<PAGE>
Insured Long Term Series 38
File No. 33-7230
Investment Company Act No. 811-3676
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
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:
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
B. Name of Depositor:
DEAN WITTER REYNOLDS INC.
C. Complete address of Depositor's principal executive
office:
DEAN WITTER REYNOLDS INC.
Two World Trade Center
New York, New York 10048
D. Name and complete address of agent for service:
Mr. Michael D. Browne
Dean Witter Reynolds Inc.
Unit Trust Department
Two World Trade Center, 59th Floor
New York, New York 10048
Copy to:
Kenneth W. Orce, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Check box if it is proposed that this filing should
/x/ become effective immediately upon filing pursuant to
paragraph(b) of Rule 485.
<PAGE>
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 Depositor Table of Contents
3. Name and address of Trustee Table of Contents
4. Name and address of principal Table of Contents
Underwriter
5. Organization of Trust Introduction
6. Execution and termination of Introduction; Amendment
Indenture and Termination of the
Indenture
7. Changes of name <F30>
8. Fiscal Year Included in Form N-8B-2
9. Litigation <F30>
II. General Description of the Trust
and Securities of the Trust
10. General Information regarding
Trust's Securities and Rights
of Holders
a) Type of Securities Rights of Unit Holders
(Registered or Bearer)
b) Type of Securities Administration of the
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
(Cumulative or Trust-Distribution
Distributive)
c) Rights of Holders as to Redemption; Public
Withdrawal or Redemption Offering of Units-
Secondary Market
d) Rights of Holders as to Public Offering of Units-
conversion, transfer, etc. Secondary Market;
Exchange Option;
Redemption; Rights of
Unit Holders-Certificates
e) Lapses or defaults with <F30>
respect to periodic payment
plan certificates
f) Voting rights as to Rights of Unit Holders-
Securities under the Certain Limitations
Indenture
g) Notice to Holders as to Amendment and Termina-
change in: tion of the Indenture
1) Assets of Trust Administration of the
Trust-Reports to Unit
Holders; The Trust-
Summary Description of
the Portfolios
2) Terms and Conditions Amendment and Termination
of Trust's Securities of the Indenture
3) Provisions of Trust Amendment and Termination
of the Indenture
4) Identity of Depositor Sponsor; Trustee
and Trustee
h) Security Holders consent
required to change:
1) Composition of assets Amendment and Termination
of Trust of the Indenture
2) Terms and conditions Amendment and Termination
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
of Trust's Securities of the Indenture
3) Provisions of Indenture Amendment and Termination
of the Indenture
4) Identity of Depositor <F30>
and Trustee
i) Other Provisions Cover of Prospectus; tax
status
11. Type of securities comprising The Trust-Summary
units Description of the
Portfolios; Objectives
and Securities Selection;
The Trust-Special
Considerations
12. Type of securities comprising <F30>
periodic payment certificates
13. a) Load, fees, expenses, etc. Summary of Essential
Information; Public
Offering of Units-Public
Offering Price;-Profit of
Sponsor;-Volume Discount;
Expenses and Charges
b) Certain information <F30>
regarding periodic payment
certificates
c) Certain percentages Summary of Essential
Information; Public
Offering of Units-Public
Offering Price;
-Profit of Sponsor;
-Volume Discount
d) Price differentials Public Offering of Units
- Public Offering Price
e) Certain other fees, etc. Rights of Unit Holders -
payable by holders Certificates
f) Certain profits receivable Redemption -- Purchase by
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
by depositor, principal the Sponsors of Units
underwriters, trustee or Tendered for Redemption
affiliated persons
g) Ratio of annual charges <F30>
to income
14. Issuance of trust's securities Introduction; Rights of
Unit Holders -
Certificates
15. Receipt and handling of Public Offering of Units-
payments from purchasers Profit of Sponsor
16. Acquisition and disposition Introduction; Amendment
of underlying securities and Termination of the
Indenture; Objectives and
Securities Selection; The
Trust-Summary Description
of the Portfolio;
Sponsor-Responsibility
17. Withdrawal or redemption Redemption; Public Offer-
by Security Holders ing of Units-Secondary
Market;
18. a) Receipt and disposition Administration of the
of income Trust; Reinvestment
Programs
b) Reinvestment of Reinvestment Programs
distributions
c) Reserves or special fund Administration of the
Trust-Distribution
d) Schedule of distribution <F30>
19. Records, accounts and report Administration of the
Trust-Records and
Accounts;-Reports to Unit
Holders
20. Certain miscellaneous Amendment and Termination
provisions of the Indenture of the Indenture; Sponsor
- Limitation on Liability
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
- Resignation; Trustee -
- Limitation on Liability
- Resignation
21. Loans to security holders <F30>
22. Limitations on liability Sponsor, Trustee;
Evaluator - Limitation on
Liability
23. Bonding arrangements Included on Form N-8B-2
24. Other material provisions of <F30>
the Indenture
III. Organization Personnel and
Affiliated Persons of Depositor
25. Organization of Depositor Sponsor
26. Fees received by Depositor Expenses and Charges -
fees; Public Offering of
Units-Profit of Sponsor
27. Business of Depositor Sponsor and Included in
Form N-8B-2
28. Certain information as to Included in Form N-8B-2
officials and affiliated
persons of Depositor
29. Voting securities of Depositor Included in Form N-8B-2
30. Persons controlling Depositor <F30>
31. Payments by Depositor for <F30>
certain other services
32. Payments by Depositor for <F30>
certain other services
rendered to trust
33. Remuneration of employees of <F30>
Depositor for certain services
rendered to trust
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
34. Remuneration of other <F30>
persons for certain services
rendered to trust
IV. Distribution and Redemption of Securities
35. Distribution of trust's Public Offering of Units-
securities by states Public Distribution
36. Suspension of sales of <F30>
trust's securities
37. Revocation of authority to <F30>
distribute
38. a) Method of distribution Public Offering of Units
b) Underwriting agreements
c) Selling agreements
39. a) Organization of principal Sponsor
underwriter
b) N.A.S.D. membership of
principal underwriter
40. Certain fees received by Public Offering of Units-
principal underwriter Profit of Sponsor
41. a) Business of principal Sponsor
underwriter
b) Branch officers of principal <F30>
underwriter
c) Salesman of principal <F30>
underwriter
42. Ownership of trust's securities <F30>
by certain persons
43. Certain brokerage commissions <F30>
received by principal underwriter
44. a) Method of valuation Public Offering of Units
b) Schedule as to offering <F30>
price
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
c) Variation in offering Public Offering of Units-
price to certain persons -Volume Discount;
Exchange option
45. Suspension of redemption rights <F30>
46. a) Redemption valuation Public Offering of Units-
Secondary Market;
Redemption
b) Schedule as to redemption <F30>
price
47. Maintenance of position in See items 10(d), 44 and
underlying securities 46
V. Information concerning the Trustee or Custodian
48. Organization and regulation Trustee
of Trustee
49. Fees and expenses of Trustee Expenses and Charges
50. Trustee's lien Expenses and Charges
VI. Information concerning Insurance
of Holders of Securities
51. a) Name and address of <F30>
Insurance Company
b) Type of policies <F30>
c) Type of risks insured and <F30>
excluded
d) Coverage of policies <F30>
e) Beneficiaries of policies <F30>
f) Terms and manner of <F30>
cancellation
g) Method of determining <F30>
premiums
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
h) Amount of aggregate <F30>
premiums paid
i) Who receives any part of <F30>
premiums
j) Other material provisions <F30>
of the Trust relating to
insurance
VII. Policy of Registrant
52. a) Method of selecting and Introduction; Objectives
eliminating securities and Securities Selection;
from the Trust The Trust - Summary
Description of the
Portfolio; Sponsor -
Responsibility
b) Elimination of securities <F30>
from the Trust
c) Policy of Trust regarding Introduction; Objectives
substitution and and Securities Selection;
elimination of securities Sponsor - Responsibility
d) Description of any <F30>
fundamental policy of the
Trust
53. Taxable status of the Cover of Prospectus; Tax
Trust Status
VIII. Financial and Statistical Information
54. Information regarding the <F30>
Trust's past ten fiscal years
55. Certain information regarding <F30>
periodic payment plan
certificates
56. Certain information regarding <F30>
periodic payment plan
certificates
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
57. Certain information regarding <F30>
periodic payment plan
certificates
58. Certain information regarding <F30>
periodic payment plan
certificates
59. Financial statements Statement of Financial
(Instruction 1(c) to Form S-6) Condition
____________________
<F30> Not applicable, answer negative or not required.
<PAGE>
LOGO
DEAN WITTER SELECT
MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
Standard & Poor's Corporation Rating: AAA
(A Unit Investment Trust)
_______________________________________________________________
This Trust was formed for the purpose of providing interest
income which in the opinion of bond counsel is, under existing
law, excludable from gross income for Federal income tax
purposes (except in certain instances depending on the Unit
Holders) through investment in a fixed portfolio consisting
primarily of insured long-term state, municipal and public
authority debt obligations. The value of the Units of the
Insured Trust will fluctuate with the value of the portfolio of
underlying Securities. The Units of the Trust are rated AAA by
Standard & Poor's Corporation because all of the Securities
have been irrevocably insured by insurance provided by the
respective Issuers thereof or obtained by third parties.
Minimum Purchase: 1 Unit.
_______________________________________________________________
This Prospectus consists of two parts. Part A contains a
Summary of Essential Information and descriptive material
relating to the Trust, and the portfolio and financial
statements of the Trust. Part B contains a general description
of the Trust. Part A may not be distributed unless accompanied
by Part B.
_______________________________________________________________
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.
_______________________________________________________________
Sponsor: LOGO DEAN WITTER REYNOLDS INC.
_______________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
<PAGE>
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________________________________
Read and retain both parts of this Prospectus for future
reference.
Units of the Trust are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and the Units are not
federally insured by the Federal Deposit Insurance Corporation,
Federal Reserve Board, or any other agency.
Prospectus Part A dated September 28, 1995
<PAGE>
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION WITH
RESPECT TO THE INVESTMENT COMPANY SET FORTH IN ITS REGISTRATION
STATEMENT AND EXHIBITS RELATING THERETO WHICH HAVE BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C.,
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT
OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
THE USE OF THE TERM "INSURED" IN THE NAME OF THIS TRUST DOES
NOT MEAN THAT THE TRUST UNITS ARE INSURED BY ANY GOVERNMENTAL
OR PRIVATE ORGANIZATION. THE TRUST UNITS ARE NOT INSURED.
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
TABLE OF CONTENTS
PART A Page
Table of Contents........................................... A-1
Summary of Essential Information............................ A-3
Independent Auditor's Report................................ F-1
PART B
Introduction................................................ 1
The Trust................................................... 2
Special Considerations............................... 2
Summary Description of the Portfolios................ 3
Insurance on the Securities in an Insured Trust............. 21
Objectives and Securities Selection......................... 25
The Units................................................... 26
Tax Status.................................................. 27
Public Offering of Units.................................... 32
Public Offering Price................................ 32
Public Distribution.................................. 33
Secondary Market..................................... 34
Profit of Sponsor.................................... 35
Volume Discount...................................... 35
Exchange Option............................................. 36
Reinvestment Programs....................................... 37
Redemption.................................................. 38
Tender of Units...................................... 38
Computation of Redemption Price per Unit............. 39
Purchase by the Sponsor of Units
Tendered for Redemption............................ 39
Rights of Unit Holders...................................... 40
Certificates......................................... 40
Certain Limitations.................................. 40
A-1
<PAGE>
Page
Expenses and Charges........................................ 40
Initial Expenses..................................... 40
Fees................................................. 40
Other Charges........................................ 41
Administration of the Trust................................. 42
Records and Accounts................................. 42
Distribution......................................... 42
Distribution of Interest and Principal............... 42
Reports to Unit Holders.............................. 44
Sponsor..................................................... 45
Trustee..................................................... 47
Evaluator................................................... 48
Amendment and Termination of the Indenture.................. 49
Legal Opinions.............................................. 50
Auditors.................................................... 50
Bond Ratings................................................ 50
Federal Tax Free vs. Taxable Income......................... 54
Sponsor:
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Evaluator:
Kenny S&P Evaluation Services,
A Division of J.J. Kenny Co., Inc.
65 Broadway
New York, New York 10006
Trustee:
The Chase Manhattan Bank (National Association)
1 Chase Manhattan Plaza
New York, New York 10081
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THIS INVESTMENT COMPANY NOT
CONTAINED IN THIS PROSPECTUS; AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SECURITIES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE
SUCH OFFER IN SUCH STATE.
A-2
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL INFORMATION
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
As of July 31, 1995
<S> <C> <S> <C>
FACE AMOUNT OF SECURITIES $2,870,000.00 DAILY RATE AT WHICH ESTIMATED NET
INTEREST ACCRUES PER UNIT .0182%
NUMBER OF UNITS 2,869 ESTIMATED CURRENT RETURN (based on
Public Offering Price)<F2> 5.930%
FRACTIONAL UNDIVIDED INTEREST IN THE ESTIMATED LONG TERM RETURN (based on
TRUST REPRESENTED BY EACH UNIT 1/2,869th Public Offering Price)<F2> 4.889%
PUBLIC OFFERING PRICE MONTHLY INTEREST DISTRIBUTIONS
Aggregate bid side evaluation Estimated net annual interest rate
of Securities in the Trust $3,039,256.00 per Unit times $1,000 $65.53
Divided by 12 $ 5.46
Divided by 2,869 Units $ 1,059.34
RECORD DATE: The ninth day of each
Plus sales charge of 4.134% of month
Public Offering Price (4.312%
of net amount invested in DISTRIBUTION DATE: The fifteenth
Securities) 45.68 day of each month
Public Offering Price per Unit 1,105.02 MINIMUM PRINCIPAL DISTRIBUTION: No
distribution need be made from the
Plus undistributed principal and Principal Account if balance therein
net investment income and is less than $1 per Unit outstanding
accrued interest 23.40<F1>
TRUSTEE'S ANNUAL FEE AND EXPENSES
Adjusted Public Offering Price $ 1,128.42 (including estimated expenses and
Evaluator's fee) $1.61 per $1,000
SPONSOR'S REPURCHASE PRICE AND face amount of underlying Securities $ 1.61
REDEMPTION PRICE PER UNIT (based
on bid side evaluation of under- SPONSOR'S ANNUAL PORTFOLIO SUPERVISION
lying Securities, $45.68 less FEE: Maximum of $.25 per $1,000 face
than Adjusted Public Offering amount of underlying Securities .25
Price per Unit) $ 1,082.74
TOTAL ESTIMATED ANNUAL EXPENSES PER
UNIT $ 1.86
CALCULATION OF ESTIMATED NET
ANNUAL INTEREST RATE PER UNIT EVALUATOR'S FEE FOR EACH EVALUATION: Minimum of
(based on face amount of $1,000 $8.00 plus $.25 for each issue of underlying
per Unit) Securities in excess of 50 issues (treating
separate maturities as separate issues)
Annual interest rate per Unit 6.739%
EVALUATION TIME: 4:00 P.M. New York Time
Less estimated annual expenses per
Unit ($1.86) expressed as a MANDATORY TERMINATION DATE: January 1, 2041
percentage .186%
Estimated net annual interest DISCRETIONARY LIQUIDATION AMOUNT: The In-
rate per Unit 6.553% denture may be terminated by the Sponsor if
the value of the Trust at any time is less
than $1,200,000.
<FN>
<F1>Figure shown includes interest accrued (net of expenses) on the underlying Securities to the
expected date of settlement (normally three business days after purchase) for Units purchased on
July 31, 1995.
<F2>The estimated current return and estimated long term return are increased for transactions
entitled to a reduced sales charge. (See "The Units - Estimated Annual Income and Current Return"
and "Public Offering of Units - Volume Discount" in Part B of this Prospectus.)
A-3
</TABLE>
<PAGE>
SUMMARY OF ESSENTIAL INFORMATION
(Continued)
THE INSURED TRUST -- The Dean Witter Select Municipal
Trust, Insured Long Term Series 38 (the "Insured Trust" or the
"Trust") is a unit investment trust which was created on
August 15, 1991 (the "Date of Deposit"), and is composed of
"AAA rated" insured interest-bearing municipal bonds (the
"Securities"). (For a description of the meaning of "AAA
rated" securities, see: "Bond Ratings", in Part B.) The
objectives of the Insured Trust are: (1) the receipt of income
which, under existing law, is excludable from gross income for
Federal income tax purposes (except in certain instances
depending on the Unit Holders); and (2) the conservation of
capital. The payment of interest and the preservation of
principal of the Insured Trust is dependent on the continuing
ability of the respective Issuers of the Securities or the bond
insurers thereof to meet their obligations to pay principal and
interest. Therefore, there is no guarantee that the objectives
of the Insured Trust will be achieved. All of the Securities
are obligations of states or of the counties, municipalities or
public authorities thereof. Interest on the Securities, in the
opinion of bond counsel or special tax counsel to the Issuers
thereof, under existing law, is excludable from gross income
for Federal income tax purposes (except in certain instances
depending on the Unit Holders). (For a discussion of certain
tax aspects of the Insured Trust, see: "Tax Status", in
Part B.)
OFFERS TO SELL OR THE SOLICITATION OF ORDERS TO BUY
MAY ONLY BE MADE IN THOSE JURISDICTIONS IN WHICH THE UNITS OF
THIS TRUST HAVE BEEN REGISTERED. INVESTORS SHOULD CONTACT
ACCOUNT EXECUTIVES OF THE SPONSOR TO DETERMINE WHETHER THE
UNITS OF THIS TRUST HAVE BEEN REGISTERED FOR SALE IN THE STATE
IN WHICH THEY RESIDE.
INSURANCE -- A policy of insurance guaranteeing the
scheduled payment of principal and interest ("Bond Insurance")
has been obtained from the bond insurers indicated on the
"Schedule of Portfolio Securities", herein, and paid for by the
Issuers of the Securities, or by third parties, for all the
Securities in the Insured Trust. The policies of Bond
Insurance are non-cancellable and cover default in the payment
of principal and interest on the Securities so insured so long
as such Securities remain outstanding, whether they are held in
the Insured Trust or not. Bond Insurance on all Securities in
the Insured Trust relates only to the Securities in such
Insured Trust and not to the Units offered hereby. No
representation is made herein as to any bond insurer's ability
to meet its obligations under a policy of Bond Insurance
relating to a Security in the Insured Trust. However, as a
A-4
<PAGE>
result of such Bond Insurance, the Securities, as well as the
Units of the Insured Trust, are rated "AAA" by Standard &
Poor's Corporation. There can be no assurance that such "AAA"
ratings will be retained. (See: "Insurance on the Securities
in an Insured Trust", in Part B.)
MONTHLY DISTRIBUTIONS -- Monthly distributions of
principal, premium, if any, and interest received by the
Insured Trust will be made on or shortly after the fifteenth
day of each month to Unit Holders of record on the ninth day of
such month. Alternatively, Unit Holders may elect to have
their monthly distributions reinvested in either of the
Reinvestment Programs of the Sponsor, neither of which are
insured. (See: "Reinvestment Programs", in Part B.)
PUBLIC OFFERING PRICE -- The Public Offering Price
per Unit of the Insured Trust is calculated daily, and is equal
to the aggregate bid side evaluation of the underlying
Securities, divided by the number of Units outstanding, plus a
sales charge calculated by reference to "Sales Charge/Volume
Discount", below, plus the per Unit balance in the Interest and
Principal Accounts. Units are offered at the Public Offering
Price, plus accrued interest. (See: "Public Offering of
Units", in Part B.)
ESTIMATED CURRENT RETURN -- The Estimated Current
Return shows the return based on the Public Offering Price and
is computed by multiplying the estimated net annual interest
rate per Unit (which shows the return based on a $1,000 face
amount) by $1,000 and dividing the result by the Public
Offering Price (not including accrued interest). The net
annual interest rate per Unit will vary with changes in the
fees and expenses of the Trustee, the Sponsor and the Evaluator
and with the exchange, redemption, sale or maturity of the
underlying Securities. In addition, the Public Offering Price
will also vary with fluctuations in the bid side evaluation of
the underlying Securities. Therefore, it can be expected that
the Estimated Current Return will fluctuate in the future.
(See: "The Units -- Estimated Annual Income and Current
Return", in Part B.)
MARKET FOR UNITS -- The Sponsor, though not obligated
to do so, intends to maintain a market for the Units based on
the aggregate bid side evaluation of the underlying Securities,
as more fully described in Part B -- "Public Offering of
Units -- Secondary Market". If such market is not maintained,
a Unit Holder will be able to dispose of its Units through
redemption at prices based on the aggregate bid side evaluation
of the underlying Securities. (See: "Redemption", in Part B.)
Market conditions may cause such prices to be greater or less
than the amount paid for Units.
