an
increase of almost 5% over 1997-98. Revenue
losses due to tax cuts enacted in late 1997 were
expected to be offset by higher capital gains
realizations. The Governor proposed
expenditures of $55.4 billion, also an almost 5%
increase from the prior year. The Governor's
Budget proposes significant additional funding
for K-12 schools under Proposition 98, as well
as additional funding for higher education, with
a proposed reduction of college student fees.
State and federal funds will be used in the new
CalWORKS welfare program, with projections of a
fourth consecutive year or caseload decline.
The Governor has proposed a large capital
expenditure program, focusing on schools and
universities, but also including corrections,
environmental and general government projects.
These proposals would require approval of almost
$10 billion of new general obligation bonds over
the next six years. All of the Governor's
proposals will be reviewed by the Legislature as
part of the annual budget process.
Although the State's strong economy is
producing record revenues to the State
government, the State's budget continues to be
under stress from mandated spending on
education, a rising prison population, and
social needs of a growing population with many
immigrants. These factors which limit State
spending growth also put pressure on local
governments. There can be no assurances that,
if economic conditions weaken, or other factors
intercede, the State will not experience budget
gaps in the future.
Bond Rating
The ratings on California's long-term general
obligation bonds were reduced in the early
1990's from "AAA" levels which had existed prior
to the recession, but have been raised since
1996. As of April 1998 California's general
obligation bonds were assigned ratings of "A+"
from Standard & Poor's, "A1" from Moody's and
"AA-" from Fitch.
There can be no assurance that such ratings
will be maintained in the future. It should be
noted that the creditworthiness of obligations
issued by local California issuers may be
unrelated to creditworthiness of obligations
issued by the State of California, and that
there is no obligation on the part of the State
to make payment on such local obligations in the
event of default.
Legal Proceedings
The State is involved in certain legal
proceedings (described in the State's recent
financial statements) that, if decided against
the State, may require the State to make
significant future expenditures or may
substantially impair revenues. Trial courts
have recently entered tentative decisions or
injunctions which would overturn several parts
of the State's recent budget compromises. The
matters covered by these lawsuits include a
deferral of payments by California to the Public
Employees Retirement System, reductions in
welfare payments and the use of certain
cigarette tax funds for health costs. All of
these cases are subject to further proceedings
and appeals, and if California eventually loses,
the final remedies may not have to be
implemented in one year.
Obligations Of Other Issuers
Other Issuers of California Municipal
Obligations. There are a number of State
agencies, instrumentalities and political
subdivisions of the State that issue Municipal
Obligations, some of which may be conduit
revenue obligations payable from payments from
private borrowers. These entities are subject
to various economic risks and uncertainties, and
the credit quality of the securities issued by
them may vary considerably from the credit
quality of obligations backed by the full faith
and credit of the State.
State Assistance. Property tax revenues
received by local governments declined more than
50% following passage of Proposition 13.
Subsequently, the California Legislature enacted
measures to provide for the redistribution of
the State's General Fund surplus to local
agencies, the reallocation of certain State
revenues to local agencies and the assumption of
certain governmental functions by the State to
assist municipal issuers to raise revenues.
Total local assistance from the State's General
Fund was budgeted at approximately 75% of
General Fund expenditures in recent years,
including the effect of implementing reductions
in certain aid programs. To reduce State
General Fund support for school districts, the
1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property
tax revenues to school districts, representing
loss of the post-Proposition 13 "bailout" aid.
Local governments have in return received
greater revenues and greater flexibility to
operate health and welfare programs. To the
extent the State should be constrained by its
Article XIIIB appropriations limit, or its
obligation to conform to Proposition 98, or
other fiscal considerations, the absolute level,
or the rate of growth, of State assistance to
local governments may continue to be reduced.
Any such reductions in State aid could compound
the serious fiscal constraints already
experienced by many local governments,
particularly counties. At least one rural
county (Butte) publicly announced that it might
enter bankruptcy proceedings in August 1990,
although such plans were put off after the
Governor approved legislation to provide
additional funds for the county. Other counties
have also indicated that their budgetary
condition is extremely grave. Los Angeles
County, the largest in the State, was forced to
make significant cuts in services and personnel,
particularly in the health care system, in order
to balance its budget in 1995-96 and 1996-97.
Los Angeles County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange
County, which emerged from Federal Bankruptcy
Court protection in June 1996, has significantly
reduced county services and personnel, and faces
strict financial conditions following large
investment fund losses in 1994 which resulted in
bankruptcy.
Counties and cities may face further budgetary
pressures as a result of changes in welfare and
public assistance programs, which were enacted
in August, 1997 in order to comply with the
federal welfare reform law. Generally, counties
play a large role in the new system, and are
given substantial flexibility to develop and
administer programs to bring aid recipients into
the workforce. Counties are also given
financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs
exceed minimum targets; counties are also
subject to financial penalties for failure to
meet such targets. Counties remain responsible
to provide "general assistance" for able-bodied
indigents who are ineligible for other welfare
programs. The long-term financial impact of the
new CalWORKs system on local governments is
still unknown.
Legislation enacted in late 1997 provides for
the State to take over financial responsibility
for funding trial courts throughout the State.
This is estimated to save counties and cities a
total of over $350 million annually.
Assessment Bonds. California Municipal
Obligations which are assessment bonds may be
adversely affected by a general decline in real
estate values or a slowdown in real estate sales
activity. In many cases, such bonds are secured
by land which is undeveloped at the time of
issuance but anticipated to be developed within
a few years after issuance. In the event of such
reduction or slowdown, such development may not
occur or may be delayed, thereby increasing the
risk of a default on the bonds. Because the
special assessments or taxes securing these
bonds are not the personal liability of the
owners of the property assessed, the lien on the
property is the only security for the bonds.
Moreover, in most cases the issuer of these
bonds is not required to make payments on the
bonds in the event of delinquency in the payment
of assessments or taxes, except from amounts, if
any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Based
on a series of court decisions, certain long-
term lease obligations, though typically payable
from the general fund of the State or a
municipality are not considered "indebtedness"
requiring voter approval. Such leases, however,
are subject to "abatement" in the event the
facility being leased is unavailable for
beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not
a default, and there may be no remedies
available to the holders of the certificates
evidencing the lease obligation in the event
abatement occurs. The most common cases of
abatement are failure to complete construction
of the facility before the end of the period
during which lease payments have been
capitalized and uninsured casualty losses to the
facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease
obligation, lease payments may be interrupted
(if all available insurance proceeds and
reserves are exhausted) and the certificates may
not be paid when due. Litigation is brought
form time to time which challenges the
constitutionality of such lease arrangements.
Other Considerations
The repayment of industrial development
securities secured by real property may be
affected by California laws limiting foreclosure
rights of creditors. Securities backed by
health care and hospital revenues may be
affected by changes in State regulations
governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy
of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may
particularly affect "tax allocation": bonds
issued by California redevelopment agencies.
Such bonds are secured solely by the increase in
assessed valuation of a redevelopment project
area after the start of redevelopment activity.
In the event that assessed values in the
redevelopment project decline (e.g., because of
a major natural disaster such as an earthquake),
the tax increment revenue may be insufficient to
make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings
on California tax allocation bonds after the
enactment of Articles XIIIA and XIIIB, and only
resumed such ratings on a selective basis.
Proposition 87, approved by California voters
in 1988, requires that all revenues produced by
a tax rate increase go directly to the taxing
entity which increased such tax rate to repay
that entity's general obligation indebtedness.
As a result, redevelopment agencies (which,
typically, are the issuers of tax allocation
securities) no longer receive an increase in tax
increment when taxes on property in the project
area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and
statutory changes upon the ability of California
municipal securities issuers to pay interest and
principal on their obligations remains unclear.
Furthermore, other measures affecting the taxing
or spending authority of California or its
political subdivisions may be approved or
enacted in the future. Legislation has been or
may be introduced which would modify existing
taxes or other revenue-raising measures or which
either would further limit or, alternatively,
would increase the abilities of state and local
governments to impose new taxes or increase
existing taxes. It is not possible, at present,
to predict the extent to which any such
legislation will be enacted. Nor is it
possible, at present, to determine the impact of
any such legislation on California Municipal
Obligations in which the fund may invest, future
allocations of state revenues to local
governments or the abilities of state or local
governments to pay the interest on, or repay the
principal of, such California Municipal
Obligations.
Substantially all of California is within an
active geologic region subject to major seismic
activity. Northern California in 1989 and
Southern California in 1994 experienced major
earthquakes causing billions of dollars in
damages. The federal government provided more
than $13 billion in aid for both earthquakes,
and neither event is expected to have any long-
term negative economic impact. Any California
Municipal Obligation in the Trust could be
affected by an interruption of revenues because
of damaged facilities, or, consequently, income
tax deductions for casualty losses or property
tax assessment reductions. Compensatory
financial assistance could be constrained by the
inability of (i) an issuer to have obtained
earthquake insurance coverage rates; (ii) an
insurer to perform on its contracts of insurance
in the event of widespread losses; or (iii) the
federal or State government to appropriate
sufficient funds within their respective budget
limitations.
Tax Status of the Trust - California
In the opinion of Orrick, Herrington &
Sutcliffe, special California counsel on
California tax matters, under existing law
applicable to individuals who are California
residents:
1. The California Trust is not an association
taxable as a corporation for California income
tax purposes. Under the income tax laws of
California, income of the California Trust will
be treated as income of Certificateholders.
2. Interest on the underlying Securities that
is exempt from California personal income tax
and property tax when received by the California
Trust will retain its status as tax-exempt
interest when distributed to Certificateholders.
However, interest on the underlying Securities
attributed to a Certificateholder that is a
corporation subject to the California franchise
tax laws may be includable in its gross income
for purposes of determining its California
franchise tax.