A-5
<PAGE>
SPECIAL CONSIDERATIONS -- An investment in Units of
the Insured 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 Units will decline with increases in interest rates. The
Insured Trust is considered to be concentrated in Health Care
and Hospital Securities and Prerefunded/Escrowed to Maturity
Securities (31.83% and 53.55%, respectively, of the aggregate
market value of the Portfolio). (See: "The Trust -- Special
Considerations" and "The Trust -- Summary Description of the
Portfolios", in Part B. See also: "Special Characteristics of
the Insured Trust", herein, for a discussion of additional
risks relating to Units of the Insured Trust.)
SPECIAL CHARACTERISTICS OF THE INSURED TRUST -- The
Portfolio of the Insured Trust consists of nine issues of
Securities, which were issued by Issuers located in eight
states. None of the issues of Securities is a general
obligation of an Issuer. All nine issues of Securities, while
not backed by the taxing power of the Issuer, are payable from
revenues or receipts derived from specific projects or other
available sources. The Insured Trust contains the following
categories of Securities:
Percentage of Aggregate
Market Value of Trust Portfolio
Category of Security (as of September 14, 1995)
Electric and Power ....................... 13.28%
Health Care and Hospital ................. 31.83%
Lease Payment ............................ 0.98%
Water and Sewer .......................... 0.35%
Prefunded/Escrowed to
Maturity ............................... 53.55%
Original Issue Discount .................. 55.68%
See: "The Trust -- Summary Description of the
Portfolios", in Part B, for a summary of the investment risks
associated with the type of Securities contained in the Insured
Trust. See: "Tax Status", in Part B, for a discussion of
certain tax considerations with regard to Original Issue
Discount.
Of the Original Issue Discount bonds, approximately
3.14% of the aggregate principal amount of the Securities in
the Insured Trust (or 0.98% of the market value of all
Securities in the Insured Trust on September 14, 1995) are zero
coupon bonds (including bonds known as multiplier bonds, money
multiplier bonds, capital accumulator bonds, compound interest
bonds and discount maturity payment bonds).
A-6
<PAGE>
Securities representing approximately 15.14% of the
aggregate market value of the Portfolio are subject to
redemption at the option of the Issuer thereof beginning in
1996. (See: "Schedule of Portfolio Securities", herein, and
"The Trust -- Summary Description of the Portfolios --
Additional Securities Considerations -- Redemption of
Securities", in Part B.)
The Securities in the Insured Trust are insured to
maturity by the insurance obtained by the Issuers or by third
parties from the following insurance companies:
AMBAC: 20.77%; CGIC: 15.14%; FGIC: 15.88%; and
MBIA: 48.20%.<F31>
On September 14, 1995, based on the bid side of the
market, the aggregate market value of the Securities in the
Portfolio was $3,075,129.30.
The Securities in the Portfolio of the Insured Trust
were chosen in part on the basis of their respective maturity
dates. A long term Trust contains obligations maturing in 15
years or more from the Date of Deposit. The maturity date of
the Insured Trust is January 1, 2041; the latest maturity of a
Security therein is November 2026; and the average life to
maturity (or date of pre-refunding of a bond) of the Portfolio
of Securities therein is 12.50 years. The actual maturity
dates of each of the Securities contained in the Insured Trust
are shown on the "Schedule of Portfolio Securities", herein.
The Trustee shall receive annually 72 cents per
$1,000 principal amount of Securities in the Insured Trust for
its services as Trustee. See: "Expenses and Charges", in
Part B, for a description of other fees and charges which may
be incurred by the Insured Trust.
On September 14, 1995, all the Securities in the
Insured Trust were rated "AAA" by Standard & Poor's Corporation
because of the Bond Insurance policies issued in respect of
such Securities. (See: "Schedule of Portfolio Securities",
herein, and "Bond Ratings", in Part B.) A Security in the
Portfolio may subsequently cease to be rated or the rating
assigned may be reduced below the minimum requirements of the
Insured Trust for the acquisition of Securities. While such
events may be considered by the Sponsor in determining whether
to direct the Trustee to dispose of the Security (see:
"Sponsor -- Responsibility", in Part B), such events do not
_________________________
<F31> Percentages computed on the basis of the aggregate bid side
evaluation of the Securities in the Insured Trust on September 14,
1995.
A-7
<PAGE>
automatically require the elimination of such Security from the
Portfolio.
SALES CHARGE/VOLUME DISCOUNT -- The Public Offering
Price per Unit will be computed by dividing the aggregate of
the bid prices of the Securities in a Trust by the number of
Units outstanding and then adding the appropriate sales charge
described below.
The sales charge will reflect different rates
depending upon the maturities of the various underlying
Securities. The sales charge per Unit in the secondary market
(the "Effective Sales Charge") will be computed by multiplying
the Evaluator's determination of the bid side evaluation of
each Security by a sales charge determined in accordance with
the table set forth below based upon the number of years
remaining to the maturity of each such Security, totalling all
such calculations, and dividing this total by the number of
Units then outstanding. In calculating the date of maturity, a
Security will be considered to mature on its stated maturity
date unless: (a) the Security has been called for redemption
or funds or securities have been placed in escrow to redeem it
on an earlier call date, in which case the call date will be
deemed the date on which such Security matures; or (b) the
Security is subject to a mandatory tender, in which case the
mandatory tender date will be deemed the date on which such
Security matures.
(as % of bid (as % of Public
Time to Maturity side evaluation) Offering Price)
Less than six months................ 0% 0%
six months to 1 year................ 0.756% 0.75%
over 1 year to 2 years.............. 1.523% 1.50%
over 2 years to 4 years............. 2.564% 2.50%
over 4 years to 8 years............. 3.627% 3.50%
over 8 years to 15 years............ 4.712% 4.50%
over 15 years....................... 5.820% 5.50%
The Effective Sales Charge per Unit for a sale in the
secondary market, as determined above, will be reduced on a
graduated scale for sales to any single purchaser on a single
day of the specified number of Units of a Trust set forth
below.
A-8
<PAGE>
Dealer Concession
% of Effective as % of Effective
Number of Units Sales Charge Sales Charge
1-99............................ 100% 65%
100-249......................... 95% 62%
250-499......................... 85% 55%
500-999......................... 70% 45%
1,000 or more................... 55% 35%
To qualify for the reduced sales charge and
concession applicable to quantity purchases, the selling dealer
must confirm that the sale is to a single purchaser, as
described in "Volume Discount" in Part B of the Prospectus.
Units purchased at an Effective Sales Charge (before
volume purchase discount) of less than 3.00% of the Public
Offering Price (3.093% of the bid side evaluation of the
Securities) will not be eligible for exchange at a reduced
sales charge described under the Exchange Option.
Dealers purchasing certain dollar amounts of Units
during the life of the Trusts may be entitled to additional
concessions. The Sponsor reserves the right, at any time and
from time to time, to change the level of dealer concessions.
For further information regarding the volume
discount, see: "Public Offering of Units -- Volume Discount",
in Part B.
Note: "Auditors" in Part B is amended so that
"Deloitte & Touche" is replaced with "Deloitte & Touche LLP";
"Evaluator" in Part B is amended so that "Kenny S&P Evaluation
Services, a division of Kenny Information Systems, Inc." is
replaced with "Kenny S&P Evaluation Services, a Division of
J.J. Kenny Co., Inc."; and "Trustee" in Part B is amended so
that "United States Trust Company of New York, with its
principal place of business at 114 West 47th Street, New York,
New York 10036, and its unit investment trust office at 770
Broadway, New York, New York 10003" is replaced with "The Chase
Manhattan Bank (National Association), a national banking
association with its principal executive office located at
1 Chase Manhattan Plaza, New York, New York 10081 and its unit
investment trust office at 770 Broadway, New York, New York
10003". The reference to the fifth and five business day in
"Redemption -- Computation of Redemption Price per Unit" and
"Administration of the Trust -- Distribution of Interest and
Principal" in Part B is amended to read third and three,
respectively.
A-9
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
THE UNIT HOLDERS, SPONSOR AND TRUSTEE
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
We have audited the statement of financial condition and schedule of
portfolio securities of the Dean Witter Select Municipal Trust Insured Long
Term Series 38 as of July 31, 1995, and the related statements of operations
and changes in net assets for each of the three years in the period then
ended. These financial statements are the responsibility of the Trustee
(see Footnote (a)(1)). Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of the securities owned as of July 31,
1995 as shown in the statement of financial condition and schedule of
portfolio securities by correspondence with The Chase Manhattan Bank,
N.A. (formerly United States Trust Company of New York), the Trustee. An
audit also includes assessing the accounting principles used and the
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Dean Witter Select
Municipal Trust Insured Long Term Series 38 as of July 31, 1995, and the
results of their operations and the changes in their net assets for each of
the three years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
September 15, 1995
New York, New York
F-1
</AUDIT-REPORT>
<PAGE>
STATEMENT OF FINANCIAL CONDITION
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
July 31, 1995
TRUST PROPERTY
Investments in municipal bonds at market value (amortized
cost $2,795,473) (Note (a) and Schedule of Portfolio
Securities Notes (4) and (5)) $3,039,256
Accrued interest receivable 62,530
Cash 5,028
Total 3,106,814
LIABILITIES AND NET ASSETS
Less Liabilities:
Accrued Trust fees and expenses 636
Accrued Sponsor's fees 1,373
Total liabilities 2,009
Net Assets:
Balance applicable to 2,869 Units of fractional
undivided interest outstanding (Note (c)):
Capital, plus unrealized market
appreciation of $243,783 $3,039,256
Undistributed principal and net investment
income (Note (b)) 65,549
Net assets $3,104,805
Net asset value per Unit ($3,104,805 divided by 2,869 Units) $ 1,082.19
See notes to financial statements
F-2
<PAGE>
STATEMENTS OF OPERATIONS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
For the years ended July 31,
1995 1994 1993
Investment income - interest $197,830 $198,307 $202,693
Less Expenses:
Trustee fees and expenses 4,686 4,699 7,065
Sponsor fees and expenses 728 730 745
Total expenses 5,414 5,429 7,810
Investment income - net 192,416 192,878 194,883
Net gain (loss) on investments:
Realized gain on securities
sold or redeemed 4,773 - 7,200
Net unrealized market appreciation
(depreciation) 16,676 (66,993) 62,449
Net gain (loss) on investments 21,449 (66,993) 69,649
Net increase in net assets resulting from
operations $213,865 $125,885 $264,532
See notes to financial statements
F-3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
For the years ended July 31,
1995 1994 1993
Operations:
Investment income - net $ 192,416 $ 192,878 $ 194,883
Realized gain on securities
sold or redeemed 4,773 - 7,200
Net unrealized market appreciation
(depreciation) 16,676 (66,993) 62,449
Net increase in net assets
resulting from operations 213,865 125,885 264,532
Less Distributions to Unit Holders:
Principal (4,329) - -
Investment income - net (190,797) (190,939) (193,507)
Total distributions (195,126) (190,939) (193,507)
Less Capital Share Transactions:
Redemption of 51 Units and
80 Units, respectively (54,153) - (85,638)
Accrued interest on redemption (1,137) - (1,782)
Total capital share
transactions (55,290) - (87,420)
Net decrease in net assets (36,551) (65,054) (16,395)
Net assets:
Beginning of year 3,141,356 3,206,410 3,222,805
End of year (including undistrib-
uted principal and net investment
income of $65,549, $70,214 and
$69,753, respectively) $3,104,805 $3,141,356 $3,206,410
See notes to financial statements
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
July 31, 1995
(a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of the significant
accounting policies of the Trust:
(1) Basis of Presentation
The Trustee has custody of and responsibility for all accounting
and financial books, records, financial statements and related
data of the Trust and is responsible for establishing and
maintaining a system of internal controls directly related to, and
designed to provide reasonable assurance as to the integrity and
reliability of, financial reporting of the Trust. The Trustee is
also responsible for all estimates and accruals reflected in the
Trust's financial statements. The Evaluator determines the price
for each underlying Security included in the Trust's Portfolio of
Securities on the basis set forth in Part B of this Prospectus,
"Public Offering of Units - Public Offering Price". Under the
Securities Act of 1933 ("the Act"), as amended, the Sponsor is
deemed to be an issuer of the Trust Units. As such, the Sponsor
has the responsibility of an issuer under the Act with respect to
financial statements of the Trust included in the Trust's
Registration Statement under the Act and amendments thereto.
(2) Investments
Investments are stated at market value as determined by the
Evaluator based on the bid side evaluations on the last day of
trading during the period, except that value on the date of
deposit (August 15, 1991) represents the cost of investments to
the Trust based on the offering side evaluations as of the date of
deposit.
(3) Income Taxes
The Trust is not an association taxable as a corporation for
Federal income tax purposes; accordingly, no provision is required
for such taxes.
(4) Expenses
The Trust pays annual Trustee's fees, estimated expenses,
Evaluator's fees, and annual Sponsor's portfolio supervision fees
and may incur additional charges as explained under "Expenses and
Charges - Fees" and "- Other Charges" in Part B of this
Prospectus.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
July 31, 1995
(b) DISTRIBUTIONS
Interest received by the Trust is distributed to the Unit Holders on or
shortly after the fifteenth day of each month after deducting
applicable expenses. Receipts other than interest are distributed as
explained in "Administration of the Trust - Distribution of Interest
and Principal" in Part B of this Prospectus.
(c) ORIGINAL COST TO INVESTORS
The original cost to investors represents the aggregate initial public
offering price as of the date of deposit (August 15, 1991) exclusive of
accrued interest, computed on the basis set forth under "Public
Offering of Units - Public Offering Price" in Part B of this
Prospectus.
A reconciliation of the original cost of Units to investors to the net
amount applicable to investors as of July 31, 1995 follows:
Original cost to investors $3,070,562
Less: Gross underwriting commissions (sales charge) (150,450)
Net cost to investors 2,920,112
Cost of securities sold or redeemed (130,342)
Unrealized market appreciation 243,783
Accumulated interest accretion 5,703
Net amount applicable to investors $3,039,256
(d) OTHER INFORMATION
Selected data for a Unit of the Trust during each year:
For the years ended July 31,
1995 1994 1993
Principal distributions during
year $ 1.50 $ - $ -
Net investment income distribu-
tions during year $ 65.50 $ 65.39 $ 64.79
Net asset value at end of year $1,082.19 $1,075.81 $1,098.09
Trust Units outstanding at end
of year 2,869 2,920 2,920
F-6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PORTFOLIO SECURITIES
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
July 31, 1995
Port- Optional
folio Rating Face Coupon Maturity Sinking Fund Refunding Market
No. Title of Securities <F3> Amount Rate Date Redemptions<F5> Redemptions<F4> Value<F6><F7>
<C><S> <C> <C> <C> <C> <C> <C> <C>
1. Municipality of Anchorage,
Alaska, 1991 General
Obligation Bonds, (MBIA
Insured) (Refunded) <F8><F9> AAA $ 420,000 6.900% 08/01/12 NONE 08/01/01@100 $ 469,681
2. Central Lake County Joint
Action Water Agency,
Illinois, Water Revenue
Bonds, Series 1990A (AMBAC
Insured) (Refunded) <F8><F10> AAA 195,000 7.000 05/01/19 05/01/11@100 05/01/00@102 218,244
3. Rochelle, Illinois, Elec-
tric System Revenue Bonds,
Series of 1991 (AMBAC
Insured) <F10> AAA 370,000 7.000 05/01/11 05/01/04@100 05/01/01@102 403,023
4. Commonwealth of Massachu-
setts General Obligation
Bonds, Consolidated Loan of
1990, Series A (FGIC
Insured) (Refunded) <F8><F11> AAA 435,000 7.000 03/01/10 NONE 03/01/00@102 485,508
5. Reno, Nevada, Insured Hos-
pital Revenue Bonds, (St.
Mary's Regional Medical
Center), Series 1991A (MBIA
Insured) <F9> AAA 450,000 6.700 07/01/21 07/01/13@100 07/01/01@102 472,500
6. Northumberland County
Authority, Pennsylvania,
Commonwealth Lease Revenue
Bonds, Series of 1991
(Escrowed to Maturity)
(MBIA Insured) <F9> AAA 90,000 0.000 10/15/14 NONE NONE 29,024
7. Texas Water Resources
Finance Authority Revenue
Bonds, Series 1989 (AMBAC
Insured) <F10> AAA 10,000 7.500 08/15/13 02/15/09@100 08/15/99@100 10,642
8. Wisconsin Health and Educa-
tional Facilities Authority
Revenue Bonds, Series 1991
(St. Luke's Medical Center
Project) (MBIA Insured) <F9> AAA 450,000 7.100 08/15/19 08/15/12@100 08/15/01@102 483,201
9. West Virginia Water Devel-
opment Authority, Water
Development Revenue Bonds,
(Loan Program), 1986 Series
A (Refunded) <F8> AAA 450,000 7.000 11/01/26 11/01/17@100 11/01/96@100 467,433
$2,870,000 $3,039,256
See notes to schedule of portfolio securities
F-7
</TABLE>
<PAGE>
NOTES TO SCHEDULE OF PORTFOLIO SECURITIES
DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES 38
July 31, 1995
[FN]
<F3> All ratings are provided by Standard & Poor's Corporation. A brief
description of applicable Security ratings is given under "Bond
Ratings" in Part B of this Prospectus.
<F4> There is shown under this heading the date on which each issue of
Securities is redeemable by the operation of optional call
provisions and the redemption price for that date; unless
otherwise indicated, each issue continues to be redeemable at
declining prices thereafter but not below par. Securities listed
as non-callable, as well as Securities listed as callable, may
also be redeemable at par under certain circumstances from special
redemption payments.
<F5> There is shown under this heading the date on which an issue of
Securities is subject to scheduled sinking fund redemption and the
redemption price on such date.
<F6> The market value of the Securities as of July 31, 1995 was
determined by the Evaluator on the basis of bid side evaluations
for the Securities at such date.
<F7> At July 31, 1995, the unrealized market appreciation of all
Securities was comprised of the following:
Gross unrealized market appreciation $243,783
Gross unrealized market depreciation -
Unrealized market appreciation $243,783
The amortized cost of the Securities for Federal income tax
purposes was $2,795,473 at July 31, 1995.
<F8> The Issuer has indicated that it will refund this Security on its
optional redemption date.
<F9> Insured by Municipal Bond Insurance Association ("MBIA").
<F10>Insured by American Municipal Bond Assurance Corporation ("AMBAC").
<F11>Insured by Financial Guaranty Insurance Company ("FGIC").
F-8
<PAGE>
PROSPECTUS PART B
DEAN WITTER SELECT MUNICIPAL TRUST
PART B OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY PART A.
________________
INTRODUCTION
Each Trust described in Part A of this Prospectus is one of a series
in the Dean Witter Select Municipal Trust, each of which is a separate and
distinct unit investment trust. Each trust may be singularly referred to
as the "Trust" and collectively referred to as the "Trusts". Certain
series of the Trusts may be designated as an "Insured Trust", a "State
Trust", a combination thereof or other appropriate designation. Each Trust
was created under the laws of the State of New York pursuant to a Trust
Indenture and Agreement and a related Reference Trust Agreement
(collectively, the "Indenture"), among Dean Witter Reynolds Inc. (the
"Sponsor"), United States Trust Company of New York or The Bank of New York
as specified in Part A of this Prospectus (the "Trustee") and Kenny S&P
Evaluation Services, a division of Kenny Information Systems, Inc. (the
"Evaluator"). The Sponsor is a principal operating subsidiary of Dean
Witter, Discover & Co., a publicly-held corporation ("DWDC"). (See
"Sponsor".) The objectives of each Trust are to provide interest income
which is exempt, in the opinion of counsel, from Federal income tax under
existing law (except in certain cases depending on the Unit Holder) and to
conserve capital through investment in a fixed portfolio of Securities (the
"Portfolio") consisting primarily of investment-grade state, municipal and
public authority debt obligations. Part A of the Prospectus indicates the
extent, if any, to which interest income on the Securities held or
contracted to be purchased on the Date of Deposit is subject to alternative
minimum tax. There can be no assurances, however, that the above
objectives will be achieved because they are subject to the continuing
ability of the issuers of the Securities held in the Trust to meet their
obligations to pay principal and interest.
On the date of creation of the Trust (the "Date of Deposit"), the
Sponsor deposited with the Trustee certain debt obligations and contracts
and funds (represented by irrevocable letter(s) of credit issued by major
commercial bank(s)) for the purchase of such debt obligations
(collectively, the "Securities"). Each Trust was created simultaneously
with the execution of the Indenture and the deposit of the Securities with
the Trustee. The Trustee then immediately delivered to the Sponsor
certificates of beneficial interest (the "Certificates") representing the
units (the "Units") comprising the entire ownership of each Trust. Through
this Prospectus, the Sponsor is offering the Units, including Additional
Units, as defined below, for sale to the public. On the Date of Deposit,
the Evaluator evaluated the Securities at prices equal to the evaluation of
______________
1 Reference is hereby made to said Indenture and any statements contained
herein are qualified in their entirety by the provisions of said
Indenture.
1
<PAGE>
such Securities on the offering side of the market. (See Part A--"Schedule
of Portfolio Securities".) The holders of Certificates (the "Unit
Holders") will have the right to have their Units redeemed at a price based
on the aggregate bid side evaluation of the Securities (the "Redemption
Price") if they cannot be sold in the secondary market which the Sponsor,
although not obligated to do so, proposes to maintain. In addition, the
Sponsor may offer for sale, through this Prospectus, Units which the
Sponsor may have repurchased in the secondary market or upon the tender of
such Units for redemption.
Notwithstanding the availability of the above-mentioned irrevocable
letter(s) of credit, it is expected that the Sponsor will pay for the
Securities as the contracts for their purchase become due. A substantial
portion of such contracts have not become due by the date of the initial
Date of Deposit. To the extent Units are sold prior to the settlement of
such contracts, the Sponsor will receive the purchase price of such Units
prior to the time at which it pays for Securities pursuant to such
contracts and have the use of such funds during this period.
During the 90-day period following the first deposit of Securities in
the Trust, the Sponsor may deposit in the Trust additional Securities and
cash, if required. Any such Securities deposited shall be substantially
similar to the initially deposited Securities held in the Trust immediately
prior to the deposit. Among other things, a failure to meet the
proportionality requirements due to establishment by the Sponsor of a
minimum amount of a particular Security to be included in a deposit or the
fact that a Security identical to a Security in the Trust immediately prior
to the deposit is not readily obtainable will be considered as justifying a
variation in such requirements. Any deposit made after the close of such
90-day period must exactly replicate the Securities and any cash (other
than cash distributable only to the Sponsor or to Unit Holders who were
Unit Holders prior to the date of deposit of the additional Securities)
held in the Trust immediately prior to the deposit. As additional Units
are issued by the Trust as a result of the deposit of additional Securities
by the Sponsor (the "Additional Units"), the aggregate value of the
Securities in the Trust will be increased and the fractional undivided
interest in the Trust represented by each Unit will be decreased.
THE TRUST
Special Considerations
An investment in Units of a Trust should be made with an
understanding of the risks which an investment in fixed rate debt
obligations of the term and type set forth in Part A--"Summary of Essential
Information" and "Schedule of Portfolio Securities" may entail, including
the risk that the value of the Portfolios and hence of the Units will
decline with increases in interest rates. In recent years, the national
economy has experienced significant variations in rates of inflation and
economic growth, substantial increases in the national debt and in reliance
upon foreign investors to finance it, and material reformulations of
Federal tax, monetary and regulatory policies. These conditions have been
associated with wide fluctuations in interest rates and thus in the value
of fixed rate obligations. The Sponsor cannot predict whether such
fluctuations will continue in the future. In addition, a regional or
national economic recession would increase the risk that certain issuers
(or the obligors of the Securities, in the case of a conduit financing) may
experience a revenue shortfall adversely affecting their ability to pay
principal or interest.
2
<PAGE>
Summary Description of the Portfolios
Each Portfolio consists of the Securities listed under Part A--
"Schedule of Portfolio Securities" as long as such Securities may continue
to be held from time to time in the Trust (including certain obligations
deposited in a Trust in exchange or substitution for any Securities
pursuant to the Indenture), together with accrued and undistributed
interest thereon and undistributed and uninvested cash realized from the
disposition of Securities.
The Securities have been issued by or on behalf of states or
territorial possessions or commonwealths of the United States, or the
municipalities, counties, public authorities or other political
subdivisions or instrumentalities thereof (the "Issuers"). The interest on
such Securities, in each instance, in the opinion of bond counsel or
special tax counsel to the Issuer of such Securities or by ruling of the
Internal Revenue Service (the "IRS") is not included in gross income for
Federal income tax purposes under existing law (but may be subject to state
and local taxation). In addition, in the opinion of counsel, interest
income of each State Trust is exempt, to the extent indicated, from state
and any local income taxes in the State for which such State Trust is
named. Capital gains, if any, will be subject to Federal income tax and,
generally, to state and/or local income tax. (See "Tax Status". Part A
may contain a discussion of certain special tax considerations applicable
to a particular Trust.)
The yields on Securities of the type deposited in a Trust are
dependent on a variety of factors, including general money market
conditions, interest rates, general conditions of the municipal bond
market, size of a particular offering, the maturity of the obligation and
rating of the issue. The ratings represent the opinions of the rating
organizations as to the quality of the obligations which they undertake to
rate. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, debt obligations with the
same maturity, coupon and rating may have different yields, while debt
obligations of the same maturity and coupon with different ratings may have
the same yield.
All of the Securities in the Portfolio were, as of the Date of
Deposit of the Trust, rated "BBB" or better by Standard & Poor's
Corporation or "Baa" or "MIG 2" or better by Moody's Investors Service or
had, in the opinion of the Sponsor, credit characteristics comparable to
Securities so rated. No assurance can be given that such ratings would be
issued if the Securities were reevaluated by Standard & Poor's Corporation
or Moody's Investors Service. Subsequent to the Date of Deposit, a
Security in the Trust may cease to be rated or the rating assigned may be
reduced below the minimum requirements of such Trust for the acquisition
of Securities. Although such events may be considered by the Sponsor in
determining whether to direct the Trustee to dispose of the Security (see
"Sponsor--Responsibility"), such events do not automatically require the
elimination of such Security from the Portfolio.
On the Date of Deposit, a Unit of the Trust represented the
fractional undivided interest in the Securities and net income of such
Trust set forth under Part A--"Summary of Essential Information" in the
ratio of 1 Unit for each approximately $1,000 face amount of Securities
initially deposited in such Trust ($1.00 per unit in the case of certain
Trusts (see Part A--"Summary of Essential Information")). If any Units are
redeemed by the Trustee, the face amount of Securities in the Trust will be
3
<PAGE>
reduced by an amount allocable to redeemed Units and the fractional
undivided interest in such Trust represented by each unredeemed Unit will
be increased. Units will remain outstanding until redeemed upon tender to
the Trustee by any Unit Holder (which may include the Sponsor) or until the
termination of the Trust pursuant to the Indenture.
Because certain of the Securities from time to time may be redeemed or
will mature in accordance with their terms or may be sold under certain
circumstances described herein, no assurance can be given that a Trust will
retain for any length of time its present size and composition. 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.
Under certain circumstances described in "Sponsor--Responsibility",
the Sponsor may direct the Trustee to dispose of a Security. No assurance
can be given that a sale of any Security under such circumstances would
yield proceeds equivalent to the face amount or purchase price of such
Security. In addition, such a sale may reduce the average life of the
Portfolio and may adversely affect the Estimated Annual Income and
Estimated Current Return and Estimated Long-Term Return of the Trust.
Certain of the Securities in the Portfolio of the Trust are valued at
prices in excess of prices at which such Securities may be redeemed in the
future. (See Part A--"Schedule of Portfolio Securities" for information
relating to the particular series described therein on the Date of
Deposit.) To the extent that a Security is redeemed (or sold) at a price
which is less than the valuation of such Security on the date a Unit Holder
acquired his Units, the proceeds distributable to such Unit Holder in
respect of such redemption (or sale) will be less than that portion of the
purchase price for such Units which was attributable to such Security
(representing a loss of capital to such Unit Holder). Such proceeds,
however, may be more or less than the valuation of such Security at the
time of such redemption (or sale). Similarly, certain of the Securities in
the Trust may be valued at a price in excess of their face value at
maturity (i.e., such Securities were valued at a premium above face
amount). (See Part A--"Schedule of Portfolio Securities" for information
relating to the particular series described therein on the Date of
Deposit.) The proceeds distributable to a Unit Holder upon the maturity of
a Security which was valued at a premium on the date such Unit Holder
acquired Units will be less than that portion of the purchase price for
such Units which was attributable to such Security (representing a loss of
capital to such Unit Holder).
The Portfolio of the Trust may consist of Securities the current
market value of some of which were below face value. A primary reason for
the market value of such Securities being less than face value at maturity
is that the interest coupons of such Securities are at lower rates than the
current market interest rate for comparably rated debt securities, even
though at the time of the issuance of such Securities the interest coupons
thereon represented then prevailing interest rates on comparably rated debt
securities then newly issued. The current yields (coupon interest income
as a percentage of market price, ignoring any original issue discount) of
such Securities are lower than the current yields (computed on the same
basis) of comparably rated debt securities of similar type newly issued at
currently prevailing interest rates. Securities selling at market
discounts tend to increase in market value as they approach maturity when
the principal amount is payable. A market discount tax-exempt Security
held to maturity will have a larger portion of its total return in the form
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of taxable ordinary income and less in the form of tax-exempt income than a
comparable Security bearing interest at current market rates. Under the
provisions of the Internal Revenue Code in effect on the date of this
Prospectus, any ordinary income attributable to market discount will be
taxable but will not be realized until maturity, redemption or sale of the
Securities or Units. The current yield of such discounted securities
carrying the same coupon interest rate and which are otherwise comparable
tends to be higher for securities with longer periods to maturity than it
is for those with shorter periods to maturity because the market value of
such securities with a longer period to maturity tends to be less than the
market value of such a bond with a shorter period to maturity. If
currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market discount of previously issued
bonds will become deeper and if such currently prevailing interest rates
for newly issued comparable securities decline, the market discount of
previously issued securities will be reduced, other things being equal.
Market discount attributable to interest rate changes does not indicate a
lack of market confidence in the issue.
The following description of the major categories in which Securities
in the Portfolios may be classified is provided by the Sponsor for general
information purposes only, and does not purport to be complete. This
Prospectus does not provide detailed information with respect to any
Security or to any Issuer, or with respect to any rights or obligations,
legal, financial or otherwise, arising thereunder or related thereto. Each
Security is subject to the terms and conditions, and to the actual
performance of tax and other covenants, contained in the legal documents
governing such Security. The special risk considerations listed are among
the factors which may result in the inability of an Issuer to make
scheduled payments of interest and principal.
General Obligation Securities
A Portfolio may contain Securities that are general obligations of
governmental entities and/or bonds that are guaranteed by governmental
entities. Such general obligations and guarantees are backed by the taxing
power of the respective entities. The ability of the issuer of a general
obligation bond to meet its obligation depends largely upon its economic
condition. Many issuers rely upon ad valorem real property taxes as a
source of revenue. Proposals in the form of state legislative or voter
initiatives to limit ad valorem real property taxes have been introduced in
various states. It is not presently possible to predict the impact of
these or future proposals, if adopted, on states, local governments or
school districts or on their abilities to make future payments of their
outstanding debt obligations. The remaining issues are payable from the
income of specific projects or authorities and are not supported by the
issuer's power to levy taxes. This latter group of issues contains
Securities that are also supported by the moral obligations of governmental
entities. In the event of a deficiency in the debt service reserve funds
of moral obligation Securities, the governmental entity having the moral
commitment may (but is not legally obligated to) satisfy such deficiency.
However, in the event of a deficiency in the debt service reserve funds of
Securities not backed by such moral obligations, no such moral commitment
of a governmental entity exists.
The fiscal condition of an Issuer that is a governmental entity (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
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operating budget and of other costs, including salaries and fringe
benefits, energy and solid waste disposal; changes in state law and
statutory interpretations affecting traditional home rule powers (which
vary from state to state); levels of unrestricted state aid or
revenue-sharing programs and state categorical grants subject to annual
appropriation by a state legislature; increased expenditures mandated by
state law or judicial decree; and disallowances for expenses incurred under
Federal or state categorical grant 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 takeover. 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. (See also "Additional Securities Considerations-
- -Issuer Default" and "--Issuer Bankruptcy".)
The fiscal condition of an Issuer may be negatively impacted by
socio-economic factors beyond the Issuer's control (which may hinder the
collection of economically sensitive taxes or entail additional
expenditures) or may be affected by other unanticipated events, including:
imposition of tax rate decreases or appropriations limitations by
legislation or voter initiative; revenue shortfalls due to the imprecise
nature of forecasting actual collections; increased expenditures mandated
by Federal law or by judicial decree; reduction of Federal aid due to
subsequent legislative changes in appropriations or aid formulas;
disallowances by the Federal government for expenses incurred in
connection with categorical grants; or the outcome of litigation.
Zero Coupon Bonds
The Portfolio of the Trust may contain zero coupon bond(s) (including
bonds known as multiplier bonds, money multiplier bonds, capital
appreciation bonds, capital accumulator bonds, compound interest bonds, and
discount maturity payment bonds) or one or more other Securities which were
issued with an "original issue discount". "Original issue discount" bonds
are issued at prices which represent a discount from face amount,
principally because such bonds bear current interest at rates which have
lower than prevailing market rates at the time of issuance. (See Part A--
"Summary of Essential Information--Portfolio Summary as of Date of Deposit"
for information relating to the particular series described therein.) Zero
coupon bonds do not provide for the payment of any current interest and
provide for payment at maturity at face value unless sooner sold or
redeemed. Zero coupon bonds may be subject to more price volatility than
conventional bonds, i.e., the market value of zero coupon bonds is subject
to greater fluctuation in response to changes in interest rates than is the
market value of bonds which pay interest currently. Due to such
volatility, in the event that the zero coupon bonds are sold prior to
maturity (in order to satisfy redemptions, due to early termination of the
Trust or for credit reasons), such sale may result in a loss to Unit
Holders. Zero coupon bonds generally are subject to redemption at compound
accreted value based on par value at maturity. Because the Issuer is not
obligated to make current interest payments, zero coupon bonds may be less
likely to be redeemed than coupon bonds issued at a similar interest rate.
While some types of zero coupon bonds, such as multipliers and capital
appreciation bonds, define par as the initial offering price rather than
the maturity value, they share the basic zero coupon bond features of
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(1) not paying interest on a semi-annual basis and (2) providing for the
reinvestment of the bond's semiannual earnings at the bond's stated yield
to maturity.
Revenue Securities
Many of the Securities in the Portfolios are limited obligations,
payable solely from (i) revenues or receipts derived from operation of a
facility acquired or constructed from the proceeds of the obligation or
(ii) special taxes, the receipts from which have been dedicated to the
payment of the obligations. Neither the "full faith and credit" of the
Issuer nor its general taxing power, if any, is pledged to pay the debt
service on such obligations. The availability of revenues to pay debt
service on such Securities may be subject to the prior payment of operating
costs. Prior to commencement of operations, Securities for which the
proceeds are used to construct a facility are subject to the risks
typically associated with construction projects, which include: cost
overruns, delays in their timely completion (due to litigation, labor
disputes or other construction problems) and the ability to obtain
necessary operating permits. Thereafter, the operation of a facility could
be impaired by labor disputes, or by damage or destruction of the facility,
or interruption of essential utilities, due to natural or other disasters.
Collection of revenues necessary to pay debt service could be affected,
among other factors, by: (a) economic factors beyond the Issuer's control
(such as relocation, cessation of operations or bankruptcy of a major
employer or customer) impacting upon demand for services, delinquency rates
for payments or collection of dedicated taxes; (b) the availability and
cost of insurance, which may be required under bond covenants; or (c)
compliance with Federal and state operating or licensing permits, health,
safety and environmental standards or other regulations. The ability of an
Issuer to set rates for its charges and fees and to recover fully its
capital costs through incorporation of such costs in its rate structure, or
to levy special taxes, may be constrained by legal requirements (such as
Federal or state regulatory approval) or by economic, competitive or
political considerations.
Significant changes in intergovernmental relations have occurred in
recent decades. Most, if not all, Issuers (or the obligors in conduit
financings) of Securities in the Portfolios receive either significant
direct Federal financial assistance for operating or capital purposes or
necessary licenses or operating permits, authorized pursuant to various
legislation. Tax-exempt obligors of Securities (including colleges,
non-profit hospitals and museums) may be affected financially by changes in
the Internal Revenue Code of 1986, as amended (the "Code" or the "1986
Code"), or the regulations thereunder, affecting their qualification as a
tax-exempt entity, the deductibility of charitable contributions or the
operation of certain unrelated business activities, such as gift shops.
Such legislation and the regulations promulgated thereunder have been the
subject of extensive amendment in recent years, and no assurance can be
given that further amendment will not materially change the provisions or
effect thereof. The availability of monies in connection with the programs
authorized by such legislation is subject to annual Congressional
appropriation and the budgetary process, and to the application of
provisions of the Balanced Budget and Emergency Deficit Control Act of
1985, popularly known as the Gramm-Rudman-Hollings Act and/or the Budget
Reconciliation Act of 1990.
In addition, institutions reliant upon state financial assistance may
be subject to significant reductions in funding in the event such state
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experiences fiscal difficulties. No assurance can be given that existing
forms and levels of state aid will be maintained.
Income to pay debt service on revenue securities may be derived from
more than one source. The primary source of income and the additional
related considerations regarding certain categories of revenue securities,
which may be included in the Portfolio, are further described below.
Airport Securities. These Securities are typically secured by
revenues derived from fees received from use agreements (which consist of
payments for landing fees, terminal rental and other charges) and from
parking facilities, service fees, concessions and other lease rents. The
ability of airports to set landing fees is regulated by the U.S. Department
of Transportation; other aspects of operations are subject to regulation by
the Federal Aviation Administration ("FAA") or, in certain cases, pursuant
to the terms of a court stipulation to abate noise or mitigate traffic.
Special risk considerations include: local economic conditions; chronic
congestion at many major airports, which may affect future revenues if
traffic is diverted or a competitive airport developed; and costs to
install enhanced security measures. Recent developments affecting the
financial condition of a signatory airline (and its ability to meet its
obligations under an existing use agreement) include: corporate
consolidations through mergers and acquisitions; labor disputes including
major strikes; fare competition; excess industry capacity; fluctuations in
fuel costs; and increased capital costs to remain competitive
technologically or to comply with FAA schedules to retrofit aircraft to
comply with operating noise and safety standards. Cumulatively, in 1992
the domestic airline industry lost over 2 billion dollars. Several
airlines are experiencing severe financial difficulty and others have filed
for bankruptcy. The ability of an Issuer to renew a use agreement may be
additionally affected by the increased flexibility granted to airlines to
terminate service under the Airline Deregulation Act and by the development
at certain airports of a monopoly in air carrier service.
Convention Facilities Securities. These Securities include special
limited obligation securities issued to finance convention and sports
facilities and are typically secured by rental payments and annual
governmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use
facilities that may not be used for purposes other than as convention or
sports facilities.
Electric and Power 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 hydro-electric, nuclear, fossil fuel or other power
sources. Certain aspects of the operation of such facilities, particularly
with regard to generation and transmission at the wholesale level, are
regulated by the Federal Energy Regulatory Commission ("FERC"); more
extensive regulation (affecting retail rate structures) is provided by
state public service commissions. Special risk considerations include:
restrictions on operations and increased costs and delays attributable to
environmental statutes and regulations; the difficulties of the utilities
in financing or refinancing large construction 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
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measures and competitive cogeneration projects; and other technical and
cost factors. Scientific breakthroughs in fusion energy and
superconductive materials could cause current technologies for the
generation and transmission of electricity to become obsolete during the
life of the Securities. Issuers relying upon hydroelectric generation may
encounter contests when applying for periodic renewal of licenses from FERC
to operate dams. Issuers relying upon coal as a fuel source may be subject
to significant costs and operating restrictions to comply with emission
standards which may be adopted to alleviate the problems associated with
acid rain. Issuers relying upon fossil fuel sources and located in air
quality regions designated as nonattainment areas may become subject to
pollution control measures (which could include abandonment of construction
projects in progress, plant shutdowns or relocation of facilities) ordered
pursuant to the Clean Air Act. In addition, such Securities are sometimes
secured by payments to be made to state and local joint action power
agencies pursuant to "take or pay" agreements. The inability of an Issuer
to pass on certain of its costs to its customers, whether due to government
regulation, judicial decisions or for other reasons, may have a negative
impact on the financial standing of such Issuer and, therefore, may have a
negative impact on the Securities of such Issuer contained in the Trust.
In addition, the Clean Air Act, affects nearly all electric power
facilities that burn oil or coal. Current and future environmental
legislation, regulations or other governmental actions may increase the
cost of utility service. The Sponsor is unable to predict the ultimate
form that any such future legislation, regulations or other governmental
action may take or the resulting impact on the Securities.
Some of the Issuers of Securities in the Portfolios own, operate or
participate on a contractual basis with nuclear generating facilities,
which are licensed and regulated by the Nuclear Regulatory Commission (the
"NRC"). Nuclear generating projects have experienced substantial cost
increases, construction delays and licensing difficulties. Issuers of
Securities may incur substantial expenditures as a result of complying with
NRC requirements. Additional considerations include: the frequency and
duration of plant shutdowns and associated costs due to maintenance or
safety considerations; the problems and associated costs related to the use
and disposal of 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. Such delays, suspensions or other
action may affect the payment of interest on, or the repayment of the
principal amount of, such Securities.