3. Under the income tax laws of California,
Certificateholders in the California Trust will
have a taxable event when the California Trust
disposes of a Security (whether by sale,
exchange, redemption, or payment at maturity),
or when the Certificateholders redeem or sells
Units. Because of the requirement that tax cost
basis be reduced to reflect amortization of bond
premium, under some circumstances a
Certificateholder may realize taxable gain when
Units are sold or redeemed for an amount equal
to or less than their original cost. The total
cost of each Unit to a Certificateholder is
allocated among each of the bond issues held in
the California Trust, in accordance with the
proportion of the California Trust comprised by
each bond issue, to determine its per Unit tax
cost for each bond issue. The tax cost reduction
requirements relating to amortization of bond
premium will apply separately to the per Unit
cost of each bond issue. Certificateholders may
be required to adjust the bases of their Units
and the bases of their fractional interests in
each California Trust asset to reflect their pro
rata shares of accrued interest, if any,
received on Securities delivered after the
Certificateholders' respective settlement dates.
4. Bonds, including Securities, or any
interests therein, are exempt from California
personal property tax.
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 rendered
by bond counsel to the respective issuers.
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 Carter, Ledyard & Milburn,
counsel to the Sponsor, under existing law:
(i) The Trust is not an association taxable as
a corporation for U.S. federal income tax
purposes but will be governed by the provisions
of Subchapter J (relating to Trusts) of Chapter
1, Internal Revenue Code of 1986 (the "Code").
Each Unitholder will be considered as owning a
pro rata share of each asset of the respective
Trust in the proportion that the number of Units
of such Trust held by him bears to the total
number of outstanding Units of such Trust.
Under Subpart E, Subchapter J of Chapter I of
the Code, income of the Trust will be treated as
income of each Unitholder of the Trust in the
proportion described. Accordingly, to the
extent that the income of the Trust consists of
interest and original issue discount excludable
from gross income under Section 103 of the Code,
such income will be excludable from federal
gross income of the Unitholder, except in the
case of a Unitholder who is a substantial user
(or a person related to such user) of a facility
financed through issuance of any industrial
development bonds or certain private activity
bonds held by the Trust. All taxpayers are
nevertheless required to disclose to the
Internal Revenue Service the amount of tax-
exempt interest earned during the year. In the
case of certain corporations, interest on all of
the Securities is included in computing the
alternative minimum taxable income pursuant to
Section 56(c) of the Code.
(ii) If the Trustee disposes of a Security
(whether by sale, payment at maturity,
redemption or otherwise), gain or loss is
recognized to the Unitholder. A Unitholder will
also be considered to have disposed of all or a
portion of his pro rata portion of each Security
when he sells or redeems some or all of his
Units. Such gain or loss is measured by
comparing the Unitholder's share of such
proceeds (or, in the case of a sale or
redemption of Units, the portion of the proceeds
allocable to a Security) with the Unitholder's
adjusted basis for such Security.
(iii) Under the income tax laws of the State
and City of New York, the Trust is not an
association taxable as a corporation and income
received by the Trust will be treated as the
income of the Unitholders in the same manner as
for federal income tax purposes, but will not be
tax-exempt except to the extent that such income
is earned on bonds in the Trust that are
otherwise tax-exempt for New York purposes.
Additional Tax Considerations
1. Tax basis. A Unitholder's initial basis in
his Units will be equal to the cost of his
Units, including any up-front or deferred sales
charge and the organizational expenses borne by
the Unitholder. Such basis must be apportioned
among each of the Securities and other assets of
the Trust, as of the date the Units were
acquired, ratably according to their values as
of such date (or the nearest valuation date). A
Unitholder's tax basis for his Units and for his
fractional interest in each Trust asset must be
reduced by the amount of his aliquot share of
accrued interest received by the Trust, if any,
after the date of purchase of his Units, to the
extent that such accrued interest was included
in the cost of his Units; must also be reduced
by the annual amortization of bond premium, if
any, on Securities held by the Trust; and is
increased by the Unitholder's share of accrued
original issue discount (and market discount, if
the Unitholder elects to include market discount
in income as it accrues) with respect to each
Security held by the Trust which, at the time
the Security was issued, had original issue
discount (or which was purchased with market
discount).
2. Bond premium. If a Security is purchased
for a premium over its redemption price, the
amount of the premium is included in the tax
basis of the Security. Such premium is
amortized over the remaining term of the
Security, and the tax basis of the Security is
reduced each tax year by the amount of the
premium amortized in that tax year. As a
result, under certain circumstances 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.
3. Original issue discount. In the case of
any Security held by the Trust where the "stated
redemption price at maturity" exceeds the "issue
price," such excess (subject to a de minimis
rule) constitutes original issue discount. In
the case of any Security held by the Trust the
interest on which is excludable from gross
income under Section 103 of the Code, any
original issue discount which accrues with
respect thereto will be treated as interest
which is excludable from gross income under
Section 103 of the Code. With respect to any
purchaser of Securities subsequent to their
original issuance, Section 1272(a)(7) of the
Code provides for a reduction, under certain
circumstances, in the accrued "daily portion" of
such original issue discount.
4. Market discount. The Code subjects tax-
exempt bonds to the market discount rules of the
Code effective for bonds purchased after April
30, 1993. In general, market discount is the
amount (if any) by which the stated redemption
price at maturity exceeds an investor's purchase
price (except to the extent that such
difference, if any, is attributable to original
issue discount not yet accrued) subject to a
statutory de minimis rule. Market discount can
arise based on the price the Trust pays for
Securities or the price a Unitholder pays for
his Units. Under the Code, accretion of market
discount is taxable as ordinary income; under
prior law, the accretion had been treated as
capital gain. Market discount that accretes
while the Trust holds a Security would be
recognized as ordinary income by the Unitholders
when principal payments are received on the
Security, upon sale or at redemption (including
early redemption), or upon the sale or
redemption of his or her Units, unless a
Unitholder elects to include market discount in
taxable income as it accrues.
5. Corporate alternative minimum tax. Because
the Trust does not include any "specified
private activity bonds" within the meaning of
Section 57(a)(5) of the Code issued on or after
August 8, 1986, none of the Trust's interest
income shall be treated as an item of tax
preference when computing the alternative
minimum tax. In the case of corporations, the
alternative minimum tax depends upon the
corporation's alternative minimum taxable income
("AMTI"), which is the corporation's taxable
income with certain adjustments.
Pursuant to Sections 56(c) and (g) of the Code,
one of the adjustment items used in computing
AMTI of a corporation (other than an S
Corporation, Regulated Investment Company, Real
Estate Investment Trust or REMIC) is an amount
equal to 75% of the excess of such corporation's
"adjusted current earnings" over an amount equal
to its AMTI (before such adjustment item and the
alternative tax net operating loss deduction).
"Adjusted current earnings" includes all tax-
exempt interest, including interest on all
Securities in the Trust, and tax-exempt original
issue discount.
Effective for taxable years beginning after
December 31, 1997, the alternative minimum tax
will not apply to corporations having annual
gross receipts, generally, not in excess of $5
million.
6. Disallowance of related items. Under
Section 265 of the Code, interest on
indebtedness incurred or continued to purchase
or carry Units is not deductible for federal
income tax purposes. Under rules used by the
Internal Revenue Service for determining when
borrowed funds are considered used for the
purpose of purchasing or carrying particular
assets, the purchase of Units may be considered
to have been made with borrowed funds even
though the borrowed funds are not directly
traceable to the purchase of Units. Also, under
Section 265, a Unitholder will generally not be
entitled to a deduction for his pro rata share
of fees and expenses of the Trust, or for the
amortization of bond premium, because they are
incurred in connection with the production of
tax-exempt income.
7. Taxability of Social Security benefits.
Code Section 86 provides that a portion of
social security benefits 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.
The foregoing discussion relates only to U.S.
federal and certain aspects of New York State
and City income taxes. Depending on their state
of residence, Unitholders may be subject to
state and local taxation and should consult
their own tax advisers in this regard. The
preceding discussion also omits certain rules
applicable to certain financial institutions,
insurance companies, foreign corporations, S
corporations and other entities subject to
special rules under the Internal Revenue Code.
Co-Trustees
The Co-Trustees are The First National Bank of
Chicago, a national banking association with its
corporate trust office at One First National
Plaza, Suite 0126, Chicago, Illinois 60670-0126
(which is subject to supervision by the
Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Board of Governors
of the Federal Reserve System) and Investors
Bank & Trust Company, a Massachusetts trust
company with its office at Hancock Towers, P.O.
Box 9130, Boston, Massachusetts 02117-9130,
telephone no. 1-800-356-2754 (which is subject
to supervision by the Massachusetts Commissioner
of Banks, the Federal Deposit Insurance
Corporation and the Federal Reserve System).
SERIES 224
ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1997
Initial Date of Deposit and of Trust Indenture
and Agreement
January 31, 1990
Principal Amount of Bonds in Trust
$7,370,000
Number of Units Outstanding
7,985
Minimum Purchase
1 Unit
Fractional Undivided Interest in Trust Represented
by each Unit
1/7,985th
Public Offering Price
Aggregate Bid Price of Bonds in Trust$7,792,480 *~
Divided by 7,985 Units$975.89 *~
Plus Sales Charge of
1.57% of Public Offering Price15.54
Public Offering Price per Unit$991.43 *~
Redemption Value per Unit
$975.89 *~
Excess of Public Offering Price per Unit Over
Redemption Value per Unit
$15.54
Sponsor's Repurchase Price per Unit
$975.89 *~
Excess of Public Offering Price per Unit Over
Sponsor's Repurchase Price per Unit
$15.54
Minimum Principal Distribution
No distribution need be made from Principal
Account if balance of Account is less than $10,000.