Health Care and Hospital Securities. These Securities are typically
secured by revenues derived from health care and hospital facilities, which
are subject to extensive Federal and state regulations affecting
construction, licensing, acquisition of equipment, standards of care,
disposal of medical wastes, and participation in reimbursement programs
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under Medicare and Medicaid. Health care and hospital facilities are
subject to extreme cost-containment pressures. Special risk considerations
include: increased competition among health care facilities to sell their
services more cheaply to third-party insurers and to offer new services;
the availability and cost of malpractice and other insurance; shortages in
qualified nursing and other health care professional staff; the rising
caseload of indigent, uninsured patients with aggravated symptoms;
demographic trends, such as an increased elderly population; and the
unpredictable effects of the AIDS epidemic (which may have a
disproportionate impact on certain communities). Utilization rates are a
major factor in hospital revenue projections and can be affected by cost
containment measures implemented by governmental or private insurers,
long-term advances in health care delivery reducing demand for in-patient
services, technological developments which may be rationed by scarcity of
equipment or specialists and requirements for state approval, and the
facility's reputation in the community. A number of legislative proposals
concerning health care are typically under review by Congress or the
various state legislatures at any given time, including national health
insurance, cost control, 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.
Additionally, the current administration has promised to substantially
reform the health care system. The Sponsor is unable to predict the effect
of these proposals, if enacted, on any of the Securities. Hospital revenue
securities issued by or on behalf of teaching facilities may also share the
characteristics of Higher Education Securities, described below.
Many hospitals, which may include certain Issuers (or the conduit
obligors) of Securities, have been experiencing significant financial
difficulties in recent years. The number of hospital closings increased
during the late 1980s, particularly among smaller institutions located in
rural or inner-city areas. Hospital revenues nationwide are primarily
derived from private insurers, many of which have experienced significant
operating losses in recent years. The Medicare program accounts for an
increasing share of hospital revenues nationwide, and is financed by the
Hospital Insurance Trust Fund through payroll taxes. The Fund's trustees
have projected, based on current trends, that expenditures will exceed tax
revenues by 1995 and that the Fund will be insolvent before 1999. The
Social Security Act Amendments of 1983 mandated implementation of a
prospective payment system, based upon diagnosis related groups ("DRGs"),
for most in-patient services. DRG reimbursement rates are pre-set and may
not fully cover the actual cost of furnishing services by any particular
facility, and Federal law prohibits health care providers from passing
along the excess costs to Medicare beneficiaries. Additionally, many
states have implemented prospective payment systems for their Medicaid
programs, and have adopted other changes, including enrollment
restrictions. Several states, from time to time, have exhausted their
Medicaid appropriations during their fiscal years, and temporarily
suspended reimbursements.
States regulate the operation of nursing facilities and may implement
guidelines having an adverse impact on their finances, and under certain
circumstances states may cause a facility to be placed under receivership.
DRG reimbursement rates for hospitals have resulted in increased transfers
of acute care patients to nursing homes, causing higher in-patient costs
and greater potential malpractice exposure. Medicare nursing home
reimbursement, now provided on a cost recovery basis (rather than the DRG
system), may be curtailed due to budgetary restrictions.
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Higher Education Securities. These Securities are typically secured
by revenues derived from the operations of public or private institutions
of higher education, and may include student tuition payments, student
activities fees, student or faculty housing charges, parking facility fees
and/or other sources of income such as grants, unrestricted gifts or
endowment income. Special risk considerations include: the projected
decline of the traditional college-aged population in the early 1990s;
increases in tuition which may cause a competitive disadvantage in
recruitment; the rising cost of faculty salaries; the size of the
institution's endowment and investment return; the reputation and
competitive position of an institution; levels of Federal and state direct
operating assistance, research grants and student aid; and the costs of
complying with Federal and state laws and regulations, especially those
concerning access to the handicapped.
Highway Securities. These Securities are typically secured by
revenues derived from motor fuel taxes, vehicle registration fees, license
fees and fines and/or vehicular tolls or concession lease rentals derived
from the operation of road, bridge or tunnel facilities. Revenue sources
for such facilities are economically sensitive, particularly with regard to
fluctuations in fuel supply, costs and Federal supply allocation or
rationing policies; and are also sensitive to local demographic trends with
respect to the size and income characteristics of the driving age
population. Issuers may incur substantial unanticipated remedial repair
expenses as a result of regular safety inspections mandated by Federal or
state law. Issuers located in air quality regions designated as
nonattainment areas may become subject to stringent transportation control
measures ordered pursuant to the Clean Air Act. Revenues of a vehicular
toll facility may additionally be affected by lower cost of alternative
modes of transportation or the construction and operation in its vicinity
of another transportation facility, which could alter established traffic
patterns.
Housing Securities. These Securities are issued by housing
authorities payable from revenues derived by state housing finance agencies
or municipal housing authorities from repayments on mortgage and home
improvement loans made by such agencies. Since housing authority
obligations, which are not general obligations of a particular state, are
generally supported to some extent by Federal, state or local housing
subsidy programs, budgetary constraints, the failure of a housing authority
to meet the qualifications required for coverage under the Federal
programs, or any legal or administrative determination that the coverage of
such Federal programs is not available to a housing authority could result
in a decrease or elimination of subsidies available for payment of
principal and interest on such housing authority's obligations. Weaknesses
in Federal housing subsidy programs and their administration may result in
a decrease of subsidies available for payment of principal and interest on
housing authority bonds. Repayment of housing loans and home improvement
loans in a timely manner is dependent on many factors affecting the housing
market generally and upon the underwriting and management ability of the
individual agencies (i.e., the initial soundness of the loan and the
effective use of available remedies should there be a default in loan
payments). Economic developments, including failure or inability to
increase rentals, fluctuations in interest rates and increasing
construction and operating costs may also have an adverse impact on
revenues of housing authorities. In the case of some housing authorities,
inability to obtain additional financing could also reduce revenues
available to pay existing obligations.
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The Portfolio of the Trust may contain Securities which are subject to
the requirements of Section 103A of the Internal Revenue Code of 1954, as
amended (the "1954 Code"), or Section 143 of the Internal Revenue Code of
1986, as amended (the "1986 Code" or the "Code"). Sections 103A and 143
provide that obligations issued to provide single family housing will be
exempt from Federal income taxation if all of the proceeds of the issue
(exclusive of issuance costs and a reasonably required reserve) are used to
make or acquire loans which meet requirements including certain
requirements which must be satisfied after issuance. If proceeds of the
issue are not used to acquire such loans, the issuer may be required to
redeem all or a portion of such issue from such uncommitted proceeds to
maintain the issue's tax exemption. Bond counsel to each such issuer has
issued an opinion that the interest on such Securities was exempt from
Federal income tax at the time the Securities were issued. The failure of
the issuers of such Securities to meet certain ongoing compliance
requirements imposed by Sections 103A and 143 could render the interest on
such Securities subject to Federal income taxation, possibly from the date
of their issuance. If interest on such Securities in a Trust is deemed to
be subject to Federal income taxation, the loss of tax-exempt status can be
expected to adversely affect the market value of such Securities. In this
event and under the terms of the Indenture the Sponsor may direct the sale
of such Securities. The sale of such Securities in such circumstances is
likely to result in a loss to the Trust.
The Portfolio of the Trust may include certain housing authority
obligations whose tax exemption depends upon qualification under Section
103(b)(4)(A) of the 1954 Code or Section 142 of the 1986 Code and
appropriate Treasury Regulations. Both Sections require that specified
minimum percentages of the units in each rental housing project financed
by tax-exempt debt are to be continuously occupied by low or moderate
income tenants for specified periods. Department of the Treasury
Regulations issued under Section 103(b)(4)(A) of the 1954 Code provide that
in order to prevent possible retroactive Federal income taxation of
interest on such Securities certain conditions must be met. The
regulations provide, however, that such retroactive taxation will not occur
if the issuer corrects any non-compliance occurring after the issuance of
the Securities within a reasonable period after such non-compliance is
first discovered or should have been discovered by the issuer. Similar
regulations are expected to be issued under 1986 Code Section 142. If the
interest on any of the Securities in the Trust that are housing securities
should ultimately be deemed to be taxable, the Sponsor may instruct the
Trustee to sell such Securities and, since they would be sold as taxable
securities, it is expected that such Securities would have to be sold at a
substantial discount from current market price of a comparable tax-exempt
security.
The Portfolio of the Trust may contain Securities which contain
provisions which require the issuer to redeem such obligations at par from
unused proceeds of the issue within a stated period which typically does
not exceed three years from the date of issuance of such Securities. In
periods in which interest rates decline there may be increased redemptions
of housing securities pursuant to such redemption provisions. Such an
increase in redemptions may occur because conventional mortgage loans may
have become available at interest rates equal to or less than the interest
rates charged on the mortgage loans previously made available from the
proceeds of such housing securities. Therefore, some issuers of such
housing securities may have experienced insufficient demand to complete
mortgage loan originations for all of the money made available from such
securities. In addition, mortgage loans made with the proceeds of housing
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securities, in general, do not carry prepayment penalties and therefore
certain mortgage loans may be prepaid earlier than their maturity dates.
If the issuers of such housing securities are unable to or choose not to
reloan these monies, they will generally redeem housing securities in an
amount approximately equal to such prepayments. The Sponsor is unable to
predict at this time whether such redemptions will be made at a high rate.
The disposition of such Securities may result in a loss to the Trust.
Industrial Development/Pollution Control Securities. These Securities
were generally issued prior to the enactment of 1986 Code restrictions, and
are typically secured by payments made under a loan agreement entered into
between the Issuer and the obligor. In some cases, the Securities were
additionally secured by guarantees provided by corporate guarantors or by a
stand-by letter of credit issued by a bank. Special risk 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.
Mass Transit Securities. These Securities are typically secured by
revenues derived from fares, dedicated sales or property tax revenues, and
intergovernmental subsidies. (See also "Special Tax Securities", below.)
Most mass transit systems in the country depend upon Federal and state
operating subsidies and capital grants. The Federal government
significantly reduced its mass transit assistance during the 1980s.
Special risk considerations include: ridership and fare levels, quality of
services, maintenance and capital construction needs, the commitment and
reliability of intergovernmental financial support, and the stability of
local tax sources.
Port Securities. These Securities are typically secured by revenues
derived from the operation of port facilities and related commercial
activities. Certain port districts have taxing powers granted under
interstate compacts or authorizing statutes. Special considerations
include: the proximity to major markets, the access and cost of intermodal
truck and rail transportation, the type and diversity of the cargo mix,
currency and commodity price fluctuations, international trade and tariff
policies. Port operations have been sensitive to technological
developments, as in the development of containerized shipping, which have
led to changes in the competitive position of different ports. No
assurance can be given that the Federal government will not impose an
embargo on exports to or imports from any current trading partner or that
current international trading patterns and policies will not otherwise
materially change in the future.
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 a legislative body. (See also "Additional
Securities Considerations--Non-Obligatory Appropriations", below.) 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
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from contractual tipping fees, user charges and ancillary recycling
earnings. Special risk 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
FERC policies facilitating cogeneration and its certification of any
particular qualifying facility. Governmental service contract payments may
be subject to annual appropriation by a legislative body. (See also
"Additional Securities Considerations--Non-Obligatory Appropriations",
below.) Older facilities may require retrofitting to accommodate new
technological developments or to comply with environmental standards. In
addition, there may be technological risks that become apparent in the long
run that are not presently apparent because of the relatively short history
of these facilities, which risks may affect the successful construction or
operation of such facilities.
Special Tax Securities. These Securities are typically secured by
revenues derived from specific taxes levied by an Issuer and dedicated to
the payment of debt service, such as special levies on retail sales, hotel
occupancy or mortgage recordation, or special assessments on real property.
Special risk considerations include: the economic sensitivity of the type
of tax, the stability of the tax base and any restrictions on the ability
of the Issuer to increase tax rates in the event of a shortfall of
revenues.
Student Loan Securities. These Securities are typically secured by
revenues derived from payments on student loans; Federal interest subsidies
and special allowance payments made to the holders of eligible student
loans; insurance payments made on defaulted loans by state guarantee
agencies or the Federal government; and proceeds from the sale of the
Securities themselves. Eligible loans may be guaranteed by an eligible
guarantee agency, typically a state agency or non-profit corporation (the
"Guarantor"), which is responsible for servicing the loans and enforcing
collections. The obligation of such Guarantor is reinsured by the U.S.
Secretary of Education or the U.S. Secretary of Health and Human Services
from 80% to 100% of the value of the loan, depending upon the Guarantor's
overall default rate. In addition, some loans may be insured directly by
the Federal government. Special risk considerations include: high default
levels in the underlying student loan notes and reduction or disallowance
of reimbursements by the Federal government due to improper servicing and
enforcement by the Guarantor. Additionally, the financial condition of a
Guarantor may have a direct effect on its ability to make guaranty payments
on defaulted student loans, to operate at reduced reimbursement levels and
to perform its servicing duties. The credit of certain Student Loan
Securities may have been enhanced by a letter of credit. (See "Additional
Securities Considerations--Letter of Credit Securities", below.)
Tax Allocation Securities. These Securities are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds, are located ("project
areas"). Such payments are expected to be made from projected increases in
tax revenues derived from higher assessed values of property resulting from
development in the particular project area and not from an increase in tax
rates. Special risk considerations include: 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
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by destruction of property due to natural or other disasters; successful
appeals by property owners of assessed valuations; substantial
delinquencies in the payment of property taxes; or imposition of any
constitutional or legislative property tax rate decrease.
Water and Sewer Securities. These Securities are typically secured by
revenues derived from connection fees and user charges imposed by the
enterprise. Water system finances may be additionally affected by the
terms of supply allocations and of service agreements with major wholesale
customers, the imposition of mandatory conservation measures in response
to drought and the costs to comply with Federal or state health and
environmental standards. Water systems, particularly those located in
Western states, may also be financially affected by changes in Federal
water policies. A significant number of Federal water contracts with such
water systems are scheduled for renewal through the 1990s, and may be
subject to increased environmental scrutiny. Sewer systems may be
financially affected by costs to comply with Federal or state environmental
standards for secondary or tertiary sewage treatment, the pretreatment of
toxic industrial wastes prior to discharge into sewer systems, and for
municipal storm sewer systems. Special risk considerations include:
failure of municipalities to utilize fully the facilities constructed by
the authorities; economic or population decline; the difficulty of
obtaining or discovering new supplies of fresh water; the effects of
conservation programs and the impact of "no growth" zoning ordinances.
Puerto Rico. The Portfolio of the Trust may contain obligations of
Issuers located in the Commonwealth of Puerto Rico. (See Part A--"Summary
of Essential Information--Portfolio Summary as of Date of Deposit".) The
ability of the issuers of such bonds to meet their obligations may be
affected by the economic and social problems facing Puerto Rico.
Unemployment in Puerto Rico remains high by United States standards. The
island's per capita personal income has been lower than in any state of the
United States. Transfer payments from the United States Government under
various social welfare programs (such as food stamps, social security and
veterans' benefits) contribute significantly to personal income.
The economy of Puerto Rico is closely integrated with that of the
mainland United States and is largely dependent for its development on U.S.
policies and programs that could be eliminated by the U.S. Congress. Aid
for Puerto Rico's economy has traditionally depended heavily on Federal
programs, which aid may not always be available. An adverse effect on the
Puerto Rican economy could result from other U.S. policies, including a
reduction of tax benefits for distilled products, further reduction in
transfer payment programs such as food stamps, curtailment of military
spending and policies which could lead to a stronger dollar.
The Puerto Rican economy consists principally of manufacturing
(pharmaceuticals, scientific instruments, computers, microprocessors,
medical products, textiles and petrochemicals), agriculture (largely
sugar), tourism and the service sector (including finance, insurance, and
real estate). Since Puerto Rico is an island and is heavily dependent upon
imports and exports, maritime and air transportation are of basic
importance to its economy. The manufacturing and service sectors generate
the largest portion of gross product. Most of the island's manufacturing
output is shipped to the mainland United States, which is also the chief
source of semi-finished manufactured articles on which further
manufacturing operations are performed in Puerto Rico. The finance,
insurance and real estate components of this sector have recently
experienced the most growth.
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The government sector of the Commonwealth plays an important role in
the economy of the island. Since World War II, the economic importance of
agriculture for Puerto Rico, particularly in the dominance of sugar
production, has declined. Nevertheless, the Commonwealth-controlled sugar
monopoly remains an important economic factor and is largely dependent upon
Federal maintenance of sugar prices, the discontinuation of which could
severely affect Puerto Rican sugar production. The level of tourism is
affected by various factors, including the strength of the U.S. dollar.
During periods when the dollar is strong, tourism in foreign countries
becomes relatively more attractive.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the
1986 Code generally provides deferral of Federal income taxes for U.S.
companies operating on the island until profits are repatriated. No
assessment can be made at this time as to whether or not Section 936 and
other incentive programs will be continued. It is expected that the
elimination of Section 936, if it occurred, would have a strongly negative
impact on Puerto Rico's economy. In 1993, the United States, Mexico and
Canada entered into the North American Free Trade Agreement ("NAFTA"). If
ratified by Congress, NAFTA would permit the duty-free entry of low-wage
Mexican goods into the United States. This additional competition for
sales in the U.S. market could have an adverse effect on Puerto Rican
exports and the Puerto Rican economy.
There have for many years been three major viewpoints in Puerto Rico
with respect to the island's relationship to the United States, one
essentially favoring the existing Commonwealth status (but with
modifications providing for greater local autonomy), another favoring
statehood and a third seeking independence from the United States. The
Sponsor cannot predict what effect, if any, a change in the relationship
between Puerto Rico and the United States would have on the Issuers'
ability to meet their obligations.
Additional Securities Considerations
Non-Obligatory Appropriations/Lease Payment Securities. A Trust may
contain Securities secured in whole or in part by governmental payments,
pursuant to a lease agreement, service contract, installment sale or other
agreement. A governmental entity that enters into such an agreement cannot
obligate future governments to make payments thereunder, but generally has
covenanted to take such action as is necessary to include all such payments
due under such agreement in its annual budgets and to make the
appropriations therefor. However, a budgetary imbalance in future fiscal
years could affect the ability and willingness of the governing legislative
body to appropriate, and the availability of monies to make, the payments
provided for under such agreement. The leases backing the Securities could
be cancelled resulting in a cessation of interest payments to
securityholders. If interest payments are discontinued, the
securityholders have recourse only to the equipment or property that is
being leased. There is no guarantee that a foreclosure on the equipment or
property securing the leases would provide sufficient funds to fully repay
investors. (For a discussion of additional considerations affecting the
financial condition of an Issuer, see: "General Obligation Securities,"
above.)
Letter of Credit Securities. A Trust may contain Securities that are
additionally 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
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principal of, premium, if any, or interest on a Security backed by such a
letter of credit or (ii) if interest on a Security 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. Certain of these letters of credit and guarantees may, in time, be
secured by a security interest in collateral. 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, and is affected by general economic
conditions. While banks are subject to extensive governmental regulations,
exposure to credit losses arising from possible financial difficulties of
borrowers or other issuers having letters of credit might affect a bank's
credit rating or ability to meet its obligations under a letter of credit.
Bond Insurance. A Trust may contain Securities that were insured
under a policy of insurance ("Bond Insurance") guaranteeing the scheduled
payment of interest and principal by the Issuer. Payment under a policy of
Bond Insurance will be made in respect of principal of and interest on
Securities which shall be due for payment, but which shall be unpaid by
reason of nonpayment by the Issuer. All such policies provide for payment
of the principal or interest due to a bond trustee or paying agent on the
date such payment is due or on the business day following receipt by the
bond insurer of notice of nonpayment. In turn, such bond trustee or paying
agent will make payment to the securityholder (in this case, the Trustee of
the Trust) upon presentation of satisfactory evidence of such
securityholder's right to receive such payment. Bond Insurance will
provide payment only on scheduled maturity dates and sinking fund payment
dates, in the case of principal, and on scheduled dates for payment, in the
case of interest. It will not insure payment on acceleration, as a result
of a call for redemption (other than sinking fund redemption) or as a
result of any other advancement of maturity, nor will it insure the payment
of any redemption, prepayment or acceleration premium or any risk other
than nonpayment. In the event of any acceleration of the principal of the
obligation, the insurance payments will be made at such times and in such
amounts as would have been made had there not been an acceleration. Bond
Insurance will not insure against nonpayment of principal or interest
caused by the insolvency, fraud or negligence of any trustee or paying
agent. Bond Insurance does not guarantee the market value of the
Securities or the value of the Units. However, any such Bond Insurance
represents an element of market value in regard to the Securities thus
insured, but the exact effect, if any, of Bond Insurance on such market
value cannot be predicted. No assurance can be given that the rating
assigned to the claims-paying ability of a bond insurer will not be
withdrawn or reduced subsequent to the date of this Prospectus. While Bond
Insurance is non-cancelable, no assurance can be given that a bond insurer
will be able to perform on its contracts of Bond Insurance in the event a
claim should be made thereunder at some time in the future.
State Guaranty/Insurance. A Trust may contain Securities that were
guaranteed or insured as to the scheduled payment of interest and
principal by the Issuer, by a state, commonwealth or territorial
government, or by an agency thereof. Special considerations include
whether the nature of the pledge under the guaranty or insurance agreement
is of the "full faith and credit" of the state, and the financial condition
of the state. Any such guaranty or insurance policy represents an element
of market value in regard to the Security thus guaranteed, but the exact
effect, if any, of such guaranty or insurance policy on market value cannot
be predicted. (For a discussion of additional considerations affecting the
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financial condition of a governmental entity providing such guaranty or
insurance policy, see "General Obligation Securities", above.)
Refunded/Escrowed to Maturity/Crossover Refunding Securities. A Trust
may contain Securities that have been refunded through the issuance of
refunding obligations. Principal and interest payments on such Securities
are no longer derived from the revenues or other monies originally pledged
for debt service. Instead, principal and interest are payable from the
proceeds of the refunding obligations, which monies are held in an escrowed
trust fund in amounts sufficient to pay principal and interest on the
originally issued Securities when due. These monies are typically held in
the form of direct obligations of the United States. "Escrowed to Maturity
Securities" are required to be paid at the scheduled sinking fund payment
or maturity date, at which time such Escrowed to Maturity Securities will
be paid or redeemed at par. "Refunded Securities" will be redeemed prior
to their stated maturity date, but only on the earlier of any scheduled
sinking fund payment date or the optional redemption date. "Crossover
Refunding Securities" become secured by the revenues or other monies
originally pledged to secure an earlier bond issue at a predetermined time
in the future. Prior to such time, the proceeds from the sale of these
crossover refunding bonds are placed in an escrow fund and secure the
bonds.
Redemption of Securities. Most of the Securities are subject to
redemption prior to their stated maturity dates, pursuant to optional
redemption and/or sinking fund payments by the Issuers. In general,
optional redemption provisions are more likely to be exercised when the bid
side evaluation is at a premium over par value than when it is at a
discount from par. Generally, the bid side evaluation of Securities will
be at a premium over par when market interest rates fall below the stated
interest rate on such Securities. Certain Securities may be subject to
redemption at par pursuant to sinking fund provisions. Such provisions
are designed to redeem a significant portion of such obligations gradually
over the life of such Securities. Particular bonds of an issue of
Securities to be redeemed are generally chosen by lot. The Part A--
"Schedule of Portfolio Securities", contains a listing of the optional
redemption and sinking fund payment provisions, if any, with respect to
each of the Securities. Certain Securities, identified in Part A--"Summary
of Essential Information", are subject to redemption early in the life of
the Trust; the redemption price for such Securities may be less than the
market price at the time a Unit Holder purchased Units, which may result in
a loss. Most of the Securities are also subject to "special" or
"extraordinary" mandatory redemption provisions and calls resulting from
certain events, including (but not limited to) unexpended proceeds, the
receipt of excess revenues or casualty insurance proceeds, or failure to
renew any required letter of credit. Securities so redeemed will reduce
the average life of the Portfolio, and will cease to bear interest after
their redemption and such redemption, at a price less than the price paid
therefor, will result in a loss.
BECAUSE THE REDEMPTION PRICE AND THE SPONSOR'S REPURCHASE PRICE ARE
BASED ON BID PRICES FOR THE SECURITIES, THEY MAY BE LESS THAN THE PRICE
PAID BY A PURCHASING UNIT HOLDER (OFFERING PRICES ARE NORMALLY HIGHER THAN
BID PRICES). DUE TO FLUCTUATIONS IN THE MARKET PRICE OF THE SECURITIES IN
THE PORTFOLIO AND THE FACT THAT THE PUBLIC OFFERING PRICE INCLUDES A SALES
CHARGE, AMONG OTHER FACTORS, THE AMOUNT REALIZED BY A UNIT HOLDER UPON THE
REDEMPTION OR SALE OF UNITS MAY BE LESS THAN THE PRICE PAID FOR SUCH UNITS
BY THE HOLDER. (SEE "REDEMPTION--COMPUTATION OF REDEMPTION PRICE PER
UNIT".)
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Issuer Default. Although the Sponsor has selected the Securities in
the Portfolios in a manner consistent with each Trust's objectives, and
taking into consideration the factors listed in "Objectives and Securities
Selection," herein, it is possible that one or more of the Securities may
experience an event of default in the payment of principal or interest.
Should that occur, the bond trustee for such Securities is empowered to
protect and enforce its rights and the rights of the Unit Holders
(including the Trust) by suits, legal actions and proceedings deemed
advisable and expedient, usually including declaring an acceleration of all
outstanding principal and interest. However, the enforceability of
covenants and agreements of an Issuer, including the pledge to deposit
into and retain monies in a debt service fund, may be subject to
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and may also be subject to sovereign immunity, the
exercise of the state's police powers, and judicial discretion in
appropriate cases. It is therefore possible that bankruptcy proceedings,
other legal actions, the limited alternative uses to which certain
facilities may be put in the event of an asset sale, or other events may
limit the bond trustee's recovery of total principal and interest owed on
such defaulted Securities (if any) and, hence, the monies paid to the
Trustee for distribution to Unit Holders. (See "Issuer Bankruptcy".) The
Sponsor is permitted to direct the Trustee to dispose of any Security in a
Trust upon default in the payment of principal or interest, when due. (See
"Sponsor--Responsibility".) No assurance can be given that a sale under
such circumstances would yield proceeds equivalent to the par amount or
purchase price of such Security.
Issuer Bankruptcy. Under Chapter 9 of the Federal Bankruptcy Code, a
petition may be filed by a political subdivision or agency of a state which
is insolvent or unable to meet its obligations as they mature. Generally,
the filing of such a petition operates as a stay of any proceeding to
enforce a claim against the debtor. The Federal Bankruptcy Code also
requires the debtor to file a plan for the adjustment of its debts which
may modify or alter the rights of creditors. Under such a plan the Federal
bankruptcy court may permit the debtor to issue certificates of
indebtedness which have priority over existing creditors and which could be
secured. Any plan of reorganization confirmed by the Federal bankruptcy
court would be binding upon all creditors affected by it. The right of the
owners of Securities to receive interest, principal payments and redemption
premium from any such entity could be adversely affected by a restructuring
of such petitioner's debt under Chapter 9. It is possible that recipients
of debt service payments made by such entity within ninety days of the
filing of a petition could be required to refund them, and their claims
would then be treated as if such payments had not been made. No assurance
can be given that any priority of holders of securities to payment from
monies retained in a debt service reserve fund or from other cash resources
would be recognized if a petition were filed under Chapter 9 or pursuant to
other subsequently enacted law relating to creditors' rights; such monies
might, under such circumstances, be available for the payment of all such
entity's creditors generally. Certain Issuers of Securities in the
Portfolios have the legal capacity pursuant to state law to file a petition
under Chapter 9 without prior state approval.
No assurance can be given that any obligor of a Security (under the
legal documents governing such Security, including any related loan
agreement) will not file a voluntary petition or be subject to involuntary
reorganization under the Federal Bankruptcy Code.
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Litigation Affecting Securities. To the best knowledge of the
Sponsor, there is no material litigation pending as of the Date of Deposit
in respect of any Securities which might reasonably be expected to have a
material adverse effect upon the Trust. At any time after the Date of
Deposit, litigation may be initiated on a variety of grounds with respect
to Securities in the Trust, including the validity or tax status of the
Securities. While the outcome of litigation of such nature cannot be
predicted, an opinion of bond counsel has been delivered with respect to
each Security on the date of its issuance to the effect that such Security
has been validly issued and that the interest thereon is not included in
gross income for Federal income tax purposes under existing law. Such
opinion may or may not deal with the status of interest on the Security for
alternative minimum tax purposes. If legal proceedings are instituted
after the Date of Deposit seeking, among other things, to restrain or
enjoin the payment of any of the Securities or attacking their validity or
the authorization or existence of an Issuer, the Sponsor may, in accordance
with the Indenture, direct the Trustee to dispose of such Security. (See
"Sponsor--Responsibility".) No assurance can be given that a sale under
such circumstances would yield proceeds equivalent to the par amount or
purchase price of such Security.
Contract Obligations
Certain Securities in each Trust may be purchased by the Sponsor on a
"when, as and if issued" or "delayed delivery" basis; that is, they may not
yet be issued by their governmental entities on the Date of Deposit
(although such governmental entities are committed to issue such
Securities). Contracts relating to such "when, as and if issued"
Securities may not settle by the first settlement date for Units.
Moreover, the delivery of such Securities may be delayed or may not occur.
Unit Holders who purchase Units prior to settlement of such Securities will
be "at risk" with respect to these Securities (i.e., they may derive either
gain or loss from changes in the prices of the Securities) from the date
they commit to purchase such Units. Interest on such Securities begins
accruing to the benefit of Unit Holders as tax-exempt interest on the
respective delivery dates of such Securities. In order to provide level
interest payments to Unit Holders where the Trust purchases Securities
which will settle after the settlement date for Units, the Trustee will
reduce its fee over a period of time in an amount equal to the amount of
interest that would have so accrued, on such Securities between the initial
settlement date for the Units and the delivery date of any such Securities
as if such Securities had been delivered prior to purchase of the Units.
The reduction of the Trustee's fee eliminates the necessity of reducing
regular monthly interest distributions until such Securities are delivered.
The Trustee will be reimbursed for the reduction in its fee by the Sponsor.
To the extent that the delivery of such Securities is delayed beyond their
respective expected delivery dates, the Estimated Current Return and
Estimated Long-Term Return for the first year may be lower than indicated
in Part A--"Summary of Essential Information."
Replacement Securities
In the event that any contract for the purchase of any Security fails,
the Sponsor is authorized under the Indenture, subject to the conditions
set forth below, to instruct the Trustee to acquire other securities (the
"Replacement Securities") for inclusion in the Portfolio of a Trust. Any
Replacement Securities must be deposited not later than the earlier of (i)
the first monthly Distribution Date of the Trust or (ii) 90 days after the
Trust was established. The cost and aggregate principal amount of the
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Replacement Securities may not exceed the cost and aggregate principal
amount of the Securities which they replace. In addition, the Replacement
Securities must (1) be tax-exempt bonds; (2) have a fixed maturity date in
the same category as the Security replaced; (3) be purchased at a price
that results in a yield to maturity and in a current return, in each case
as of the execution and delivery of the Indenture, which is approximately
equivalent to the yield to maturity and current return of the Securities
which they replace; (4) be purchased within 20 days after delivery of
notice of the failed contracts; and (5) have a rating that is investment
grade by at least one national rating organization or have, in the opinion
of the Sponsor, comparable credit characteristics. Whenever a Replacement
Security has been acquired for the Trust, the Trustee will, within five
days thereafter, notify all Unit Holders of the acquisition of the
Replacement Security.
In the event a contract to purchase Securities fails and Replacement
Securities are not acquired, the Trustee will, not later than the second
monthly Distribution Date, distribute to Unit Holders the funds
attributable to the failed contract. The Sponsor will, in such a case,
refund the sales charge applicable to the failed contract. If less than
all the funds attributable to a failed contract are applied to purchase
Replacement Securities, the remaining moneys will be distributed to Unit
Holders not later than the second monthly Distribution Date. Moreover, the
failed contract will reduce the Estimated Net Annual Income per Unit, and
may lower the Estimated Current Return and Estimated Long-Term Return.
INSURANCE ON THE SECURITIES IN AN INSURED TRUST
The Securities in the Portfolio of a Trust designated in Part A as an
Insured Trust, including a State Trust designated as an Insured State
Trust, are each covered by a policy of Bond Insurance. (See "Additional
Securities Considerations--Bond Insurance".) The information contained
herein relating to the insurance companies providing Bond Insurance is from
published documents and other public sources. No representation is made
herein as to the accuracy or adequacy of such information or as to the
absence of material adverse changes in such information subsequent to the
dates thereof, but the Sponsor is not aware that the information herein is
inaccurate or incomplete. Regulation of an insurance company by a state is
no guarantee that such insurance company will be able to perform on its
contracts of Bond Insurance in the event a claim should be made thereunder
at some time in the future.
AMBAC INDEMNITY--AMBAC Indemnity Corporation ("AMBAC Indemnity") is a
Wisconsin-domiciled stock insurance company, regulated by the Insurance
Department of the State of Wisconsin, and is licensed to do business in all
50 states, the District of Columbia and the Commonwealth of Puerto Rico
with admitted assets of approximately $1.936 billion (unaudited) and
statutory capital of approximately $1.096 million (unaudited) as of
September 30, 1993. Statutory capital consists of statutory contingency
reserve and AMBAC Indemnity's policyholders surplus. AMBAC Indemnity is a
wholly owned subsidiary of AMBAC Inc., a 100% publicly-held financial
holding company. AMBAC Inc. is not obligated to pay the debts of or
claims against AMBAC Indemnity Corporation. Standard & Poor's Corporation
has rated the claims-paying ability of AMBAC Indemnity "AAA".
CAPITAL MARKETS ASSURANCE--Capital Markets Assurance Corporation
("CapMAC") is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance.
CapMAC is licensed in 49 states in addition to the District of Columbia,
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the Commonwealth of Puerto Rico and the territory of Guam. Neither CapMAC
Holdings Inc. nor any of its stockholders is obligated to pay any claims
under any surety bond issued by CapMAC or any debts of CapMAC or to make
additional capital contributions. CapMAC is wholly owned by CapMAC
Holdings Inc., a company that is owned by a group of institutional and
other investors, including CapMAC's management and employees. As at
December 31, 1992 and 1991, CapMAC had statutory capital and surplus of
approximately $148 million and $232 million, respectively. CapMAC's
claims-paying is rated "AAA" by Standard & Poor's Corporation.
CAPITAL GUARANTY--Capital Guaranty Insurance Company ("Capital
Guaranty" or "CGIC") is a monoline stock insurance company incorporated in
the State of Maryland, and is a wholly owned subsidiary of Capital Guaranty
Corporation, a Maryland insurance holding company (herein, the
"Corporation"). Approximately 82.7% of the Corporation is owned by the
public as a result of the recent initial public offering on October 6,
1993. The remaining 17.3% Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas and
Electric; Safeco Corporation; and Sibag Finance Corporation, an affiliate
of Siemens A.G.. Other than their capital commitment to the Corporation,
the investors of the Corporation are not obligated to pay the debts of, or
the claims against, Capital Guaranty. As of September 30, 1993, the total
policyholders' surplus of Capital Guaranty was approximately $159.9 million
(unaudited) and total admitted assets were approximately $270.0 million
(unaudited), as reported to the Insurance Department of the State of
Maryland. Standard & Poor's Corporation has rated the claims-paying
ability of Capital Guaranty "AAA".
CONNIE LEE--Connie Lee Insurance Co. ("ConnieLee"), a Wisconsin stock
insurance company, is a wholly owned subsidiary of the College Construction
Loan Insurance Association, an insurance holding company authorized and
established by Congress as a private corporation under the laws of the
District of Columbia. The enabling legislation calls for ConnieLee to
provide credit enhancement services to colleges, universities, teaching
hospitals, and other educational institutions. As of September 30, 1993,
policyholders' surplus (unaudited) was $103,869,000, stockholders' equity
(unaudited) was $140,343,000 and total assets (unaudited) were
$209,600,000. Standard & Poor's Corporation has rated the claims-paying
ability of ConnieLee "AAA."
FINANCIAL SECURITY ASSURANCE-- Financial Security Assurance ("FSA")
is a monoline insurance company incorporated on March 16, 1984 under the
laws of the State of New York. FSA is approximately 92.5% owned by US WEST
Capital Corporation and 7.5% owned by Tokio Marine and Fire Insurance Co.,
Ltd. ("Tokio Marine"). No shareholder of FSA is obligated to pay any debt
of FSA or any claim under any insurance policy issued by FSA or to make any
additional contribution to the capital of FSA. FSA and its two wholly
owned subsidiaries are licensed to engage in financial guaranty insurance
business in 49 states, the District of Columbia and Puerto Rico. As of
December 31, 1993, the unearned premium reserve of FSA was $200,316,000
(audited) and its total shareholder's equity was $542,468,000 (audited).
FSA's claims-paying ability is rated "AAA" by Standard & Poor's
Corporation.
FINANCIAL GUARANTY--Financial Guaranty Insurance Company ("Financial
Guaranty") is a wholly owned subsidiary of FGIC Corporation, a Delaware
holding company. FGIC Corporation is a wholly owned subsidiary of General
Electric Capital Corporation. Neither FGIC Corporation nor General
Electric Capital Corporation is obligated to pay the debts of or the claims
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against Financial Guaranty. Financial Guaranty is domiciled in the State
of New York and is subject to regulation by the State of New York Insurance
Department. As of December 31, 1993, the total capital and surplus of
Financial Guaranty was approximately $777 million, as reported to the State
of New York Insurance Department. Financial Guaranty is currently
authorized to write insurance in 49 states and the District of Columbia.
Standard & Poor's Corporation has rated the claims-paying ability of
Financial Guaranty "AAA".
MBIA--Each insurance company comprising Municipal Bond Insurance
Association ("MBIA") will be severally and not jointly obligated under MBIA
policies in the following respective percentages: The Aetna Casualty and
Surety Company (33%); Fireman's Fund Insurance Company (30%); The Travelers
Indemnity Company (15%); Cigna Property and Casualty Insurance Company,
formerly known as Aetna Insurance Company (12%); and The Continental
Insurance Company (10%). Each insurance company comprising MBIA is
licensed to do business in various states. As a several obligor, each such
insurance company will be obligated only to the extent of its percentage of
any claim under the MBIA policy and will not be obligated to pay any unpaid
obligation of any other member of MBIA. Each insurance company's
participation is backed by all of its assets. However, each insurance
company is a multiline insurer involved in several lines of insurance other
than municipal bond insurance, and the assets of each insurance company
also secure all of its other insurance policy and surety bond obligations.
As reported to the New York State Insurance Department in accordance with
statutory accounting principles, the total assets of the participating
insurance companies as of June 30, 1993, were $35.2 billion. Some of the
members of MBIA are among the shareholders of MBIA, Inc. MBIA, Inc. is the
parent of the Municipal Bond Investors Assurance Corporation ("MBIAC").
MBIAC is a separate and distinct entity from MBIA. MBIAC has no liability
to the bondholders for the obligations of MBIA under its policy of Bond
Insurance. Standard & Poor's Corporation has rated the claims-paying
ability of MBIA "AAA".
MBIAC--Municipal Bond Investors Assurance Corporation ("MBIAC") is the
principal operating subsidiary of MBIA, Inc. The principal shareholders of
MBIA, Inc. are Aetna Casualty and Surety Company, The Fund American
Companies, subsidiaries of CIGNA Corporation, The Continental Insurance
Company and one of its affiliates, and Credit Local de France, CAECL S.A.,
and they own approximately 35% of the outstanding common stock of MBIA,
Inc. Neither MBIA, Inc. nor its shareholders are obligated to pay the
debts of or claims against MBIAC. MBIAC, which commenced municipal bond
insurance operations on January 5, 1987, is a limited liability corporation
rather than a several liability association. MBIAC is domiciled in the
State of New York and licensed to do business in all 50 states, the
District of Columbia and the Commonwealth of Puerto Rico. Effective
December 31, 1989, MBIA, Inc. acquired Bond Investors Group, Inc. On
January 5, 1990, MBIAC acquired all the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company
("BIG"). Through a reinsurance agreement, BIG has ceded all of its net
insured risks, as well as its unearned premium and contingency reserves, to
MBIAC and MBIAC has reinsured BIG's net outstanding exposure. As of
September 30, 1993, MBIAC had admitted assets of approximately $3.0
billion (unaudited), total liabilities of $2.0 billion (unaudited) and
total capital and surplus of approximately $951 million (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. Standard & Poor's
Corporation rates all new issues insured by MBIAC "AAA" Prime Grade.
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RATINGS OF THE SECURITIES IN AN INSURED TRUST--On the Date of Deposit,
all of the Securities in the Insured Trust were rated "AAA" by Standard &
Poor's Corporation because of the Bond Insurance policies issued in respect
of such Securities. (See Part A--"Schedule of Portfolio Securities," and
"Bond Ratings" herein.) Subsequent to the Date of Deposit, a Security may
cease to be rated or the rating assigned may be reduced below the minimum
requirements of the Insured Trust for the acquisition of Securities. Such
reduction would most likely occur if Standard & Poor's Corporation reduced
its rating of any of the bond insurers, and, hence, the rating on the
Securities insured by such bond insurer. While such events may be
considered by the Sponsor in determining whether to direct the Trustee to
dispose of the Security (see "Sponsor--Responsibility," herein), such
events do not automatically require the elimination of such Security from
the Portfolio.
RATING OF THE UNITS OF AN INSURED TRUST--Standard & Poor's Corporation
has rated the Units of an Insured Trust "AAA" because the bond insurers
have issued Bond Insurance policies to insure each of the Securities in the
Insured Trust. This is the highest rating assigned by Standard & Poor's
Corporation. (See "Description of Rating".) The obtaining of this rating
by the Insured Trust 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 Insured Trust or of the Units. Standard & Poor's
Corporation has been compensated by the Sponsor for its services in rating
Units of the Insured Trusts. There can be no assurance that Units of an
Insured Trust will retain the AAA rating.