Evaluation Time
4 P.M. New York Time
Mandatory Termination Date * *
January 1, 2040
Discretionary Termination
Indenture may be terminated if value of Trust is
less than $2,000,000.
<TABLE>
INTEREST DISTRIBUTION INFORMATION
<CAPTION>
Monthly
<S> <C>
Gross annual interest income per unit $65.35
Less estimated annual fees and expenses per unit * * * * 2.13
Less Sponsor's annual fee per unit * * * * .17
Estimated net annual interest income per unit $63.05
Estimated interest distribution per unit $5.25
Daily rate at which estimated net interest accrues per unit $.1750
Estimated current return * * * 6.36%
Record dates 1st of
each month
Interest distribution dates 15th of
each month
Trustee's annual fee per $1,000 principal amount of bonds * * * * $1.09
Evaluator's daily fee per bond * * * * $.40
__________________
* 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>
CALIFORNIA INSURED, SERIES 7A
ESSENTIAL INFORMATION REGARDING THE TRUST
AS OF DECEMBER 31, 1997
Initial Date of Deposit and of Trust Indenture
and Agreement
January 31, 1990
Principal Amount of Bonds in Trust
$4,115,000
Number of Units Outstanding
4,141
Minimum Purchase
1 Unit
Fractional Undivided Interest in Trust Represented
by each Unit
1/4,141st
Public Offering Price
Aggregate Bid Price of Bonds in Trust$4,367,021 *~
Divided by 4,141 Units$1,054.58 *~
Plus Sales Charge of
1.05% of Public Offering Price11.21
Public Offering Price per Unit$1,065.79 *~
Redemption Value per Unit
$1,054.58 *~
Excess of Public Offering Price per Unit Over
Redemption Value per Unit
$11.21
Sponsor's Repurchase Price per Unit
$1,054.58 *~
Excess of Public Offering Price per Unit Over
Sponsor's Repurchase Price per Unit
$11.21
Minimum Principal Distribution
No distribution need be made from Principal
Account if balance of Account is less than $6,000.
Evaluation Time
4 P.M. New York Time
Mandatory Termination Date * *
January 1, 2040
Discretionary Termination
Indenture may be terminated if value of Trust is
less than $1,200,000.
<TABLE>
INTEREST DISTRIBUTION INFORMATION
<CAPTION>
Monthly
<S> <C>
Gross annual interest income per unit $69.35
Less estimated annual fees and expenses per unit * * * * 2.26
Less Sponsor's annual fee per unit * * * * .17
Estimated net annual interest income per unit $66.92
Estimated interest distribution per unit $5.57
Daily rate at which estimated net interest accrues per unit $.1856
Estimated current return * * * 6.28%
Record dates 1st of
each month
Interest distribution dates 15th of
each month
Trustee's annual fee per $1,000 principal amount of bonds * * * * $1.09
Evaluator's daily fee per bond * * * * $.40
__________________
* 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>
<TABLE>
FINANCIAL SUMMARY
SERIES 224
The following sets forth a summary of
distributions and redemption values per unit
for The Municipal Bond Trust, Series 224.
<CAPTION>
DISTRIBUTIONS
PERIOD ENDING PER UNIT
<S> <C> <C>
MONTHLY December 31, 1995 $69.43
December 31, 1996 68.90
December 31, 1997 68.56
PRINCIPAL December 31, 1997 70.84
As of December 31, 1995, 1996 and December
31, 1997, the redemption values per unit were
$1,078.17, $1,057.23, and $975.89 plus
accrued interest to the respective dates.
FINANCIAL SUMMARY
CALIFORNIA INSURED, SERIES 7A
The following sets forth a summary of
distributions and redemption values per unit
for The Municipal Bond Trust, California
Insured, Series 7A.
<CAPTION>
DISTRIBUTIONS
PERIOD ENDING PER UNIT
<S> <C> <C>
MONTHLY December 31, 1995 $66.99
December 31, 1996 66.48
December 31, 1997 66.39
PRINCIPAL December 31, 1996 1.14
December 31, 1997 3.40
As of December 31, 1995, 1996 and December
31, 1997, the redemption values per unit were
$1,101.29, $1,074.98, and $1,054.58 plus
accrued interest to the respective dates.
</TABLE>
<TABLE>
REPORT OF INDEPENDENT AUDITORS
<C> <S>
THE UNITHOLDERS, SPONSOR AND CO-TRUSTEES
THE MUNICIPAL BOND TRUST, SERIES 224 AND
THE MUNICIPAL BOND TRUST, CALIFORNIA INSURED,
SERIES 7A:
We have audited the accompanying statements of
financial condition, including the schedules of
investments, of The Municipal Bond Trust, Series
224 and The Municipal Bond Trust, California
Insured, Series 7A as of December 31, 1997 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 Co-Trustees. 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 December 31, 1997,
as shown in the statements of financial
condition and schedules of investments, by
correspondence with the Co-Trustees. An audit
also includes assessing the accounting
principles used and significant estimates made
by the Co-Trustees, 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, Series 224 and The
Municipal Bond Trust, California Insured, Series
7A at December 31, 1997 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 LLP
New York, New York
April 9, 1998
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
SERIES 224
STATEMENT OF FINANCIAL CONDITION
December 31, 1997
<CAPTION>
ASSETS
<S> <C> <C>
Investment in municipal bonds - at market value (Cost $6,983,830)
(note 4 to schedule of investments) $7,792,466
Accrued interest receivable 153,960
Bond sold/called receivable 561,000
Cash 18,836
Total Assets $8,526,262
LIABILITIES AND NET ASSETS
Distribution payable (note E) $611,172
Accrued expenses payable 6,020
Total Liabilities 617,192
Net assets (7,985 units of fractional undivided interest outstanding):
Cost to investors (note B) $7,332,105
Less gross underwriting commissions (note C) (348,275)
6,983,830
Net unrealized market appreciation (note D) 808,636
Net amount applicable to unitholders 7,792,466
Undistributed investment income-net 116,590
Undistributed proceeds from bonds sold or redeemed 14
Net Assets 7,909,070
Total Liabilities and Net Assets $8,526,262
Net Asset Value Per Unit $990.49
STATEMENT OF OPERATIONS
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Investment Income - Interest $576,110 $611,991 $673,319
Less expenses:
Trustee's fees, Evaluator's fees and expenses 19,020 19,585 22,628
Total expenses 19,020 19,585 22,628
Investment Income-net 557,090 592,406 650,691
Realized and unrealized gain (loss) on investments-net:
Net realized gain (loss) on securities transactions (429) 47,610 50,443
Net change in unrealized market appreciation (depreciation) (86,125) (231,577) 525,734
Net gain (loss) on investments (86,554) (183,967) 576,177
Net increase in net assets resulting from operations $470,536 $408,439 $1,226,868
See accompanying notes to financial statements.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
SERIES 224
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operations:
Investment income-net $557,090 $592,406 $650,691
Net realized gain (loss) on securities transactions (429) 47,610 50,443
Net change in unrealized market appreciation (depreciation) (86,125) (231,577) 525,734
Net increase in net assets resulting from operations 470,536 408,439 1,226,868
Less: Distributions to Unitholders
Investment Income 555,534 589,964 649,643
Principal 565,657 --- ---
Total Distributions 1,121,191 589,964 649,643
Less: Units Redeemed by Unitholders (Note F)
Value of units at date of redemption 353,612 584,371 841,232
Accrued interest at date of redemption 5,954 9,610 14,375
Total Redemptions 359,566 593,981 855,607
Decrease in net assets (1,010,221) (775,506) (278,382)
Net Assets:
Beginning of period 8,919,291 9,694,797 9,973,179
End of period $7,909,070 $8,919,291 $9,694,797
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(A) The financial statements of the Trust are
prepared on the accrual basis of accounting.
Bond transactions are
accounted for on the date the bonds are
purchased or sold.
(B) Cost to the investors represents the initial
public offering price as of the initial 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 initial 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 December 31, 1997, the gross unrealized
market appreciation was $810,641 and the gross
unrealized market
depreciation was ($2,005). The net unrealized
market appreciation was $808,636.
(E) Distributions of the net investment income
to Unitholders are declared and paid monthly.
See the Financial
Summary included in Part A.
(F) The following units were redeemed with
proceeds of bonds sold as follows:
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Number of units redeemed 337 551 786
Redemption amount $359,566 $593,981 $855,607
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
CALIFORNIA INSURED, SERIES 7A
STATEMENT OF FINANCIAL CONDITION
December 31, 1997
<CAPTION>
ASSETS
<S> <C> <C>
Investment in municipal bonds - at market value (Cost $3,990,268)
(note 3 to schedule of investments) $4,366,987
Accrued interest receivable 121,500
Cash 34
Total Assets $4,488,521
LIABILITIES AND NET ASSETS
Trustee advance payable $38,431
Distribution payable (note E) 22,900
Accrued expenses payable 4,791
Total Liabilities 66,122
Net assets (4,141 units of fractional undivided interest outstanding):
Cost to investors (note B) $4,189,258
Less gross underwriting commissions (note C) (198,990)
3,990,268
Net unrealized market appreciation (note D) 376,719
Net amount applicable to unitholders 4,366,987
Undistributed investment income-net 55,378
Undistributed proceeds from bonds sold or redeemed 34
Net Assets 4,422,399
Total Liabilities and Net Assets $4,488,521
Net Asset Value Per Unit $1,067.95
STATEMENT OF OPERATIONS
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Investment Income - Interest $288,918 $313,987 $344,920
Less expenses:
Trustee's fees, Evaluator's fees and expenses 12,392 12,830 15,616
Total expenses 12,392 12,830 15,616
Investment Income-net 276,526 301,157 329,304
Realized and unrealized gain (loss) on investments-net:
Net realized gain on securities transactions 8,562 60,754 47,933
Net change in unrealized market appreciation (depreciation) (79,671) (176,438) 254,260
Net gain (loss) on investments (71,109) (115,684) 302,193
Net increase in net assets resulting from operations $205,417 $185,473 $631,497
See accompanying notes to financial statements.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST
CALIFORNIA INSURED, SERIES 7A
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operations:
Investment income-net $276,526 $301,157 $329,304
Net realized gain on securities transactions 8,562 60,754 47,933
Net change in unrealized market appreciation (depreciation) (79,671) (176,438) 254,260
Net increase in net assets resulting from operations 205,417 185,473 631,497
Less: Distributions to Unitholders
Investment Income 276,007 299,291 330,647
Principal 14,079 5,187 ---
Total Distributions 290,086 304,478 330,647
Less: Units Redeemed by Unitholders (Note F)
Value of units at date of redemption 87,430 494,618 524,468
Accrued interest at date of redemption 1,363 7,630 7,773
Total Redemptions 88,793 502,248 532,241
Decrease in net assets (173,462) (621,253) (231,391)
Net Assets:
Beginning of period 4,595,861 5,217,114 5,448,505
End of period $4,422,399 $4,595,861 $5,217,114
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(A) The financial statements of the Trust are
prepared on the accrual basis of accounting.
Bond transactions are
accounted for on the date the bonds are
purchased or sold.
(B) Cost to the investors represents the initial
public offering price as of the initial 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 initial 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 December 31, 1997, the gross unrealized
market appreciation was $376,719 and the gross
unrealized
market depreciation was $0. The net unrealized
market appreciation was $376,719.
(E) Distributions of the net investment income
to Unitholders are declared and paid monthly.
See the Financial
Summary included in Part A.
(F) The following units were redeemed with
proceeds of bonds sold as follows:
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Number of units redeemed 82 458 478
Redemption amount $88,793 $502,248 $532,241
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 224
Schedule of Investments as of December 31, 1997
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
1. $750,000 HOUSING ASSISTANCE CORPORATION
OF MOBILE, ALABAMA MULTI-FAMILY
HOUSING REFUNDING REVENUE
BONDS, SERIES 1989A (FHA INSURED
MORTGAGE LOANS SECTION 8
ASSISTED PROJECTS) AAA 7 5/8% C.02/01/00@1 $789,338
08/01/2023 S.F. NONE
2. 500,000 MORGAN COUNTY, CITY OF DECATUR
JOINT HOSPITAL BOARD (DECATUR,
ALABAMA) HOSPITAL REVENUE RE-
FUNDING BONDS DECATUR GENERAL
HOSPITAL SERIES 1989 (REFUNDED) NR 7 7/8% C.03/01/99@102 531,860
03/01/1999 S.F. 03/01/1999
3. 260,000 STATE OF FLORIDA FULL FAITH AND
CREDIT STATE BOARD OF EDUCATION
PUBLIC EDUCATION CAPITAL OUTLAY
BONDS, REFUNDING BONDS SERIES
1989 A (REFUNDED) AAA 7 1/4% C.06/01/00@1 284,164
06/01/2000 S.F. NONE
4. 360,000 STATE OF FLORIDA FULL FAITH AND
CREDIT STATE BOARD OF EDUCATION
PUBLIC EDUCATION CAPITAL OUTLAY
BONDS, REFUNDING BONDS SERIES
1989-A AA+ 7 1/4% C.06/01/00@102 389,743
06/01/2023 S.F. 06/01/2016
5. 750,000 ORLANDO UTILITIES COMMISSION
FLORIDA WATER AND ELECTRIC
SUBORDINATED REVENUE BONDS
SERIES D Aa(2) 5 1/2% C.10/01/99@100 752,655
10/01/2020 S.F. 10/01/2018
6. 750,000 CITY OF CHICAGO, ILLINOIS WATER
REVENUE BONDS 1990 SERIES A
(REFUNDED) AA- 6.00% C.11/15/99@1 776,280
11/15/1999 S.F. NONE
7. 750,000 MASSACHUSETTS WATER RESOUR-
CES AUTHORITY GENERAL REVENUE
BONDS 1990 SERIES A (REFUNDED) AAA 7 5/8% C.04/01/00@1 821,595
04/01/2000 S.F. NONE
8. 750,000 MONTGOMERY COUNTY HIGHER EDU-
CATION AND HEALTH AUTHORITY
(PENNSYLVANIA) HOSPITAL REVENUE
BONDS, SERIES 1990 (THE BRYN MAWR
HOSPITAL PROJECT) (REFUNDED) Aaa(2) 7 3/8% C.12/01/99@1 810,270
12/01/1999 S.F. NONE
9. 600,000 MATAGORDA COUNTY NAVIGATION DIS-
TRICT NUMBER ONE (TEXAS) ADJUST-
ABLE RATE COLLATERALIZED POLLU-
TION CONTROL REVENUE BONDS
(CENTRAL POWER AND LIGHT COMP-
ANY PROJECT) SERIES 1984 A (CON-
VERTED TO FIXED RATE) A 7 1/2% C.12/15/99@1 652,488
12/15/2014 S.F. NONE
(Continued)
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, SERIES 224
Schedule of Investments as of December 31, 1997
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
10. $460,000 TOMBALL HOSPITAL AUTHORITY (TOM-
BALL REGIONAL HOSPITAL) (TEXAS)
HOSPITAL REVENUE REFUNDING
BONDS SERIES 1989 C (IRREVOCABLE
LETTER OF CREDIT PROVIDED BY
BANQUE PARIBAS) (REFUNDED) Aaa(2) 7 3/8% C.07/01/99@1 $491,473
07/01/1999 S.F. NONE
11. 500,000 INTERMOUNTAIN POWER AGENCY (A
POLITICAL SUBDIVISION OF THE STATE
OF UTAH) POWER SUPPLY REVENUE
REFUNDING BONDS SERIES A (RE-
FUNDED) A+ 6.00% C.07/01/99@1 514,640
07/01/1999 S.F. NONE
12. 250,000 VERMONT EDUCATIONAL AND HEALTH
BUILDINGS FINANCING AGENCY HOSPI-
TAL REVENUE BONDS (RUTLAND REG-
IONAL MEDICAL CENTER PROJECT)
SERIES 1988 A (REFUNDED) NR 8.10% C.04/01/98@1 257,593
04/01/1998 S.F. NONE
13. 690,000 WISCONSIN HOUSING AND ECONOMIC
DEVELOPMENT AUTHORITY HOME
OWNERSHIP REVENUE BONDS, 1989
SERIES B AA 7.60% C.09/01/99@10 720,367
03/01/2015 S.F. 03/01/2011
$7,370,000 $7,792,466
(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 Portfolios" in
Part A.
(2) Moody's Investors Service, Inc.'s
rating. A brief description of
applicable rating symbols is given under
"Bond Ratings" included in Part B.
(3) 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 next date on which an
issue of bonds is subject to scheduled
sinking fund redemption and the
redemption price for that date; 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.
(4) 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.
(5) 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.
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST,
CALIFORNIA INSURED, SERIES 7A
Schedule of Investments as of December 31, 1997
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
1. $550,000 CALIFORNIA HEALTH FACILITIES FI-
NANCING AUTHORITY INSURED FA-
CILITY REVENUE BONDS (CATHOLIC
HEALTHCARE WEST) 1989 SERIES A
(AMBAC INS.) (REFUNDED) AAA 7.00% C.07/01/99@1 $585,238
07/01/1999 S.F. NONE
2. 600,000 CALIFORNIA HEALTH FACILITIES FI-
NANCING AUTHORITY REVENUE RE-
FUNDING BONDS (ALEXIAN BRO-
THERS OF SAN JOSE, INC.) SERIES
1989 (MBIA INS.) AAA 7 1/8% C.01/01/00@102 642,216
01/01/2016 S.F. 01/01/2010
3. 135,000 CALIFORNIA HEALTH FACILITIES
FINANCING AUTHORITY REVENUE
BONDS (ST. JOSEPH HEALTH
SYSTEM) SERIES 1989 A (BIGI INS.)