DESCRIPTION OF RATING (as described by Standard & Poor's Corporation)-
- -A Standard & Poor's Corporation rating on the units of an investment trust
(hereinafter referred to collectively as "units" and "fund") is a current
assessment of creditworthiness with respect to the investments held by such
fund. This assessment takes into consideration the financial capacity of
the issuers and of any guarantors, insurers, lessees, or mortgagors with
respect to such investments. The assessment, however, does not take into
account the extent to which fund expenses or portfolio asset sales for less
than the fund's purchase price will reduce payment to the unit holder of
the interest and principal required to be paid on the portfolio assets. In
addition, the rating is not a recommendation to purchase, sell, or hold
units, inasmuch as the rating does not comment as to market price of the
units or suitability for a particular investor.
REGULATION OF INSURANCE COMPANIES--Insurance companies are subject to
regulation and supervision in the jurisdictions in which they do business
under statutes which delegate regulatory, supervisory and administrative
powers to state insurance commissioners. This regulation, supervision and
administration relate, among other things, to: the standards of solvency
which must be met and maintained; the licensing of insurers and their
agents; the nature of and limitations on investments; deposits of
securities for the benefit of policyholders; approval of policy forms and
premium rates; periodic examinations of the affairs of insurance companies;
annual and other reports required to be filed on the financial condition of
insurers or for other purposes; and requirements regarding reserves for
unearned premiums, losses and other matters. A significant portion of the
assets of insurance companies is 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, such as ERISA regulations on pensions,
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medical care cost restrictions, no-fault automobile insurance standards,
changes in the antitrust exception for insurance businesses and changes in
the tax laws, can significantly impact the insurance business. In
addition, the Federal government operates in some cases as a co-insurer
with the private sector insurance companies.
Insurance companies are also affected by a variety of state and
Federal regulatory measures and judicial decisions that define and extend
the risks and benefits for which insurance is sought and provided. These
include judicial decisions on risk exposure in areas such as products
liability and state and Federal extension and protection of employee
benefits, including pension, workers' compensation, and disability
benefits. These developments may result in short-term adverse effects on
the profitability of various lines of insurance. Longer-term adverse
effects can often be minimized through prompt repricing of coverages and
revision of policy terms. In some instances these developments may create
new business opportunities. All insurance companies write policies and set
premiums based on actuarial assumptions about mortality, injury, the
occurrence of accidents and other insured events. These assumptions, while
well supported by past experience, necessarily do not take account of
future events. The occurrence in the future of unforeseen circumstances
could affect the financial condition of one or more insurance companies.
The insurance business is highly competitive and with the deregulation of
financial service businesses, it should become more competitive. In
addition, insurance companies may expand into non-traditional lines of
business which may involve different types of risks.
INSURANCE RISK--There is no guarantee that the objectives of an
Insured Trust will be achieved since an issuer may be unable to meet its
principal and interest payment obligations and, in such event, the
insurance company issuing the Bond Insurance may be unable to satisfy its
insurance obligation. Insurance is not a substitute for the basic credit
of an issuer. NO REPRESENTATION IS MADE AS TO THE ABILITY OF THE INSURANCE
COMPANIES TO MEET THEIR COMMITMENTS.
EVALUATION OF THE SECURITIES--Insurance does not guarantee the market
value of the Securities or the value of the Units. However, any such Bond
Insurance represents an element of market value in regard to the Securities
thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted. The evaluation of the Securities covered
by Bond Insurance was determined in the manner set forth in "Public
Offering of Units--Public Offering Price".
OBJECTIVES AND SECURITIES SELECTION
The objectives of each Trust are the providing of interest income
which is exempt, in the opinion of counsel, from Federal income taxes under
existing law (with certain exceptions depending on the Unit Holder) and the
conservation of capital through an investment in a diversified portfolio of
municipal and public authority debt obligation Securities. The extent, if
any, to which interest income of the Trust is subject to alternative
minimum tax is stated in Part A--"Schedule of Portfolio Securities." There
is, of course, no guarantee that a Trust's objectives will be achieved.
In selecting Securities for each Trust, the following factors, among
others, were considered by the Sponsor: (a) rating of the Securities of no
less than "BBB" by Standard & Poor's Corporation or "Baa" or "MIG 2" by
Moody's Investors Service, or, if unrated, the Securities must have, in the
opinion of the Sponsor, comparable credit characteristics, (b) maturities
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or mandatory payment dates consistent with the life of the Trust, (c)
prices of the Securities relative to prices of other securities of
comparable quality and maturity, (d) diversification of the Securities as
to purpose and location of Issuer (purpose only in the case of a State
Trust) and (e) in the case of an Insured Trust, whether or not a Security
is insured or insurable. Subsequent to the date specified in Part A of
this Prospectus, a Security may cease to be rated or its rating may be
reduced below the minimum required as of the Date of Deposit.
THE UNITS
On the date specified in Part A of this Prospectus, each Unit
represented the fractional undivided interest in each Trust set forth under
Part A--"Summary of Essential Information". The present size and
composition of each Trust may be reduced through the maturity, redemption,
sale or other disposition of Securities in each Trust, and, as the proceeds
of such dispositions are distributed to Unit Holders, the principal amount
of Securities represented by each Unit will be reduced. If any Units are
redeemed by the Trustee, the fractional undivided interest represented by
each Unit still outstanding will be increased although the actual interest
in each Trust represented by each such Unit will remain unchanged. (See:
"Redemption".) Units will remain outstanding until tendered for redemption
by any Unit Holder (including the Sponsor) or until the termination of the
Trust itself. No assurance can be given that a Trust will maintain, for
any length of time, its present size and composition. (See "Amendment and
Termination of the Indenture--Termination".)
Estimated Annual Income and Current Return
On the date specified in Part A of this Prospectus, the estimated net
annual interest income per Unit of a Trust (or per 1,000 Units in the case
of certain Trusts) was the amount set forth under Part A--"Summary of
Essential Information" in Part A. This figure is computed by dividing the
estimated total gross annual interest income to the Trust (based upon a
360-day year) by the number of Units outstanding on such date, less
estimated annual fees and expenses of the Sponsor (if any), the Trustee,
counsel and the Evaluator (multiplied by 1,000 Units in the case of certain
Trusts). Thereafter, the net annual interest income will change whenever
Securities mature, are redeemed or are sold, as the expenses of the
respective Trust change. The fees of the Sponsor (if any), the Trustee,
counsel and the Evaluator are subject to change without the consent of Unit
Holders, to the extent provided under "Expenses and Charges". Interest on
the Securities, less estimated expenses of the respective Trust, is
expected to accrue at the daily rate shown under Part A--"Summary of
Essential Information". This rate will change as Securities mature, are
redeemed or are sold, or as the expenses or income of the respective Trust
change and if an issuer defaults in the payment of interest.
The Public Offering Price will vary due to fluctuations in the
offering and/or bid prices of the Securities and the net annual interest
income per Unit may change as Securities mature, are redeemed or are sold,
and/or as the expenses of the Trust change.
The Estimated Current Return is calculated by dividing the Estimated
Net Annual Income per Unit by the Public Offering Price per Unit. The
Estimated Net Annual Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while the
Public Offering Price will vary with changes in the offering price of the
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underlying Securities; therefore, there is no assurance that the present
Estimated Current Return indicated in Part A will be realized in the
future. The Estimated Long-Term Return is calculated using a formula which
(1) takes into consideration, and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and (2) takes into account the expenses and
sales charge associated with each Unit. Since the market values and
estimated retirements of the Securities and the expenses of the Trust will
change, there is no assurance that the present Estimated Long-Term Return
as indicated in Part A will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated Current
Return calculations include only Net Annual Interest Income and Public
Offering Price as of the Date of Deposit. The Estimated Current Return and
the Estimated Long-Term Return will be higher for those Unit Holders paying
a reduced sales charge.
TAX STATUS
The following discussion applies to each Trust offered by this
Prospectus.
In the opinion of bond counsel to the issuing governmental
authorities, interest income on the Securities comprising the Portfolio of
the Trust is (except in certain instances depending upon the Unit Holder,
as described below) exempt from Federal income tax under the provisions of
the Internal Revenue Code as in effect at the date of issuance. In the
case of Securities issued at a time when the 1954 Code was in effect,
redesignation of the Code as the Internal Revenue Code of 1986 (the "Code"
or the "1986 Code") has not adversely affected the exemption from Federal
income tax of interest income on such Securities. Gain (exclusive of any
earned original issue discount) realized on sale or redemption of the
Securities or on sale of a Unit is, however, includable in gross income for
Federal income tax purposes and for state and local income tax purposes
generally. (It should be noted in this connection that such gain does not
include any amounts received in respect of accrued interest.) Such gain
may be capital gain or ordinary income and, if capital gain, may be long or
short-term depending upon the facts and circumstances. Securities selling
at market discount tend to increase in market value as they approach
maturity when the principal amount is payable, thus increasing the
potential for taxable gain on their maturity, redemption or sale.
In the opinion of Cahill Gordon & Reindel, special counsel to the
Sponsor, under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and interest on an underlying Security
which is exempt from Federal income tax under the Code when received
by the Trust will retain its status as tax-exempt interest for Federal
income tax purposes to the Unit Holders.
Each Unit Holder will be considered the owner of a pro rata
portion of the Trust's assets under Sections 671-678 of the Code.
Each Unit Holder will be considered to have received a pro rata share
of interest derived from the Trust's assets when it is received by the
Trust and each Unit Holder will have a taxable event when an
underlying Security is disposed of (whether by sale, exchange,
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redemption, or payment at maturity) or when the Unit Holder redeems or
sells Units. The total tax cost of each Unit to a Unit Holder is
allocated among each of the underlying Securities (in accordance with
the proportion of the Trust's assets comprised by each Security) in
order to determine the Unit Holder's per Unit tax cost for each
Security, and the tax cost reduction requirements of the Code relating
to amortization of bond premium will apply separately to the per Unit
tax cost of each Security. Therefore, under some circumstances a Unit
Holder may realize taxable gains when Units are sold or redeemed for
an amount equal to or less than the Unit Holder's original cost.
When a contract to acquire an underlying Security is settled
after the Unit Holder's settlement date for a Unit, the Unit Holder's
proportionate share of the interest accrued on the underlying Security
on the Security settlement date will exceed the portion of the
purchase price that was allocable to interest accrued on the Unit
settlement date. A Unit Holder will not be subject to Federal income
tax on the Unit Holder's proportionate share of the interest which
accrues during the period between the Unit settlement date and the
Security settlement date either when such interest is received by the
Trust or when it is distributed to the Unit Holder.
Under the income tax laws of the State and City of New York,
the income of the Trust will be treated as the income of its Unit
Holders.
If the proceeds received by the Trust upon the sale or redemption of
an underlying Security exceed a Unit Holder's adjusted tax cost allocable
to the Security disposed of, that Unit Holder will realize a taxable gain
to the extent of such excess. Conversely, if the proceeds received by the
Trust upon the sale or redemption of an underlying Security are less than a
Unit Holder's adjusted tax cost allocable to the Security disposed of, that
Unit Holder will realize a loss for tax purposes to the extent of such
difference.
Any gain recognized on a sale or exchange of a Unit Holder's pro rata
interest in a Security, and not constituting a realization of accrued
"market discount", and any loss will be a capital gain or loss, except in
the case of a dealer or financial institution. Gain realized on the
disposition of the interest of a Unit Holder in a market discount Security
is treated as ordinary income to the extent the gain does not exceed the
accrued market discount. A Unit Holder has an interest in a market
discount Security in a case in which the Unit Holder's tax cost for the
Unit Holder's pro rata interest in the Security is less than the stated
redemption price thereof at maturity (or the issue price plus original
issue discount accrued up to the acquisition date, in the case of an
original issue discount Security). Any capital gain or loss arising from
the disposition of a Unit Holder's pro rata interest in a Security will be
a long-term capital gain or loss if the Unit Holder has held his or her
Units and the Trust has held the Security for more than one year. Under
the Code, net capital gain (i.e., the excess of net long-term capital gain
over net short-term capital loss) of individuals, estates and trusts is
subject to a maximum nominal tax rate of 28%. Such net capital gain may,
however, result in a disallowance of itemized deductions and/or affect a
personal exemption phase-out.
Opinions relating to the validity of the underlying Securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuing governmental authorities. It is the view of the
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Sponsor that interest on the Securities will not be a tax preference item
for purposes of the alternative minimum tax unless the "Schedule of
Portfolio Securities" indicates that the interest on a particular Security
is, in the opinion of bond counsel, to be treated as a tax preference item
for alternative minimum tax purposes. See Part A--"Schedule of Portfolio
Securities". Neither the Sponsor nor its counsel have made any review of
proceedings relating to the issuance of underlying Securities or the bases
for bond counsel's opinions. The Sponsor and its counsel are, however,
aware of nothing which would indicate to the contrary.
Furthermore, exemption of interest on a Security from Federal income
tax may require that the issuer of the Security (or other user of the
Security proceeds) meet certain ongoing compliance requirements. Failure
to meet these requirements could result in loss of the exemption and such
loss of exemption could apply retroactively from the date of issuance. A
Security may provide that if a loss of exemption is determined to have
occurred, the Security is immediately due and payable; and, in the case of
a Security which is a secured obligation, that the security can be reached
if the Security is not then paid. If such a loss of exemption were to
occur and the Security did not contain such an acceleration clause, or if
the acceleration did not in fact result in payment of the Security, the
affected Security would likely be sold as a taxable bond. Sale of a
Security as a taxable bond would likely result in a realization of proceeds
less than the cost of the Security.
In the case of certain of the underlying Securities comprising the
Portfolio of the Trust, the opinions of bond counsel indicate that although
interest on such underlying Securities is generally exempt from Federal
income tax, such underlying Securities are "industrial development bonds"
under the 1954 Code or "private activity bonds" under the 1986 Code as
those terms are defined in the relevant Code provisions, and interest on
such underlying Securities will not be exempt from Federal income tax for
any period during which such underlying Securities are held by a
"substantial user" of the facilities financed by the proceeds of such
underlying Securities (or a "related person" to such a "substantial user").
In the opinion of Messrs. Cahill Gordon & Reindel, interest attributable to
such underlying Securities (although not subject to Federal income tax to
the Trust), if received by the Trust for the account of a Unit Holder who
is such a "substantial user" or "related person," will be taxable (i.e.,
not tax exempt) to the same extent as if such underlying Securities were
held by the Unit Holder directly as owner. No investigation as to the
users or of the facilities financed by the underlying Securities has been
made by the Sponsor or its counsel. Investors should consult their tax
counsel for advice with respect to the effect of these provisions on their
particular tax situations.
In the case of an Insured Trust, assuming that the insurance policies
described in "Insurance on the Securities in an Insured Trust" have been
validly issued, are of standard form with respect to subrogation and do not
relieve the issuer of the Security of its obligations thereunder, Messrs.
Cahill Gordon & Reindel are of the opinion that proceeds received under the
insurance policies representing matured interest on a defaulted obligation
will be excludable from Federal gross income if, and to the same extent,
such interest would have been so excludable if paid by the issuer of such
defaulted obligation.
Persons in receipt of Social Security benefits should be aware that a
portion of such Social Security benefits may be includible in gross income.
For a taxpayer whose modified adjusted gross income plus one-half of his or
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her Social Security benefits does not exceed $34,000 ($44,000 for married
taxpayers filing a joint return), the includible amount is the lesser of
(i) one-half of the Social Security benefits or (ii) one-half of the amount
by which the sum of "modified adjusted gross income" plus one-half of the
Social Security benefits exceeds $25,000 in the case of unmarried taxpayers
and $32,000 in the case of married taxpayers filing a joint return. All
other taxpayers receiving Social Security benefits are required to include
up to 85% of their Social Security benefits in income.
Modified adjusted gross income is adjusted gross income determined
without regard to certain otherwise allowable deductions and exclusions
from gross income, plus tax-exempt interest on municipal obligations
including interest on the Securities. To the extent that Social Security
benefits are includible in gross income they will be treated as any other
item of gross income and therefore may be taxable.
Investors should also consult their tax counsel for advice with
respect to the effect, if any, on the tax cost of Units to a Unit Holder in
cases in which a contract to acquire a Security is settled after the
settlement date for such Units and the Unit Holder's proportionate share of
the interest accrued on the underlying Security on the Security settlement
date will exceed the portion of the purchase price allocable to interest
accrued on the Unit settlement date. In such cases, the Unit Holder may
have an adjustment to his tax basis in his Units for interest accruing on
such Securities during the interval between purchase of Units and delivery
of Securities.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME
TAX PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER ANY OTHER
FEDERAL TAX LAW OR UNDER THE INCOME OR OTHER TAX LAWS OF ANY STATE OR CITY.
THE LAWS OF THE SEVERAL STATES VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS. (See "Administration of the Trust--Reports to Unit Holders".)
The Portfolio of the Trust may contain zero coupon bond(s) or one or
more other Securities which were originally issued at a discount ("original
issue discount"). In general, original issue discount can be defined as
the difference between the price at which a Security was issued and its
stated redemption price at maturity. In the case of a Security issued
before September 4, 1982, original issue discount is deemed to accrue (be
"earned") as tax-exempt interest ratably over the period from the date of
issuance of the Security to the date of maturity and is apportioned among
the original holder of the obligation and subsequent purchasers in
accordance with a ratio the numerator of which is the number of calendar
days the obligation was owned by the holder and the denominator of which is
the total number of calendar days from the date of issuance of the
obligation to its date of maturity. Gain or loss upon the disposition of
an original issue discount Security in a Portfolio is measured by the
difference between the amount realized upon disposition of and the amount
paid for such obligation. A holder is entitled, however, to exclude from
gross income that portion of such gain attributable to accrued interest and
the "earned" portion of original issue discount.
In the case of a Security issued after September 3, 1982, original
issue discount is deemed to accrue on a constant interest method which
corresponds, in general, to the economic accrual of interest (adjusted to
eliminate proportionately on an elapsed-time basis any excess of the amount
paid for the Security over the sum of the issue price and the accrued
original issue discount on the acquisition date). The tax basis in the
Security is increased by the amount of original issue discount that is
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deemed to accrue while the Security is held. The difference between the
amount realized on a disposition of the Security (ex currently accrued
interest) and the adjusted tax basis of the Security will give rise to
taxable gain or deductible loss upon a disposition of the Security by the
Trust (or a sale or redemption of Units by a Unit Holder).
The Code provides, generally, that adjustments to taxable income to
produce alternative minimum taxable income for corporations will include
75% of the amount by which adjusted current earnings (which would include
tax-exempt interest) of the taxpayer exceeds the alternative minimum
taxable income of the taxpayer before any amount is added to alternative
minimum taxable income because of this adjustment.
For Federal income tax purposes, Trust expenses allocable to producing
or collecting Trust interest income are not deductible because the interest
income derived by the Trust is exempt from Federal income tax. A state or
local income tax may provide for a deduction for the portion of such Trust
expenses attributable to the production or collection of income derived by
the Trust and taxed by the state or locality. The effect on any such
deductions of the Code rules whereby investment expenses and other
miscellaneous deductions are deductible only to the extent in excess of 2%
of adjusted gross income would depend upon the law of the particular state
or locality involved.
The Code also imposes an additional 12/100% ($12.00 per $10,000)
environmental tax on the alternative minimum taxable income (determined
without regard to any alternative tax net operating loss deduction) of a
corporation in excess of $2,000,000 for each taxable year beginning before
January 1, 1996. The environmental tax is an excise tax and is deductible
for Federal income tax purposes (but not for purposes of the environmental
tax itself). Although the environmental tax is based on alternative
minimum taxable income, the environmental tax must be paid in addition to
any Federal income taxes payable by the corporation.
From time to time proposals have been introduced before Congress the
purpose of which is to restrict or eliminate the Federal income tax
exemption for interest on securities similar to the Securities in the
Trust or to require treatment of such interest as a "tax preference" for
alternative minimum tax purposes, and it can be expected that similar
proposals may be introduced in the future. The Trust and the Sponsor
cannot predict what legislation, if any, in respect of the tax status of
interest on Securities may be proposed by the Executive Branch or by
members of Congress, nor can they predict which proposals, if any, might be
enacted or whether any legislation if enacted would apply to the Securities
in the Trust.
In addition, investors should be aware that no deduction is allowed
for Federal income tax purposes for interest on indebtedness incurred or
continued to purchase or carry Units in the Trust. Under rules used by the
Internal Revenue Service for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the
purchase of Units may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase
of the Units.
All taxpayers are required to report for informational purposes on
their Federal income tax returns the amount of tax-exempt interest they
receive.
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INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICABILITY OF THE FOREGOING GENERAL COMMENTS TO THEIR OWN PARTICULAR
SITUATIONS AND AS RESPECTS STATE AND LOCAL TAX CONSEQUENCES OF AN
INVESTMENT IN UNITS.