(REFUNDED) AAA 6.90% C.07/01/99@1 143,455
07/01/1999 S.F. NONE
4. 15,000 CALIFORNIA HEALTH FACILITIES
FINANCING AUTHORITY REVENUE
BONDS (UNI-HEALTH AMERICA) 1988
SERIES A (AMBAC INS.) AAA 7 5/8% C.10/01/98@102 15,680
10/01/2015 S.F. 10/01/2004
5. 225,000 LOCAL GOVERNMENT FINANCE AU-
THORITY (CALIFORNIA) 1989 REFUN-
DING REVENUE BONDS (CITY OF
ROSEVILLE) (MBIA INS.) (REFUNDED) AAA 6 1/4% C.08/01/99@1 235,364
08/01/1999 S.F. NONE
6. 430,000 NORTHERN CALIFORNIA POWER
AGENCY COMBUSTION TURBINE
PROJECT NUMBER ONE REVENUE
BONDS, 1989 REFUNDING SERIES A
(MBIA INS.) AAA 6.00% C.08/15/99@10 442,810
08/15/2010 S.F. 8/15/2008
7. 600,000 CITY OF OAKLAND, CALIFORNIA
SPECIAL REFUNDING REVENUE
BONDS (PENSION FINANCING) 1988
SERIES A (FINANCIAL GUARANTY
INS.) AAA 7.60% C.08/01/98@102 624,414
08/01/2021 S.F. 08/01/2004
(Continued)
</TABLE>
<TABLE>
THE MUNICIPAL BOND TRUST, INSURED SERIES 7A
Schedule of Investments as of December 31, 1997
<CAPTION>
Coupon Redemption
Aggregate Rate/ Features(3)
Lot Principal Maturity C-Callable Market
No. Amount Description Rating(1) Date(5) S.F.-Sinking Fund Value(4)
<C> <C> <S> <C> <C> <C> <C>
8. $405,000 SACRAMENTO MUNICIPAL UTILITY
DISTRICT (CALIFORNIA) ELECTRIC
REVENUE BONDS, 1990 SERIES X
(MBIA INS.) (REFUNDED) AAA 7.00% C.07/01/00@1 $441,782
07/01/2000 S.F. NONE
9. 500,000 SAN BERNARDINO JOINT POWERS
FINANCING AUTHORITY (CALIFOR-
NIA) PUBLIC FACILITIES LEASE
REVENUE REFUNDING BONDS 1989
SERIES A (AMBAC INS.) (REFUNDED) AAA 7.15% C.09/01/99@1 535,735
09/01/1999 S.F. NONE
10. 200,000 COUNTY OF SAN JOAQUIN, CALIFOR-
NIA CERTIFICATES OF PARTICIPA-
TION (1989 JAIL AND SHERIFF'S OP-
ERATING CENTER PROJECT) (MBIA
INS.) (REFUNDED) AAA 6 3/4% C.11/15/99@1 213,998
11/15/1999 S.F. NONE
11. 455,000 SOUTH COAST AIR QUALITY MAN-
AGEMENT DISTRICT BUILDING CORP-
ORATION (CALIFORNIA) INSTALL-
MENT SALE REVENUE BONDS
SERIES B (HEADQUARTERS FACILI-
TIES) (AMBAC INS.) (REFUNDED) AAA 7 1/8% C.08/01/99@1 486,295
08/01/1999 S.F. NONE
$4,115,000 $4,366,987
(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 Portfolios" 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 next date on which an
issue of bonds is subject to scheduled
sinking fund redemption and the
redemption price for that date; 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.
</TABLE>
MUNICIPAL BOND TRUST
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 is a
separate but similar unit investment trust,
formed for the purpose of obtaining federally
tax-exempt interest income consistent with the
preservation of capital and diversification of
risk through investment in a fixed portfolio
comprised of "investment grade" (as of the
Initial Date of Deposit ) 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, 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 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 Initial Date of Deposit, among PaineWebber
Incorporated, as Sponsor, the Trustee identified
in Part A of this prospectus and Kenny
Information Systems, Inc., a division of J.J.
Kenny Co., Inc. as Evaluator.
On the Initial Date of Deposit, the Sponsor
deposited with the Trustee the Securities or
confirmations of contracts for the purchase of
the Securities 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 the entire
ownership of the Trust. Each Unit represents a
fractional undivided interest in the Trust in an
amount equal to one divided by the total number
of Units outstanding. On the Initial Date of
Deposit there was one Unit for each $1,000 face
amount of Securities deposited in the Trust.
SUMMARY OF PORTFOLIO
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.
General Obligation Bonds
General obligation debt of an issuer that is a
political subdivision 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 unanticipated
events, including: natural disasters, declines
in the state's industrial base or an inability
to attract new industries, imposition of tax
rate decreases or appropriations limitations by
legislation or initiative; increased
expenditures 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
governments 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
____________
*Reference is hereby made to said Trust
Indenture and Agreement and any statements
contained herein are qualified in their entirety
by the provisions of said Trust Indenture and
Agreement.
incurred under Federal or state categorical
grant programs. 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 economic 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
legislature or voter approval in a local
referendum, or constrained by economic or
political considerations. Recent changes in
Federal welfare policy may have substantial
negative impact on certain states and localities
within such states, which may in turn make their
ability to maintain balanced budgets more
difficult in future years.
Revenue Bonds
Revenue Bonds are securities issued by states,
municipalities, public authorities and other
similar entities to finance the cost of
constructing, acquiring or improving various
projects. Unlike general obligation bonds,
municipal revenue bonds are not backed by their
issuer's taxing power or full faith and credit
and payment on municipal revenue bonds is
generally dependent solely upon revenues
generated by the project or in some cases,
specific state appropriations or excise taxes.
Examples of municipal revenue bonds are: housing
facility securities, airport facilities, power
and electronic facilities, and others listed
below in bold typeface. A brief discussion of
some of the risks associated with such revenue
bonds follows.
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 condition of the local housing
market, competition from conventional mortgage
lenders, fluctuations in interest rates,
increasing construction costs and the ability of
the Issuers, lenders, servicers and borrowers to
maintain program compliance under applicable
statutory provisions. 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. 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
obligations at par; 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.
Additional considerations with regard to
single-family housing securities include: the
underwriting 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 attendant to lending to
mortgagors, most of whom are first time home
buyers of low or moderate means. During periods
of declining interest rates, there may be
increased redemptions of single family housing
securities from unexpended 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
bond proceeds usually do not carry prepayment
penalties. Additional considerations with regard
to multi-family housing securities 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 requirements
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 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, increased competition,
excess industry capacity, fluctuations in fuel
and other costs, traffic constraints and other
factors. In particular, facilities with use
agreements involving airlines experiencing
financial difficulty may experience a reduction
in revenue due to the possible inability of
these airlines to meet their use agreement
obligations. 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 and Health Care Facility Securities
Bonds in the hospital and health care
facilities category are payable from revenues
derived from hospital, mental health, nursing
home and other health care facilities which,
generally, were constructed or are being
constructed with bond proceeds. Payment of such
bonds derives generally from revenues of health
care providers. The continuing availability of
sufficient revenues is dependent upon several
factors affecting all such facilities generally,
including, among other factors: utilization
rates; the cost and availability of malpractice
insurance and the outcome of malpractice
litigation; curtailment of operations due to
shortages in qualified medical staff or labor
disputes; changes in Federal, state and private
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 advances in health care
delivery reducing demand for in-patient
services; technological developments which may
be effectively rationed 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
requirements 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. Medicare
payments have been, and may continue to be,
reduced under legislation adopting deficit
reduction measures. Additionally, certain states
have recently implemented prospective payment
systems for their Medicaid programs, and have
adopted other changes, including enrollment
restrictions. The Sponsor cannot predict the
effect, if any, of further reductions in
Medicare and Medicaid payments on the revenues
of Issuers of health care 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.
Generally, a number of additional legislative
proposals concerning health care may be
introduced in Congress at any time. Recently,
these proposals have covered a wide range of
topics, including cost controls, national health
insurance, incentives for competition in the
provision of health care services, tax
incentives and penalties related to health care
insurance premiums, and promotion of prepaid
health care plans. The Sponsor is unable to
predict the effect of any of these proposals, if
enacted, on any of the Bonds in the Trust
portfolio. The Internal Revenue Service (the
"IRS") has been engaged in a program of
extensive audits of certain large tax-exempt
hospitals and health care providers. Although
such audits have not yet been completed there
have been reports that the tax-exempt status of
certain of these organizations may be revoked
and/or that certain monetary penalties may be
owed to the IRS.
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 subject to federal regulation and
more extensive regulation (affecting retail rate
structures) is provided by state public service
commissions. Special considerations include:
restrictions on operations and increased costs
and delays attributable to environmental statues
and regulations; the difficulties of the
utilities in financing or refinancing large
construction programs 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 superconductive materials may
cause current technologies for the generation
and transmission of electricity to become
obsolete during the life of the Securities in
the Portfolio. Issuers relying upon
hydroelectric generation may encounter contests
when applying for periodic renewal of licenses
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). 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
enforceability of such agreements.
Some of the issuers of Securities in the Trust
may own, operate or participate on a contractual
basis with nuclear generating facilities, which
may experience additional problems including:
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 radioactive materials and wastes in
compliance with Federal and local law; the
implementation of emergency evacuation plans for
areas surrounding nuclear facilities; and other
issues associated with construction, licensing,
regulation, 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.
Additionally, the recent movement to introduce
competition in the investor-owned electric
utility industry is likely to affect, at least
indirectly, municipal utility systems by driving
them to maintain low rates. In an effort to keep
their rates low, municipal utilities may
experience difficulties in raising rates to
completely recover their investment in
generating plants.
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 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 facilities,
convention centers or sports arenas. In the
first instance, the pledged revenues may be
subject to annual appropriation by 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
considerations 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 associated with the use
of developing technologies; and the continuation
of federal policies facilitating congeneration
and certification of any particular qualifying
facility. Governmental service contract payments
may be subject to annual appropriation by a
legislative body. Older facilities may require
retrofitting to accommodate new technological
developments or to comply with environmental
standards. A recent decision of the United
States Supreme Court limiting a municipality's
ability to require the use of its facilities may
have an adverse affect on the credit quality of
certain securities.
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.
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 ("the
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 either (1) guaranteed by
guaranty agencies and reinsured by the U.S.
Secretary of Education, (2) are insured directly
by the federal government or (3) not guaranteed
at all (e.g. alternative or supplemental student
loans). Bonds issued by such entities are
generally secured by and dependent 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 on the
guaranty agencies guaranteeing such loans to
properly service and enforce the loans may cause
the reimbursements to decline or be withheld
under the Act, if applicable.
Both the 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.
The availability of various Federal payments in
connection with the Federal student loan program
is subject to Federal budgetary appropriation.
In recent years, legislation has been enacted
which has provided, 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
Lease Payment bonds are generally issued by
governmental financing authorities with no
direct taxing power for the construction of
buildings or the purchase of equipment to be
used by a state or local government. Such bonds
may be principally secured by governmental lease
payments which in turn are subject to the budget
appropriations of the participating governmental
entity. A governmental entity that enters into a
lease agreement cannot obligate future
governments 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 appropriations 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. Such bonds may
also be subject to the risk that rental
obligations may terminate in the event of
destruction or damage of the equipment or
buildings.
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.
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 removing 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 Obligations. 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.
Investors should note that there have, however,
been a few bonds thought to be escrowed to
maturity that were, in fact, called for
redemption prior to maturity.
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. 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 important part in the operations of the
banking industry and exposure to credit losses
arising from possible financial difficulties of
borrowers or other issuers having letters of
credit might affect a bank's ability to meet its
obligations under a letter of credit.
Insurance on the Bonds in the Portfolio
Certain of the Bonds in the Trust may have
been insured to maturity by the insurance
company listed in the table below as to payment
of principal and interest by the issuer at the
time of issuance, or by a third party purchaser
of Bonds subsequent to the issuance of such
bonds. In an Insured Series, in addition to
purchasing Bonds insured at the time of their
issuance, the Sponsor may have purchased bonds
which, prior to the Initial Date of Deposit,
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) for such bonds which were not originally
insured. 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
Insured Trust ("Portfolio Insurance"). (See Part
A, "Essential Information-Insurance"). Portfolio
Insurance, if any, has been obtained from
Financial Guaranty. Any Insured Trust which has
obtained Portfolio Insurance has additionally
obtained 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 such 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
Initial Date of Deposit (See "Summary of
Portfolio-Insurance Premiums"). Premiums for
Portfolio Insurance are an expense of an Insured
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, if any,
and a description of the percentages 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 satisfactory
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. Most insurance policies, however, do
not provide for accelerated payments of
principal or interest nor do they cover
redemptions resulting from events of taxability.
The following summary information relating to
the listed insurance companies has been obtained
from publicly available information. Certain
insurance companies have been restructured and
have been absorbed or merged into others; in
such cases the names of the original insurance
company appear in parentheses next to the name
of the acquiring or surviving insurance company.
Financial Information
As of March 31, 1996
(in millions of dollars)
Name (Including Names of
Policyholders' Date Admitted
Predecessor Companies) Established Assets Surplus
AMBAC Indemnity Corporation 1970 $2,440 $879
Capital Markets Assurance Corporation 1987 292 196
Financial Guaranty Insurance Company 1984 2,314 1,033
Financial Security Assurance Inc. 1984 1,157 458
(including Capital Guaranty Insurance
Company and United States Fidelity
and Guaranty Company)
MBIA Insurance Corporation 1986 3,968 1,317
(including Bond Investors Guaranty
Insurance Company)
Insurance companies are subject to extensive
regulation and supervision where they do
business by state insurance commissioners who
regulate the standards of solvency which must be
maintained, the nature of limitations on
investments, reports of financial condition, and
requirements regarding reserves for unearned
premiums, losses and other matters. A
significant portion of the assets of insurance
companies are required by law to be held in
reserve against potential claims on policies and
is not available to general creditors. Although
the federal government does not regulate the
business of insurance, federal initiatives
including pension regulation, controls on
medical care costs, minimum standards for no-
fault automobile insurance, national health
insurance, tax law changes affecting life
insurance companies and repeal of the antitrust
exemption for the insurance business can
significantly impact the insurance business.
Ratings on the Bonds in the Insured Series and
on Units of the Insured Series
On the Initial Date of Deposit Standard &
Poor's Corporation rated each of the Bonds in
the Portfolio and the Units of each Insured
Trust "AAA" because the insurers have issued
insurance policies to insure each of the Bonds.
The Units of each Insured Trust (with the
exception of Units of those Insured 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
construed 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.
Risk Factors Pertaining to a Single State Trust
Investment in a Trust which holds securities
issued only by obligors in a single state, such
as California, may involve additional risks to
that of an investment in a Trust with a
portfolio of securities from several states, due
to the decreased diversification of political,
financial, economic and market risks. A brief
description of the factors which may affect the
financial condition of the applicable state,
together with a discussion of certain tax
considerations relating to such state, appear in
Part A.
Legislation
From time to time, proposals are introduced in
Congress to, among other things, reduce federal
income tax rates, impose a flat tax, exempt
investment income from tax or abolish the
federal income tax and replace it with another
form of tax. Enactment of any such legislation
could adversely affect the value of the Units.
The Sponsor, however, cannot predict what
legislation, if any, in respect of tax rates may
be proposed, nor can it predict which proposals,
if any, might be enacted. Also, certain
proposals, in the form of state legislative
proposals or voter initiatives, seeking to limit
real property taxes have been introduced in
various states, and an amendment to the
Constitution of the State of California,
providing for strict limitations on real
property taxes, has had a significant impact on
the taxing powers of local governments and on
the financial condition of school districts and
local governments in California. In addition,
other factors may arise from time to time which
potentially may impair the ability of issuers to
make payments due on the Bonds. Under the
Federal Bankruptcy Code, for example, municipal
bond issuers, as well as any underlying
corporate obligors or guarantors, may proceed to
restructure or otherwise alter the terms of
their obligations.
From time to time, Congress considers proposals
to prospectively and retroactively tax the
interest on state and local obligations, such as
the Bonds. The Supreme Court clarified in South
Carolina v. Baker (decided on April 20, 1988)
that the U.S. Constitution does not prohibit
Congress from passing a nondiscriminatory tax on
interest on state and local obligations. This
type of legislation, if enacted into law, could
require investors to pay income tax on interest
from the Bonds and could adversely affect an
investment in Units.
Payment of the Bonds and Life of the Trust
The size and composition of the Portfolio will
change over time. Most of the Bonds are subject
to redemption prior to their stated maturity
dates pursuant to optional refunding or sinking
fund redemption provisions or otherwise. In
general, optional refunding redemption
provisions are more likely to be exercised when
the value of a Bond is at a premium over par
than when it is at a discount from par. Some
Bonds may be subject to sinking fund and
extraordinary redemption provisions which may
commence early in the life of the Trust.
Additionally, the size and composition of the
Trust will be affected by the level of
redemptions of Units that may occur from time to
time. Principally, this will depend upon the
number of investors seeking to sell or redeem
their Units and whether or not the Sponsor is
able to sell the Units acquired by it in the
secondary market. As a result, Units offered in
the secondary market may not represent the same
face amount of Bonds as on the initial date of
deposit. Factors that the Sponsor will consider
in determining whether or not to sell Units
acquired in the secondary market include the
diversity of the Portfolio, the size of the
Trust relative to its original size, the ratio
of Trust expenses to income, the Trust's current
and long-term returns, the degree to which Units
may be selling at a premium over par and the
cost of maintaining a current prospectus for the
Trust. These factors may also lead the Sponsors
to seek to terminate the Trust earlier than its
mandatory termination date.
Ratings
Each of the Bonds in the Trust was, as of the
Initial Date of Deposit, rated "A" or higher by
either Standard & Poor's Corporation or Moody's
Investors Service, Inc. (see "Schedule of
Investments") or were Bonds which the Sponsor
reasonably believed would have obtained such
minimum rating soon thereafter. Ratings
indicated on the Schedule of Investments are
Standard & Poor's Corporation ratings unless no
rating was given to a Bond by such rating
service or the rating category assigned by
Moody's Investors Service, Inc. was higher, in
which case the Moody's Investors Service, Inc.
rating was indicated. Certain Bonds may, in
addition to their rating, be designated either
"p" by Standard & Poor's Corporation or "Con" by
Moody's Investors Service, Inc. Such
designations do not affect the rating assigned
by the respective rating services to such Bonds
but provide certain additional information (see
"Bond Ratings" in Part B and "Schedule of
Investments" in Part A).
ACQUISITION OF SECURITIES FOR THE TRUST
In selecting Bonds 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. Minimum Standard & Poor's Corporation's
rating of "A-" or minimum Moody's Investors
Service, Inc.'s rating of "A" ("investment
grade" municipal bonds) or Bonds which the
Sponsor reasonably believes will obtain such
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; and
4. 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 was
no litigation pending as of the Initial 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 Initial Date of Deposit, litigation may have
been 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 the 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 Initial
Date of Deposit seeking, among other things, to
restrain or enjoin the payment of any of the
Bonds 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 Bonds 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 Bonds.
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. If the primary offering period,
the Public Offering Price was determined 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 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 six months 0% 0%
Six months to less than 1 year 0.50 0.503
1 year to less than 2 years 1.00 1.010
2 years to less than 3 years 1.50 1.523
3 years to less than 4 years 2.25 2.302
4 years to less than 5 years 2.75 2.828
5 years to less than 6 years 3.00 3.093
6 years to less than 7 years 3.25 3.359
7 years to less than 8 years 3.50 3.627
8 years to less than 9 years 4.00 4.167
9 years to less than 12 years 4.25 4.439
12 years to less than 15 years 4.50 4.712
15 years or more 5.50 5.820
For example, the sales charge on a Trust
consisting entirely of Bonds maturing in 12 to
15 years would be 4.50% (4.712% of the net
amount invested) and that on a Trust consisting
entirely of Bonds maturing in four to five years
would be 2.75% (2.828% 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
employees 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
confirmation 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 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. Such evaluations and
computations 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 charges, on the
Initial Date of Deposit, the Sponsor realized 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. 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
Association of Securities Dealers, Inc. at
prices which include a concession of 75% of the
applicable sales charge subject to change from
time to time. The difference between the dealer
concession and the sales charge will be retained
by the Sponsor. The Sponsor reserves the right
to reject, in whole or in part, any order for
the purchase of Units.
Initial Offering of Units. During the initial
public offering period, Units were offered to
the public by the Sponsor at the Public Offering
Price calculated on each business day, plus
accrued interest.
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 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 by the number of
Units outstanding (see "Evaluation of the
Trust"). There is no sales charge incurred 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,
without prior notice, 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".
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
calculated 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 premiums 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 Return 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 difference 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 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.