PUBLIC OFFERING OF UNITS
Public Offering Price
The Public Offering Price of Units, including Additional Units, during
the initial public offering period is computed by adding to the aggregate
offering price of the Securities in a Trust, and thereafter, by adding to
the aggregate bid price of the Securities in the Trust, any money in the
Principal Account other than money required to redeem previously tendered
Units and money to be distributed to the Sponsor or solely to Unit Holders
other than the purchasing Unit Holders, dividing such sum by the number of
Units outstanding, and then adding a sales charge (as shown in Part A-
- -"Summary of Essential Information--Special Considerations"). For the
short and short intermediate term Trusts, this Sales Charge will be reduced
over the life of the Trust, as set forth under Part A--"Summary of
Essential Information--Public Offering Price". For purchases settling
after the first settlement date (including purchases of Units created after
the initial date of deposit) a proportionate share of accrued and
undistributed interest on the Securities from the purchase date to, but not
including, the settlement date for Units purchased is also added to the
Public Offering Price. The Public Offering Price on the date specified in
this Prospectus or on any subsequent date will vary in accordance with
fluctuations in the evaluation of the underlying Securities in each Trust.
During the initial public offering period and thereafter, the
aggregate bid or offering prices of the Securities in the Trust, as is
appropriate, shall be determined for the Trust by the Evaluator in the
following manner: (a) on the basis of current bid or offering prices for
the Securities as obtained from investment dealers or brokers (including
the Depositor), (b) if bid or offering prices are not available for the
Securities, on the basis of current bid or offering prices for comparable
securities, (c) by determining the value of the Securities on the bid or
offering side of the market by appraisal, or (d) by any combination of the
above. The value of insurance obtained by the issuer of a Security is
reflected and included in the market value of such Security. With respect
to the initial evaluation of the offering prices of Securities which at the
Date of Deposit were subject to syndicate offering period pricing
restrictions, it is the practice of the Evaluator to determine such
evaluation on the basis of the syndicate offering price, unless factors
cause the Evaluator to conclude that such syndicate offering price does not
then accurately reflect the fair market value of such Securities, in which
case the Evaluator will also take into account the other criteria described
above for the purpose of making its determination. Such evaluations and
computations will be made during the initial public offering period on the
offering side of the market as of the close of business on each day
commencing with the Date of Deposit of the Securities, and will be
effective for all sales of Units made during the preceding 24-hour period.
Following the initial public offering period, evaluations made for purposes
of secondary market transactions by the Sponsor will be made on the bid
side of the market on each business day as of the Evaluation Time,
effective for all sales made during the preceding 24-hour period.
Evaluations for purposes of redemptions by the Trustee will be made each
business day as of the Evaluation Time, effective for all redemptions made
subsequent to the last preceding determination. The price at which Units
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may be repurchased by the Sponsor in the secondary market could be less
than the price paid by the Unit Holder. For information relating to the
calculation of the Redemption Price, which, like the Public Offering Price
in the secondary market, is based upon the aggregate bid price of the
underlying Securities and which may be expected to be less than the
aggregate offering price, see "Redemption".
In addition to the Public Offering Price, the price of a Unit includes
accrued interest on the Securities for purchase of Units which settle after
the first settlement date for Units. Because of the varying interest
payment dates of the Securities, accrued interest on the Securities at any
point in time will be greater than the amount of interest actually received
by the respective Trust and distributed to Unit Holders. Therefore,
accrued interest is added to the value of the Units. If a Unit Holder
sells all or a portion of his or her Units, such Unit Holder will
ordinarily receive a proportionate share of the accrued interest from the
purchaser of such Units. Similarly, if a Unit Holder redeems all or a
portion of its Units, the Redemption Price per Unit will include accrued
interest on the Securities.
Securities deposited in a Trust on the Date of Deposit include an item
of accrued but unpaid interest up to the Date of Deposit. Unless otherwise
indicated in Part A--"Summary of Essential Information--Public Offering
Price," in an effort to reduce the amount of accrued interest which
investors would have to pay in addition to the Public Offering Price, the
Trustee may advance to the Trust the amount of interest accrued on the
Securities up to and including the first settlement date for Units; thus,
the Sponsor can sell the Units at a price which includes accrued interest
only from the day after the Date of Deposit. In such case, the Trustee
will recover the amount of this advance from interest payments received on
the Securities deposited in each Trust. Unless otherwise indicated in
Part A--"Summary of Essential Information--Public Offering Price", the
amount of accrued interest to be added to the Public Offering Price of
Units purchased by Unit Holders will include accrued interest from the
first settlement date for Units to, but not including, the settlement date
of the investor's purchase, less any distributions from the Interest
Account. Such proportionate share will be an asset of the Unit Holder and
will be received in subsequent distributions or upon the sale of its Units.
On the Date of Deposit, the Public Offering Price per Unit and the
Sponsor's Initial Repurchase Price per Unit (based on the offering side
evaluation of the Securities in a Trust) each exceeded the Redemption and
Sponsor's Secondary Market Repurchase Price per Unit (based upon the bid
side evaluation of the Securities in a Trust) by the amounts set forth in
Part A--"Summary of Essential Information".
Public Distribution
During the initial public offering period, Units, including Additional
Units, will be distributed to the public by the Sponsor and through dealers
at the Public Offering Price, calculated on each business day, plus accrued
interest for Units which settle after the first settlement date. The
initial public offering period is 30 days, unless all Units are sold prior
thereto whereupon the initial public offering period will terminate. The
initial public offering period may be extended by the Sponsor for as long
as Units remain unsold. 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 this
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Prospectus at the then current Public Offering Price calculated daily, plus
accrued interest.
The Sponsor intends to qualify Units in states selected by the Sponsor
for sale by the Sponsor, and from time to time may offer Units for sale
through dealers who are members of the National Association of Securities
Dealers, Inc.
Secondary Market
While not obligated to do so, it is the Sponsor's present intention to
maintain a secondary market for Units of the Trust and to offer
continuously to repurchase Units from Unit Holders at the applicable
Sponsor's Repurchase Price. During the initial public offering period, the
Sponsor's Repurchase Price is computed by adding to the aggregate of the
offering prices of the Securities in the Trust any money in the Principal
Account other than money required to redeem tendered Units, plus accrued
interest, deducting therefrom expenses of the Trustee, Evaluator, Sponsor
and counsel, and taxes, if any, and then dividing the resulting sum by the
number of Units outstanding, as of the date of such computation. After the
initial public offering period, the Sponsor's Repurchase Price is based on
the aggregate of the bid prices of the Securities in the Trust. There is
no refund of the sales charge, nor is there any additional sales charge
incurred, when a Unit Holder 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 any other business
reason), the Sponsor may, at any time, occasionally, from time to time, or
permanently, discontinue the repurchase of Units. In such event, although
under no obligation to do so, the Sponsor may, as a service to Unit
Holders, offer to repurchase Units at the Redemption Price, a price based
on the current bid prices for the Securities, plus accrued interest.
Alternatively, Unit Holders may redeem their Units through the Trustee.
The Redemption Price per Unit is computed based on the bid side evaluation
of the Securities, not the offering side evaluation. There is no refund of
the sales charge, nor is any additional sales charge incurred, when a Unit
Holder tenders Units for redemption. If the Sponsor repurchases Units in
the secondary market at the Redemption Price, it may reoffer these Units in
the secondary market at the Public Offering Price, or the Sponsor may
tender Units so purchased to the Trustee for redemption. In no event will
the price offered by the Sponsor for the repurchase of Units be less than
the current Redemption Price for those Units. (See "Redemption".)
The bid prices for the Securities may be expected to be less than the
offering prices. In the past, bid prices of securities similar to those in
a short or short intermediate term trust have been lower than the offering
prices thereof by as much as 1-1/4% of principal amount for inactively traded
securities and as little as 1/4 of 1% in the case of actively traded issues.
It can be expected that the difference between the bid and offering prices
in a short or short intermediate term trust will average about 1/2% to 1% of
principal amount. Bid prices of securities similar to those in an
intermediate or intermediate long term trust have been lower than the
offering prices thereof by as much as 2-1/2% and as little as 1/2 of 1%; the
difference between the bid and offering prices will average about 1% to 2%.
Bid prices of securities similar to those in a long term trust have been
lower than the offering prices thereof by as much as 3-1/2% of principal
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amount for inactively traded securities and as little as 1/2 of 1% in the
case of actively traded issues. It can be expected that the difference
between the bid and offering prices will average about 1-1/2% to 2% of
principal amount. All of the ranges discussed above are estimates only;
the actual difference for a particular Security or Trust may be greater or
less, depending on market conditions. For this reason, among others
(including the fact that the Public Offering Price includes a sales
charge), the amount realized by a Unit Holder upon redemption or sale of
Units may be less than the price paid by the Unit Holder for such Units.
Profit of Sponsor
The Sponsor receives a sales charge on Units sold to the public. On
the sale of Units to dealers, the Sponsor will retain the difference
between the dealer concession and the sales charge. The Sponsor may have
also realized a profit (or sustained a loss) on the deposit of the
Securities in each Trust, representing the difference between the cost of
the Securities to the Sponsor and the cost of the Securities to the Trust.
In addition, the Sponsor may receive placement fees or may realize profits
or sustain losses with respect to Securities acquired from underwriting
syndicates of which the Sponsor is a member. The Trust may contain
Securities which were acquired through the Sponsor's participation as sole
underwriter or manager or as a member of the underwriting syndicate for
such Securities. (See Part A--"Summary of Essential Information--Portfolio
Summary as of Date of Deposit".) An underwriter typically purchases
securities, such as the Securities in each Trust, from the issuer on a
negotiated or competitive bid basis in order to market such securities to
investors at a profit. The Sponsor may realize additional profit (or
sustain a loss) due to daily fluctuations in the prices of the Securities
in each Trust and, thus, in the Public Offering Price of Units received by
the Sponsor during the initial offering period and during the maintenance
of a secondary market, if any. Cash, if any, received by the Sponsor from
the Unit Holders prior to the settlement date for purchase of Units or
prior to the payment for Securities upon their delivery may be used in the
Sponsor's business to the extent permitted by applicable regulations and
may be of benefit to the Sponsor.
The Sponsor may also realize profits (or sustain losses) while
maintaining a secondary market in the Units, in the amount of any
difference between the prices at which the Sponsor buys Units (based on the
bid side of the Securities in each Trust) and the prices at which the
Sponsor resells such Units (such prices include the sales charge) or the
prices at which the Sponsor redeems such Units (also based on the bid side
of the Securities in each Trust), as the case may be.
Volume Discount
Although under no obligation to do so, the Sponsor intends to permit
volume purchasers of Units to purchase Units at a reduced sales charge.
The volume discount is available due to the realization of economies of
scale in sales effort and sales-related expenses involved in volume
purchases. The Sponsor may at any time change the amount by which the
sales charge is reduced, or may discontinue the discount altogether.
The reduced sales charges, as shown on the chart in Part A of this
Prospectus, will apply to all purchases of Units of a particular Trust on
any one day by the same person, partnership or corporation (other than a
dealer) in the amounts stated herein. Purchases of Units of a particular
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Trust will not be aggregated with concurrent purchases of Units of any
other trust that may be offered by the Sponsor.
Units held in the name of the purchaser's spouse or in the name of a
purchaser's child under the age of 21 are deemed for volume discount
purposes to be registered in the name of the purchaser. The reduced sales
charges are also applicable to a trustee or other fiduciary, including a
partnership or corporation, purchasing Units for a single trust estate or
single fiduciary account.
EXCHANGE OPTION
Unit Holders of any Dean Witter sponsored unit investment trust or any
holders of units of any other unit investment trust (collectively, "Unit
Holders") may elect to exchange any or all of their units for units of one
or more of any series of the Dean Witter Select Municipal Trust or for
units of any other Dean Witter sponsored unit investment trust that may
from time to time be made available for such exchange by the Sponsor (the
"Exchange Trusts"). Such units may be acquired at prices based on reduced
sales charges per unit. The purpose of such reduced sales charge is to
permit the Sponsor to pass on to the Unit Holder who wishes to exchange
units the cost savings resulting from such exchange. The cost savings
result from reductions in time and expense related to advice, financial
planning and operational expense required for the Exchange Option. Series
of the following Exchange Trusts are currently available: the Dean Witter
Select Municipal Trust, the Dean Witter Select Government Trust, the Dean
Witter Select Equity Trust, the Dean Witter Select Investment Trust and the
Dean Witter Select Corporate Trust.
Each Exchange Trust has different investment objectives; a Unit Holder
should read the Prospectus for the applicable Exchange Trust carefully to
determine the investment objective prior to exercise of this option.
This option will be available provided the Sponsor maintains a
secondary market in units of the applicable Exchange Trust and provided
that units of the applicable Exchange Trust are available for sale and are
lawfully qualified for sale in the state in which the Unit Holder is a
resident. While it is the Sponsor's present intention to maintain a
secondary market for the units of Exchange Trusts, there is no obligation
on its part to do so. Therefore, there is no assurance that a market for
units will in fact exist on any given date on which a Unit Holder wishes to
sell or exchange Units; thus, there is no assurance that the Exchange
Option will be available to any Unit Holder. The Sponsor reserves the
right to modify, suspend or terminate this option at any time without
further notice to Unit Holders. In the event the Exchange Option is not
available to a Unit Holder at the time such Unit Holder wishes to exercise
such option, the Unit Holder will be immediately notified and no action
will be taken with respect to such tendered Units without further
instruction from the Unit Holder.
Exchanges will be effected in whole units only. Any excess proceeds
from the surrender of a Unit Holder's Units will be returned.
Alternatively, Unit Holders will be permitted to make up any difference
between the amount representing the Units being submitted for exchange and
the amount representing the units being acquired up to the next highest
number of whole units.
An exchange of Units pursuant to the Exchange Option will generally
constitute a "taxable event" under the Code, i.e., a Unit Holder will
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recognize a gain or loss at the time of exchange. However, an exchange of
Units of this Series of the Dean Witter Select Municipal Trust for units of
any other series of the Exchange Trusts which are grantor trusts for U.S.
federal income tax purposes will not constitute a taxable event to the
extent that the underlying securities in each trust do not differ
materially either in kind or in extent. Unit Holders are urged to consult
their own tax advisors as to the tax consequences of exchanging Units in
their particular cases.
To exercise the Exchange Option, a Unit Holder should notify the
Sponsor of the desire to acquire units of one or more of the Exchange
Trusts. If units of the applicable outstanding series of the Exchange
Trust are at that time available for sale, the Unit Holder may select the
series or group of series for which its Units are to be exchanged. The
Unit Holder will be provided with a current prospectus or prospectuses
relating to each series in which interest is indicated.
The exchange transaction will operate in a manner essentially
identical to any secondary market transaction, i.e., Units will be
repurchased at a price equal to the aggregate bid side evaluation per Unit
of the Securities in the Portfolio, plus accrued interest. Units of the
Exchange Trust will be sold to the Unit Holder at a price equal to the
offering or bid side evaluation (as applicable) per unit of the securities
in the Exchange Trust's Portfolio, plus accrued interest and the applicable
sales charge of $25 per unit ($25 per 1,000 units in the case of a short
term or a short intermediate term Exchange Trust or 2.5% of the Public
Offering Price where the cost per unit is significantly less than $1.00).
If a Unit Holder has held its Units for less than a five-month period the
sales charge shall be the greater of (i) $25 or (ii) the difference between
the sales charge on the Exchange Trust and the sales charge on the Trust
currently held.
REINVESTMENT PROGRAMS
Distributions of interest and principal, if any, from the intermediate
term Trusts and the long term Trusts are made monthly, and distributions of
interest from the short or short intermediate term Trusts are made to Unit
Holders semiannually. Distributions of principal from the short or short
intermediate term Trust may be made more frequently than semiannually.
(See "Administration of the Trust--Distributions from the Interest and
Principal Accounts".) The Unit Holder has the option, however, of either
receiving an interest check, together with any principal payments, from the
Trustee or participating in a choice of reinvestment programs offered by
the Sponsor: (i) the Dean Witter Select Municipal Reinvestment Fund, an
open-end investment company whose investment objective is to provide a high
level of current income which is not included in gross income for Federal
income tax purposes, or (ii) the Active Assets Account. The Unit Holder
may not choose reinvestment for Units of a Trust in both the Dean Witter
Select Municipal Reinvestment Fund and the Active Assets Account.
Participation in the reinvestment programs is conditioned on such programs'
lawful qualification for sale in the state in which the Unit Holder is a
resident. Upon enrollment in a reinvestment program, the Trustee will
direct interest distributions and principal distributions, if any, to the
chosen fund. The Dean Witter Select Municipal Reinvestment Fund is
composed primarily of high yielding, long term bonds, the interest on which
is not included in gross income for Federal tax purposes, that are managed
by the InterCapital Division of the Sponsor. The Active Assets Account
offers a choice of four funds as well as check writing and a variety of
other privileges; there is an initial minimum requirement of a deposit with
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the InterCapital Division of $20,000 worth of cash or marginable securities
upon enrollment. For more information concerning these funds, the Unit
Holder should fill out and mail the attached card. The appropriate
prospectus or prospectuses will be sent to the Unit Holder according to the
indicated choice. A Unit Holder's election to participate in either
reinvestment program will apply to all Units of each Trust owned by such
Unit Holder. A Unit Holder should read the prospectus for the reinvestment
program carefully before deciding to participate.
REDEMPTION
Tender of Units
Units may be tendered to the Trustee for redemption at its unit
investment trust office upon payment of any relevant tax. (See "Trustee".)
At the present time there are no specific taxes related to the redemption
of the Units. No redemption fee will be charged by the Sponsor or the
Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer, although redemptions
without the necessity of certificate presentation will be effected for
record Unit Holders for whom Certificates have not been issued. Unit
Holders must sign exactly as their name appears on the face of the
Certificate with the signature guaranteed by an officer of a national bank
or trust company or by a member firm of either the New York, Midwest or
Pacific Stock Exchanges. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within seven calendar days following such tender, or if the seventh
calendar day is not a business day, on the first business day prior
thereto, the Unit Holder will be entitled to receive in cash an amount for
each Unit tendered equal to the Redemption Price per Unit computed as of
the Evaluation Time set forth in Part A--"Summary of Essential Information"
on the date of tender. (See "Redemption--Computation of Redemption Price
per Unit".) The date of tender is deemed to be the date on which Units are
received by the Trustee, except that as regards Units received after the
Evaluation Time, the date of tender is the first day after such date on
which the New York Stock Exchange is open for trading, and such Units will
be deemed to have been tendered to the Trustee on such day for redemption
at the Redemption Price computed on that day.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account, or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Securities in
order to make funds available for redemption. Such sales, if required,
could result in a sale of Securities by the Trustee at a loss. To the
extent Securities are sold, the size and diversity of the Trust will be
reduced.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any
period during which the New York Stock Exchange is closed, other than
weekend and holiday closings, or trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by
rule or regulation) an emergency exists as a result of which disposal or
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evaluation of the underlying Securities is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission has by
order permitted. The Trustee is not liable to any person or in any way for
any loss or damage that may result from any such suspension or
postponement.
Computation of Redemption Price per Unit
The Redemption Price per Unit of the Trust is determined by the
Trustee on the basis of the bid prices of the Securities in the Trust (or
contracts for Securities to be acquired by the Trust) as of the Evaluation
Time on the date any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in the Trust (or contracts for securities
to be acquired by the Trust) on the bid side of the market (determined by
the Evaluator as set forth below), (2) cash on hand in the Trust, and
accrued and unpaid interest on the Securities as of the date of
computation, less (a) amounts representing taxes or governmental charges
payable out of the Trust, (b) the accrued expenses of the Trust, and (c)
cash held for distribution to Unit Holders of record as of a date prior to
the evaluation. Accrued interest payable in respect of the Units from the
date of tender to, but not including, the fifth business day thereafter
also comprises a part of the Redemption Price per Unit. The Evaluator may
determine the value of the Securities in the Trust (1) on the basis of
current bid prices for the Securities, (2) if bid prices are not available
for any Securities, on the basis of current bid prices for comparable
securities, (3) by appraisal, or (4) by any combination of the above.
Securities insured under a policy obtained by the issuer thereof are
entitled to the benefits of such insurance at all times and such benefits
are reflected and included in the market value of such Securities.
Purchase by the Sponsor of Units
Tendered for Redemption
The Indenture requires that the Trustee notify the Sponsor of any
tender of Units for redemption. So long as the Sponsor is maintaining a
bid in the secondary market, the Sponsor, prior to the close of business on
the second succeeding business day, may purchase any Units tendered to the
Trustee for redemption at the price so bid by making payment therefor to
the Unit Holder in an amount not less than the Redemption Price not later
than the day on which the Units would otherwise have been redeemed by the
Trustee. (See "Public Offering of Units--Secondary Market".) Units held
by the Sponsor may be tendered to the Trustee for redemption as any other
Units.
The price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering of Units--Public Offering Price".) Any profit resulting
from the resale of such Units will belong to the Sponsor which likewise
will bear any loss resulting from a lower Public Offering or Redemption
Price subsequent to its acquisition of such Units. (See "Public Offering
of Units--Profit of Sponsor".)