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" in Part
A). The estimated Net Annual Interest Income per
Unit will be higher for Unitholders who do not
elect the monthly plan (where alternate plans of
distribution are available). This is the result
of the differing expenses and fees of the
Trustee in administering the distributions of
interest. See "Essential Information" in Part A
and "Distributions to Unitholders".
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, the Sponsor's
(where applicable) 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 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
governmental charges that may be payable out of
the Trust, which amounts will be deposited in a
separate Reserve Account. If the Trustee
determines that the amount 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 from 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
Trustee, the Sponsor (where applicable and as
indicated under "Essential Information") 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, one-quarter or one-half of such
Unitholder's pro rata share (depending on the
distribution plans available and selected) of
the estimated annual amount to be deposited 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 fees and expenses will be higher for
monthly interest distributions than for
quarterly or semi-annual interest distributions,
where available. Therefore, the amount
distributed per Unit to Unitholders electing the
monthly plan will be correspondingly lower than
under the quarterly or 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 electing
available distribution plans.
Because the Securities in the Trust pay
interest at varying semi-annual intervals and
Units pay interest at constant monthly,
quarterly 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 the preceding Record Date.
Pursuant to the Indenture, in order to
accommodate 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.
The Trustee is authorized by the Indenture to
advance such amounts as may be necessary to
provide interest distributions of approximately
equal amounts in accordance with the
distribution plan selected. The Trustee will be
reimbursed, without interest, for any such
advances in the manner provided in the
Indenture.
Principal Account
The Trustee will distribute an amount equal to
such Unitholder's pro rata share of the cash
balance, if any, in the Principal Account on the
principal Distribution Date specified under
"Distribution" under "Essential Information".
The pro rata share is computed as of the
preceding Record Date. Except for moneys used to
redeem tendered Units, proceeds received upon
the disposition of any Securities subsequent to
a Record Date and prior to the following
principal Distribution Date will be held in the
Principal Account and will not be distributed
until the next succeeding principal 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 distribution
will be made within 60 days of such event to
Unitholders of record on the Record Date
selected therefor 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 Initial 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 in
Part A". The redemption price of 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 which is 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 the 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 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 PaineWebber Investment Executive
or call the Fund's shareholder service 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 establishing 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 Series (the "PaineWebber Series");
The Municipal Bond Fund, Series One through
Series Forty-Three; The Municipal Bond Trust,
Series Forty-Four and subsequent series (the
"National Series"); The Municipal Bond Trust,
Multi-State Program Series One and subsequent
series (the "Multi-State Series); The Municipal
Bond Trust, California Series A and subsequent
series (the "California Series"); The Municipal
Bond Trust, Insured Series One and subsequent
series (the "Insured Series"); The Corporate
Bond Trust, Series One and subsequent series
(the "Corporate Series"); The PaineWebber
Pathfinders Trust, Treasury and Growth Stock,
Series 1 and subsequent series (the "Pathfinders
Trust"), the PaineWebber Federal Government
Trust, GNMA Series 1 and subsequent Series 1
(the "Federal Government Trust") 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 such exchange of Units. The cost
savings result from reductions in time and
expense related to advice, financial planning
and operational expense required for the
Exchange Option. Each Exchange Trust has
different investment objectives, therefore a
Unitholder should read the prospectus for the
applicable Exchange Trust carefully prior to
executing this option. Exchange Trusts 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. 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 for
which such Unitholder desires to exchange into,
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 the initial sales charge paid in
connection with the acquisition of the Units
being exchanged, equals the sales charge of the
series of the 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
secondary market maintained by the Sponsor in
both the Units of this series and units of the
applicable Exchange Trust and there are units of
the 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 normally constitute a "taxable
event" under the Code, i.e., a Unitholder will
recognize a tax gain or loss which will be of a
capital or ordinary nature depending upon among
other things the length of time such Unitholder
has held the Units. However, 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 Option 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
prospectus or prospectuses relating to each
series in which he indicates interest.
The exchange transaction will operate in a
manner essentially identical to any secondary
market transaction, i.e., Units will be
repurchased at a price based on the aggregate
bid price per Unit of the securities in the
portfolio of the Trust. Units of the Exchange
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 Unitholder.
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 sponsored 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 Conversion
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
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 and expenses incurred in establishing
the Trust, including 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 Sponsor's fee, deducted only in trusts
where the Initial Date of Deposit is on or after
November 30, 1982, which is earned for portfolio
supervisory services, is based upon the
aggregate face amount of Bonds in the Trust at
the beginning of each annual period. The
Sponsor's fee, which is not to exceed the amount
set forth under "Essential Information" in Part
A, may exceed the actual costs of providing
portfolio supervisory services for this Trust,
but at no time will the total amount the Sponsor
receives for portfolio supervisory services
rendered to all series of the Municipal Bond
Trust in any calendar year exceed the aggregate
cost to it of supplying such services in such
year.
For services performed under the Indenture, the
Trustee will be paid by the Trust at the rate
per $1,000 of principal amount of Securities in
the Trust set forth under "Essential
Information" in Part A. Such compensation will
be computed monthly, quarterly or semi-annually
(depending on available plans of distribution)
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 evaluation is 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 Sponsor's fee is payable annually,
Trustee's fees are payable monthly, quarterly
and semi-annually (depending on available plans
of distribution) and the Evaluator's fees are
payable monthly on or before each Distribution
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 interests 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 certain Trusts may be audited
not less than annually by independent public
accountants selected by the Sponsor. The
expenses of the audit shall be an expense of the
Trust. So long as the Sponsor maintains a
secondary market, Sponsor will bear any audit
expense which exceeds 50 cents per Unit.
Unitholders covered by the audit (if any) 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 its Certificate by presenting it to the
Trustee at its corporate trust office. Such
Certificate must be properly endorsed or
accompanied by a written instrument or
instruments of transfer executed by the
Unitholder or its duly authorized attorney. A
Unitholder may be required to pay $2.00 per
Certificate transferred to cover the Trustee's
costs in implementing such transfer and to pay
any tax or other governmental charge that may be
imposed in connection with any 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
satisfactory 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 deductions 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;
(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 deductions 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 Accounts, 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 at 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 redeemed at the Redemption Value upon
tender of such Certificate to the Trustee at its
corporate trust office, properly endorsed or
accompanied by a written instrument of 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 redeemed by the
Trustee will be paid on the seventh calendar day
following the day of tender. If such day of
payment 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 the 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 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 Trust 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 Securities 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 Unitholders of record.
EVALUATION OF THE TRUST
The Evaluator is Kenny Information Systems, a
division of J.J. Kenny Co., Inc., 65 Broadway,
New York, New York 10006.
The value of the Trust is computed as of the
Evaluation Time shown under "Essential
Information" in Part A (1) on each June 30 and
December 31 (or the 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 on 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.
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 date of the
"Essential Information" page, the Public
Offering Price per Unit (which figure includes
the sales charge) exceeded the Redemption Value
by the amount shown under "Essential
Information" in Part A. 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 is
prohibited by the Indenture. The Sponsor may
direct the Trustee to sell or liquidate any of
the Securities upon the happening of any of the
following events (except for the limited right
to replace securities in the case of a fail):
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,
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.
In addition, if a default in the payment of
principal of or interest on any of the
Securities occurs and the Sponsor fails to
instruct the Trustee to sell or hold such
Securities within thirty days after notification
by the Trustee to the Sponsor of such default,
the Indenture provides that the Trustee will
sell the defaulted Securities promptly. The
Trustee will not be liable or 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 any of 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 of record and account 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
a 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 executing 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 of 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
and the acceptance of the Trust by a successor
Trustee. The Sponsor, upon receiving notice of
such resignation, is obligated to appoint a
successor Trustee promptly.
If within thirty days after notice of
resignation has been received 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 appoint 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 obligations 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 performing 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 or the Trust unless the Trustee
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 Evaluator. Notice of
such resignation 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 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 only for its own willful misfeasance,
bad faith, gross negligence or willful disregard
of its duties. The Sponsor will not 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 of the Sponsor to act, the Trustee may
act and will not 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
of 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 any present or future law of the
United States of America or of any other taxing
authority having jurisdiction. In addition, the
Indenture contains other customary 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 misconduct.
AMENDMENT OF THE INDENTURE
The Indenture may be amended by the Trustee and
the Sponsor without the consent of any of the
Unitholders to cure any ambiguity or to correct
or supplement any provision thereof which may be
defective or inconsistent or to make such other
provisions as will not adversely affect the
interest of the Unitholders; provided, however,
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.
RIGHTS 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 or proceeding
in any court for a partition or winding up of
the Trust.
No Unitholder will have the right to vote
concerning the Trust, 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, terminate the Trust. The Trust
may also be terminated at any time by the
written consent of 100% of the Unitholders 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 Termination 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 the
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
his Certificate after due notice of such
termination, such Unitholder's 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 organized 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 an 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
The legality of the Units offered hereby has
been passed upon by Carter, Ledyard & Milburn, 2
Wall Street, 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 LLP, independent auditors, for
the period indicated in their report appearing
herein. The financial statements audited by
Ernst & Young LLP have been included in reliance
on their report given on their authority as
experts in accounting and auditing.
BOND RATINGS*
Standard & Poor's Corporation
AAA_Debt rated AAA has the highest rating
assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely
strong.
AA_Debt rated AA has a very strong capacity to
pay interest and repay principal and differs
from the highest rated issues only in small
degree.
A_Debt rated A has a strong capacity to pay
interest and repay principal although it is
somewhat more susceptible to the adverse effects
of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB_Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate
protection parameters, adverse economic
conditions or changing circumstances are more
likely to lead to a weakened capacity to pay
interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC_Debt rated BB, B, CCC, and CC is
regarded, on balance, as predominately
speculative with respect to capacity to pay
interest and repay principal in accordance with
the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest
degree of speculation. While such debt will
likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show
relative standing within the major rating
categories.
A provisional rating, indicated by "p"
following a rating, assumes the successful
completion of the project being financed by the
issuance of the debt 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 of the project,
makes no comment on the likelihood of, or the
risk of default upon failure of, such
completion.
NR_Securities which, while not rated by
Standard & Poor's or Moody's, have been
determined by the trusts sponsor to be of
investment grade quality.
_______________
*As described by the rating agencies.
Moody's Investors Service, Inc.
Aaa_Bonds which are rated Aaa are judged to be
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 risks appear
somewhat larger than in Aaa securities.
A_Bonds which are rated A possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and
interest are considered adequate, but elements
may be present which suggest a susceptibility to
impairment sometime in the future.
Baa_Bonds which are rated Baa are considered as
medium grade obligations; i.e., they are neither
highly protected nor poorly secured. Interest
payments and principal security appear adequate
for the present but certain protective elements
may be lacking or may be characteristically
unreliable over any great length of time. Such
bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba_Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection
of interest and principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in
this class.
B_Bonds which are rated B generally lack the
characteristics of a desirable investment.
Assurance of interest and principal payments or
of maintenance of other terms of the contract
over any long period of time may be small.
Caa_Bonds which are rated Caa are in poor
standing. Such issues may be in default or there
may be present elements of danger with respect
to principal or interest.
Ca_Bonds which are rated Ca represent
obligations which are speculative in a high
degree. Such issues are often in default or have
other marked shortcomings.
C_Bonds which are rated C are the lowest rated
class of bonds and issues so rated can be
regarded as having extremely poor prospects of
ever attaining any real investment standing.
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.
Conditional ratings, indicated by "Con" are
given to bonds for which the security depends
upon the completion of some act or the
fulfillment of some condition. These are bonds
secured by (a) earnings of projects under
construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals
which begin when facilities are completed, or
(d) payments to which some other limiting
condition attaches. A parenthetical rating
denotes probable credit stature upon completion
of construction or elimination of basis of such
condition.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Prospectus.
The signatures.
The following exhibits:
EX-99.C1 Opinion of Counsel as to legality of securities
being registered
EX-99.C2 Consent of Kenny Information Systems
EX-99.C3 Consent of Standard & Poor's Corporation
EX-27 Financial Data Schedules
EX-99.C4 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
incorporated by reference to Form 10-k and
Form 10-Q (File No. 1-7367) respectively.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, The Municipal Bond Trust, Series 224 and The Municipal
Bond Trust, California Insured Series 7A 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 22nd day of April, 1998.
THE MUNICIPAL BOND TRUST, SERIES 224
AND THE MUNICIPAL BOND TRUST,
CALIFORNIA INSURED SERIES 7A
(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 22nd day of April, 1998.
PAINEWEBBER INCORPORATED
Name Office
Donald B. Marron Chairman, Chief Executive Officer
and Director of PaineWebber Incorporated*
Regina A. Dolan Executive Vice President,
Chief Financial Officer and
Director of PaineWebber Incorporated*
Joseph J. Grano, Jr. President and
Director of PaineWebber Incorporated*
Steve P. Baum Executive Vice President and
Director of PaineWebber Incorporated*
Robert H. Silver Executive Vice President and
Director of PaineWebber Incorporated*
Mark B. Sutton Executive Vice President and
Director of PaineWebber Incorporated*
Margo N. Alexander Executive Vice President and
Director of PaineWebber Incorporated*
Terry L. Atkinson Managing Director and
Director of PaineWebber Incorporated*
Brian M. Barefoot Executive Vice President and
Director of PaineWebber Incorporated*
Michael Culp Managing Director and
Director of PaineWebber Incorporated*
Edward M. Kerschner Managing Director and
Director of PaineWebber Incorporated*
James P. MacGilvray Executive Vice President and
Director of PaineWebber Incorporated*
By:/s/ ROBERT E. HOLLEY
Attorney-in-fact*
* Executed copies of the powers of attorney have been previously
filed with the Securities and Exchange Commission with the Post
Effective Amendment to the Registration Statement File No. 2-61279.
April 22, 1998
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, Series 224 and The Municipal Bond Trust, California Insured
Series 7A (hereinafter referred to as the "Trust").
It is proposed that Post-Effective Amendment No. 8 to the
Trust's registration statement ("Post-Effective Amendment No.8")
will be filed with the Securities and Exchange Commission and
dated as of the date hereof in connection with the continued
issuance by the Trust of an indefinite number of units of
fractional undivided interest in the Trust (hereinafter referred
to as the "Units") pursuant to Rule 24f-2 promulgated under the
provisions of the Investment Company Act of 1940, as amended.
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 Nos. 33-30270 and 33-25384) 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
January 15, 1988, as amended, among the Depositor, Investors
Bank & Trust Company and the First National Bank of Chicago
(the "Co-Trustees"), as successor Co-Trustee, and Standard &
Poor's Corporation and Kenny Information Systems, a division of
J.J. Kenny Co., Inc. (the "Evaluator") (the "Standard Terms");
(j) The Trust Indenture dated as of the Initial Date of Deposit, among
the Depositor, the Co-Trustees 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
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 State of New York (except "Blue Sky" laws) and the federal laws
of 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/ CARTER, LEDYARD & MILBURN
KENNY INFORMATION SYSTEMS
(A Division of J.J. Kenny Co., Inc.)
April 22, 1998,
PaineWebber Incorporated
Unit Trust Department
1200 Harbor Blvd.
Weehawken, New Jersey 07087
RE: THE MUNICIPAL BOND TRUST, SERIES 224 AND THE
MUNICIPAL BOND TRUST, CALIFORNIA INSURED SERIES 7A
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File Nos. 33-30270 and 33-25384 for the above-captioned
trust. We hereby acknowledge that Kenny Information Systems, a
division of J.J. Kenny Co., Inc. is currently acting as the
evaluator for the trust. We hereby consent to the use in the
Amendment of the reference to Kenny Information Systems,
a division of J.J. Kenny Co., 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/ JOHN R. FITZGERALD
John R. Fitzgerald
Senior Vice President
April 22, 1998
Kathleen H. Moriarty
Carter, Ledyard & Milburn
2 Wall Street - 14th Floor
New York, New York 10005
RE: The Municipal Bond Trust, California Insured Series 7A
We have received the post-effective amendment to the registration
statment SEC file number 33-25384 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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ASSETS-OTHER> 34 0 0
<OTHER-ITEMS-ASSETS> 0 0 0
<TOTAL-ASSETS> 4,488,521 0 0
<PAYABLE-FOR-SECURITIES> 0 0 0
<SENIOR-LONG-TERM-DEBT> 0 0 0
<OTHER-ITEMS-LIABILITIES> 66,122 0 0
<TOTAL-LIABILITIES> 66,122 0 0
<SENIOR-EQUITY> 0 0 0
<PAID-IN-CAPITAL-COMMON> 0 0 0
<SHARES-COMMON-STOCK> 4,141 0 0
<SHARES-COMMON-PRIOR> 4,223 0 0
<ACCUMULATED-NII-CURRENT> 55,378 0 0
<OVERDISTRIBUTION-NII> 0 0 0
<ACCUMULATED-NET-GAINS> 34 0 0
<OVERDISTRIBUTION-GAINS> 0 0 0
<ACCUM-APPREC-OR-DEPREC> 376,719 0 0
<NET-ASSETS> 4,422,399 0 0
<DIVIDEND-INCOME> 0 0 0
<INTEREST-INCOME> 288,918 313,987 344,920
<OTHER-INCOME> 0 0 0
<EXPENSES-NET> 12,392 12,830 15,616
<NET-INVESTMENT-INCOME> 276,526 301,157 329,304
<REALIZED-GAINS-CURRENT> 8,562 60,754 47,933
<APPREC-INCREASE-CURRENT> (79,671) (176,438) 254,260
<NET-CHANGE-FROM-OPS> 205,417 185,473 631,497
<EQUALIZATION> 0 0 0
<DISTRIBUTIONS-OF-INCOME> 276,007 299,291 330,647
<DISTRIBUTIONS-OF-GAINS> 0 0 0
<DISTRIBUTIONS-OTHER> 14,079 5,187 0
<NUMBER-OF-SHARES-SOLD> 0 0 0
<NUMBER-OF-SHARES-REDEEMED> 82 458 478
<SHARES-REINVESTED> 0 0 0
<NET-CHANGE-IN-ASSETS> (173,462) (621,253) (231,391)
<ACCUMULATED-NII-PRIOR> 0 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0 0
<OVERDISTRIB-NII-PRIOR> 0 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0 0
<GROSS-ADVISORY-FEES> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<GROSS-EXPENSE> 0 0 0
<AVERAGE-NET-ASSETS> 0 0 0
<PER-SHARE-NAV-BEGIN> 0 0 0
<PER-SHARE-NII> 0 0 0
<PER-SHARE-GAIN-APPREC> 0 0 0
<PER-SHARE-DIVIDEND> 0 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0 0
<RETURNS-OF-CAPITAL> 0 0 0
<PER-SHARE-NAV-END> 1,068 0 0
<EXPENSE-RATIO> 0 0 0
<AVG-DEBT-OUTSTANDING> 0 0 0
<AVG-DEBT-PER-SHARE> 0 0 0
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption
"Independent Auditors" and to the use of our report dated
April 9, 1998, in the Registration Statement and related
Prospectus of The Municipal Bond Trust, Series 224 and The
Municipal Bond Trust, California Insured Series 7A.
/s/ ERNST & YOUNG LLP
New York, New York
April 22, 1998