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RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates issued in
denominations of one or more Units, which have been executed by the Trustee
and the Sponsor. These Certificates are transferable or exchangeable upon
presentation at the corporate trust office of the Trustee, properly
endorsed or accompanied by an instrument of transfer satisfactory to the
Trustee and executed by the Unit Holder or its authorized attorney,
together with the payment of $2.00, if required by the Trustee (or such
other amount as may be determined by the Trustee and approved by the
Sponsor) and any other tax or governmental charge imposed upon the transfer
of Certificates. The Trustee will replace any mutilated, lost, stolen or
destroyed Certificate upon proper identification, satisfactory indemnity
and payment of charges incurred. Any mutilated Certificate must be
presented to the Trustee before any substitute Certificate will be issued.
Certain Limitations
No Unit Holder shall have the right to vote except with respect to
removal of the Trustee, certain amendments of the Indenture, or termination
of a Trust. (See "Amendment and Termination of the Indenture".) Unit
Holders shall have no right to control the operation or administration of a
Trust in any manner, except upon the vote of 51% of the Unit Holders
outstanding at any time for purposes of amendment, or termination of a
Trust or discharge of the Trustee, all as provided in the Indenture.
The death or incapacity of any Unit Holder (or the dissolution of the
Sponsor) will not operate to terminate a Trust, nor entitle the legal
representatives or heirs of such Unit Holder to claim an accounting or to
take any other action or proceeding in any court for a partition or winding
up of a Trust.
EXPENSES AND CHARGES
Initial Expenses
All expenses and charges incurred prior to or in the establishment of
each Trust, including the cost of bond insurance premiums for Securities
for which the Sponsor has obtained bond insurance (if any), the initial
preparation, printing and execution of the Indenture and the Certificates,
the initial fees of the Evaluator, initial legal and auditing expenses, the
cost of the preparation and printing of this Prospectus and all other
advertising and selling expenses, have been or will be, paid by the Sponsor
or the members of the underwriting account.
Fees
The Sponsor's fee is set forth in Part A--"Summary of Essential
Information--Sponsor's Annual Portfolio Supervision Fee". Such fee, earned
for Portfolio supervisory services, is based upon the aggregate face amount
of Securities in each Trust at the beginning of each calendar year and may
exceed the actual costs of providing Portfolio supervisory services for
these Trusts, but at no time will the total amount the Sponsor receives for
Portfolio supervisory services rendered to all series of the Dean Witter
Select Municipal Trust in any calendar year exceed the aggregate cost to
the Sponsor of supplying such services in such year.
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For its services as Trustee under the Indenture, the Trustee receives
annually the amount set forth under Part A--"Summary of Essential
Information", computed monthly on the basis of the largest principal amount
of Securities in each Trust at any time during the preceding month.
Certain regular and recurring expenses of a Trust, including certain
mailing and printing expenses, are borne by the Trust. The Trustee also
receives benefits to the extent that it holds funds on deposit in various
non-interest bearing accounts created under the Agreement.
For each evaluation of the Securities in each Trust, the Evaluator
shall receive a fee, payable monthly, set forth under Part A--"Summary of
Essential Information".
The Sponsor's fee accrues monthly but is paid quarterly, and the
Trustee's fees and the Evaluator's fees are payable semiannually in short
and short intermediate term trusts (monthly in intermediate, intermediate
long and long term trusts) on or before each Distribution Date from the
Interest Account, to the extent funds are available and thereafter from the
Principal Account. Any of such fees may be increased without approval of
the Unit Holders in accordance with the terms of the Indenture.
Other Charges
The following additional charges are or may be incurred by the Trusts,
as more fully described in the Indenture: (a) fees of the Trustee for
extraordinary services, (b) expenses of the Trustee (including legal
expenses and the cost of an annual audit of the accounts of a Trust by an
independent public accountant selected by the Sponsor) and of counsel
designated by the Sponsor, (c) various governmental charges, (d) expenses
and costs of any action taken by the Trustee to protect the Trust and the
rights and interests of the Unit Holders, (e) indemnification of the
Trustee for any loss, liability or expenses incurred by it in the
administration of the Trust without gross negligence, bad faith, willful
misfeasance or willful misconduct on its part or reckless disregard of its
obligations and duties, (f) indemnification of the Sponsor for any losses,
liabilities and expenses incurred in acting as Sponsor or Depositor under
the Indenture without gross negligence, bad faith, willful misfeasance or
willful misconduct or reckless disregard of its obligations and duties,
(g) expenditures incurred in contacting Unit Holders upon termination of
the Trust and (h) to the extent then lawful, expenses (including legal,
auditing and printing expenses) of maintaining registration or
qualification of the Units and/or the Trust under Federal or state
securities laws so long as the Sponsor is maintaining a market for the
Units.
The fees and expenses set forth herein are payable out of each Trust
and when so paid by or owing to the Trustee are secured by a lien on that
Trust. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by each Trust, the Trustee has
the power to sell Securities to pay such amounts. To the extent Securities
are sold, the size of such Trust will be reduced and the proportions of the
types of Securities will change. Such sales might be required at a time
when Securities would not otherwise be sold and might result in lower
prices than might otherwise be realized. Moreover, due to the minimum
principal amount in which Securities may be required to be sold, the
proceeds of such sales may exceed the amount necessary for the payment of
such fees and expenses.
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ADMINISTRATION OF THE TRUST
Records and Accounts
The Trustee will keep records and accounts of all transactions of each
Trust at its unit investment trust office. (See "Trustee".) These records
and accounts and executed copies of the Indenture will be available for
inspection by Unit Holders at reasonable times during normal business
hours. The Trustee will additionally keep on file for inspection by Unit
Holders a current list of the Securities held in a Trust. In connection
with the storage and handling of certain Securities deposited in the Trust,
the Trustee is authorized to use the services of Depository Trust Company.
These services would include safekeeping of the Securities, coupon-
clipping, computer book-entry transfer and institutional delivery services.
under the Banking Law of the State of New York, a member of the Federal
Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.
Distribution
The Trustee will collect the interest on the Securities (including
monies representing penalties for the failure to make timely payments on
the Securities, liquidated damages for default or breach of any condition
or term of the Securities, and monies paid (if any) pursuant to any
contract of insurance representing interest on the Securities) as it
becomes payable, and credit such interest to a separate Interest Account
created by the Indenture. All monies 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 Unit Holders as part of each Trust or the Reserve Account (if
any) established pursuant to the Indenture, for taxes or charges referred
to herein until required to be disbursed in accordance with the provisions
of the Indenture.
Distribution of Interest and Principal
Interest and principal received by the Trust will be distributed on
each Distribution Date on a pro rata basis to Unit Holders of record as of
the preceding Record Date. All distributions will be net of applicable
expenses, funds required for the redemption of Units and, if applicable,
reimbursements to the Trustee for interest payments advanced to Unit
Holders on previous monthly Distribution Dates. (See Part A--"Summary of
Essential Information", "Expenses and Charges" and "Redemption".)
The pro rata share of the Interest Account and the pro rata share of
cash in the Principal Account represented by each Unit will be computed by
the Trustee each month as of the Record Date. (See Part A--"Summary of
Essential Information".) Proceeds received from the disposition of any of
the Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account and will not be
distributed until the following Distribution Date. The distribution to
Unit Holders as of each Record Date will be made on the following
Distribution Date or shortly thereafter and shall consist of an amount
substantially equal to one-twelfth of such Unit Holders' pro rata share of
the estimated annual income to be credited to the Interest Account after
deducting estimated expenses (the "Interest Distribution") plus such Unit
Holders' pro rata share of the cash balance in the Principal Account
computed as of the close of business on the preceding Record Date. Persons
who purchase Units between a Record Date and a Distribution Date will
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receive their first distribution on the second Distribution Date following
their purchase of Units. No distribution need be made from the Principal
Account if the balance therein is less than an amount sufficient to
distribute the Minimum Principal Distribution per Unit set forth in Part A
of the Prospectus. (See "Summary of Essential Information".) The Interest
Distribution per Unit initially will be in the amount shown under "Summary
of Essential Information" in Part A and will change as the income and
expenses of the Trust change and as Securities are exchanged, redeemed,
paid down or sold.
Because interest on the Securities is not received by a Trust at a
constant rate throughout the year, any semiannual Interest Distribution or
monthly Interest Distribution may be equal to, greater than or less than
the amount actually received by that Trust representing interest on the
Securities in its Portfolio as of a Distribution Date. In order to make
Interest Distributions at a constant amount, the Trustee is required under
the Indenture to advance such amounts as may be necessary to provide such
level Interest Distributions, thereby eliminating fluctuations which would
otherwise occur in such distributions as a result of the variances in
interest payments on Securities in the Trusts. The Trustee will be
reimbursed, without interest, for any such advances from interest received
on the Securities thereafter. If all or a portion of the Securities for
which advances have been made subsequently fail to pay interest when due,
the Trustee may recoup advances made by it in anticipation of receipt of
interest payments on such Securities by reducing the amount otherwise
distributable per Unit with respect to one or more monthly Interest
Distributions. If Units are redeemed subsequent to such advances by the
Trustee, but prior to receipt by the Trustee of actual notice of such
failure to pay interest, the amount of which was so advanced by the
Trustee, each remaining Unit Holder will be subject to a greater pro rata
reduction in its monthly Interest Distribution than would have occurred
absent such redemptions. Funds which are available for future
distributions, payments of expenses and redemptions are in accounts which
are non-interest bearing to Unit Holders and are available for use by the
Trustee, pursuant to normal banking procedures. In addition, because of
the varying interest payment dates of the Securities comprising the Trust's
Portfolio, accrued interest at any point in time will be greater than the
amount of interest actually received by the Trust and distributed to Unit
Holders. This excess accrued but undistributed interest amount (the
"accrued interest carryover"), will be added to the value of the Units on
any purchase after the date of the Prospectus.
The Trust has been structured so that a positive cash balance in the
Interest Account will be available to pay the current expenses and charges
of each Trust. Therefore, it is not anticipated that the Trustee will have
to sell Securities in each Trust to pay such expenses. The Trustee, when
making Interest Distributions, will have previously deducted from the
Interest Account the expenses and charges mentioned above, and thus will
distribute on each Distribution Date an amount which will be less than the
interest accrued to each Unit Holder on or immediately prior to such
Distribution Date by amounts equal to the current expenses and charges of
each Trust. The amount paid to a Unit Holder on a Distribution Date
typically includes interest which has recently been paid on the Securities
in the Trust. To the extent such recently received interest payments
exceed the amount of the next regularly scheduled Interest Distribution,
such interest will be held by the Trustee until the next following
Distribution Date as an asset of the Unit Holders and will be included as
part of the amount which will be received in subsequent Interest
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Distributions, upon the sale of Units or, in part, upon the sale,
redemption, or maturity of Securities in each Trust.
The Trustee will distribute to Unit Holders an amount equal to such
Unit Holder's pro rata share of the cash balance in the Principal Account
resulting from the sale, redemption or maturity of Securities, less any
monies received as proceeds of Securities which were sold to redeem
tendered Units. In a short or short intermediate term trust, the pro rata
share of the cash balance in the Principal Account will be distributed
within one month of the date of such sale, redemption or maturity of
Securities (the "Principal Record Date") to all Unit Holders of record on
the Principal Record Date. In an intermediate, intermediate long or long
term trust, the pro rata share of the cash balance in the Principal Account
will be distributed on each Distribution Date, or shortly thereafter, to
Unit Holders of record on the preceding Record Date.
Any amounts to be paid on redemption of Units representing interest
shall be withdrawn from the Interest Account to the extent funds are
available. All other amounts paid on redemption shall be withdrawn from
the Principal Account.
The Trustee has agreed to advance to the Trust the amount of accrued
interest due on the Securities in the Portfolio from their respective issue
dates or previous interest payment dates through the first expected
settlement date. This accrued interest amount will be paid to the Sponsor
as the holder of record of all Units on such date. Consequently, when the
Sponsor sells Units of a Trust after the date of the Prospectus, the amount
of accrued interest to be added to the Public Offering Price of the Units
purchased by an investor will include only accrued interest from the first
expected settlement date to, but not including, the date of settlement of
the investor's purchase (normally five business days after purchase), less
any distributions from the Interest Account. Since a person who contracts
to purchase Units on the date of the Prospectus will settle such purchase
on the first expected settlement date of Units, no accrued interest will be
added to the Public Offering Price. The Trustee will recover its
advancements to the Trust (without interest or other cost to the Trust)
from interest received on the Securities deposited in the Trust.
Reports to Unit Holders
With each distribution, the Trustee will furnish to the Unit Holders,
a statement of the amount of interest and other receipts, if any,
distributed, expressed in each case as a dollar amount per Unit (or per
1,000 Units, in the case of a short or short intermediate term Trust) and a
change of address card. In the event that the Issuer of any of the
Securities fails to make payment when due of any interest or principal and
such failure results in a change in the amount which would otherwise be
distributed as a distribution, the Trustee will, with the first such
distribution following such failure, set forth in an accompanying
statement, the Issuer and the Securities, the amount of the reduction in
the distribution per Unit resulting from such failure, the percentage of
the aggregate face amount of Securities which such Security represents and,
to the extent then determined, information regarding any disposition or
legal action with respect to such Security. Within two months after the
end of each calendar year, the Trustee will furnish to each person who at
any time during such calendar year was a Unit Holder of record a statement
setting forth:
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As to the Interest Account: the amount of interest received on the
Securities and the percentage of such amount by states and territories in
which the Issuers of the Securities are located; the amount paid from the
Interest Account upon the redemption of Units; the deductions from the
Interest Account for applicable taxes or other governmental charges, if
any, and fees and expenses of the Sponsor (if any), the Trustee, the
Evaluator and counsel; the deductions from the Interest Account for payment
into the Reserve Account; and the net amount remaining after such payments
and deductions expressed both as a total dollar amount and as a dollar
amount per Unit (or per 1,000 Units) outstanding on the last business day
of such calendar year.
As to the Principal Account: the dates of the sale, maturity,
liquidation or redemption of any of the Securities and the net proceeds
received therefrom, excluding any portion credited to the Interest Account;
the amount paid from the Principal Account representing the Units which
were redeemed; if amounts in the Interest Account were insufficient, the
deductions from the Principal Account, if any, for payment of applicable
taxes or other governmental charges, fees and expenses of the Sponsor (if
any), the Trustee, the Evaluator and counsel; if amounts in the Interest
Account were insufficient, the deductions from the Principal Account for
payment into the Reserve Account; and the net amount remaining after such
payments and deductions expressed both as a total dollar amount and as a
dollar amount per Unit (or per 1,000 Units) outstanding on the last
business day of such calendar year.
The following information: a list of the Securities of the last
business day of such calendar year; the number of Units outstanding on the
last business day of such calendar year; the Redemption Price per Unit (or
per 1,000 Units) based on the last Trust evaluation made during such
calendar year; and 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 (or per 1,000
Units) outstanding on the Record Dates for such distributions.
In order to comply with state and local tax reporting requirements,
the Trustee will furnish to Unit Holders, upon request, evaluations of the
Securities as determined by the Evaluator. The accounts of the Trust shall
be audited not less frequently than annually by independent certified
public accountants designated by the Sponsor, and the report of such
accountants will be furnished by the Trustee to Unit Holders upon request.
SPONSOR
Dean Witter Reynolds Inc. ("Dean Witter") is a corporation organized
under the laws of the State of Delaware and is a principal operating
subsidiary of Dean Witter, Discover & Co., a publicly-traded corporation
("DWDC"). Dean Witter is a financial services company that provides to its
individual, corporate, and institutional clients services as a broker in
securities and commodities, a dealer in corporate, municipal, and
government securities, an investment banker, an investment adviser, and an
agent in the sale of life insurance and various other products and
services. Dean Witter is a member firm of the New York Stock Exchange, the
American Stock Exchange, the Chicago Board Options Exchange, other major
securities exchanges and the National Association of Securities Dealers,
and is a clearing member of the Chicago Board of Trade, the Chicago
Mercantile Exchange, the Commodity Exchange Inc., and other major commo-
dities exchanges. Dean Witter is currently servicing its clients through a
network of approximately 375 domestic and international offices with
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approximately 7,500 account executives servicing individual and
institutional client accounts.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising
from its responsibilities under the Indenture, but will be under no
liability to Unit Holders for taking any action or refraining from any
action in good faith or for errors in judgment or liable or responsible in
any way for depreciation or loss incurred by reason of the sale of any
Securities, except in case of its own willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties. (See
"Sponsor-Responsibility".)
Responsibility
The Trust is a unit investment trust and is not actively managed. The
Indenture, however, permits the Sponsor to direct the Trustee to dispose of
any Security in the Trust upon the happening of certain events, including
without limitation, the following:
1. Default in the payment of principal or interest on any Security
when due and payable,
2. Institution of legal proceedings seeking to restrain or enjoin
the payment of any Security or attacking their validity,
3. A breach of covenant or warranty which could adversely affect
the payment of debt service on the Security,
4. Default in the payment of principal or interest on any other
outstanding obligations of the same Issuer of any Security,
5. In the case of a Security that is a revenue bond, a fall in
revenues, based upon official reports, substantially below the estimated
revenues calculated to be necessary to pay principal and interest,
6. A decline in market price to such an extent, or such other
market or credit factor, as in the opinion of the Sponsor would make
retention of a Security detrimental to the Trust and to the interests of
the Unit Holders,
7. Refunding or refinancing of the Security, as set forth in the
Indenture for the Trust, or
8. The loss of Federal income tax exemption with respect to
interest on the Security.
The Sponsor intends to monitor continuously developments affecting the
Securities in each Trust in order to determine whether the Trustee should
be directed to dispose of any such Securities.
It is the responsibility of the Sponsor to instruct the Trustee to
reject any offer made by an Issuer of any of the Securities to issue new
obligations in exchange and substitution for any Security pursuant to a
refunding or refinancing plan, except that the Sponsor may instruct the
Trustee to accept such an offer or to take any other action with respect
thereto as the Sponsor may deem proper if the Issuer is in default with
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respect to such Security or in the judgment of the Sponsor the Issuer will
probably default in respect to such Security in the foreseeable future.
Any obligations so received in exchange or substitution will be held
by the Trustee subject to the terms and conditions of the Indenture to the
same extent as Securities originally deposited thereunder. Within five
days after the deposit of obligations in exchange or substitution for any
of the underlying Securities, the Trustee is required to give notice
thereof to each Unit Holder, identifying the Securities eliminated and the
Securities substituted therefor. Except as stated in this and the
preceding paragraph, the acquisition by the Trust of any securities other
than the Securities initially deposited and any additional Securities
supplementally deposited in the Trust (see "Introduction" herein), and/or a
Replacement Security is prohibited.
Resignation
If at any time the Sponsor shall resign under the Indenture or shall
fail to perform or be incapable of performing its duties thereunder or
shall become bankrupt or if its affairs are taken over by public
authorities, the Indenture directs the Trustee to either (1) appoint a
successor Sponsor or Sponsors at rates of compensation deemed reasonable by
the Trustee not exceeding amounts prescribed by the Securities and Exchange
Commission, or (2) terminate the Trust. The Trustee will promptly notify
Unit Holders of any such action.
TRUSTEE
The Trustee for the Trust will be specified in Part A of this
prospectus and be either United States Trust Company of New York or The
Bank of New York. United States Trust Company of New York, with its
principal place of business at 114 West 47th Street, New York, New York
10036, and its unit investment trust office at 770 Broadway, New York, New
York 10003, has, since its establishment in 1853, engaged primarily in the
management of trust and agency accounts for individuals and corporations.
The Bank of New York has its principal place of business at 48 Wall Street,
New York, New York 10286, and its unit investment trust office at 101
Barclay Street, New York, New York 10286. Unit Holders should direct
inquiries regarding distributions, address changes and other matters
relating to the administration of a Trust for which The Bank of New York is
Trustee to Unit Investment Trust Division, P.O. Box 974, Wall Street
Station, New York, New York 10268-0974.
The Trustee is a member of the New York Clearing House Association and
is subject to supervision and examination by the Superintendent of Banks of
the State of New York, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System. In connection with the
storage and handling of certain Securities deposited in a Trust, the
Trustee may use the services of the Depository Trust Company. These
services may include safekeeping of the Securities and coupon-clipping,
computer book-entry transfer and institutional delivery services. The
Depository Trust Company is a limited purpose trust company organized under
the Banking Law of the State of New York, a member of the Federal Reserve
System and a clearing agency registered under the Securities Exchange Act
of 1934.
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Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or Certificates or in respect of any evaluation or for any
action taken in good faith reliance on prima facie properly executed
documents except in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties. In
addition, the Indenture provides that the Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon or in
respect of the Trust which the Trustee may be required to pay under current
or future laws of the United States or any other authority having
jurisdiction.
Responsibility
For information relating to the responsibilities of the Trustee under
the Indenture, reference is made to the material set forth under "Rights of
Unit Holders" and "Sponsor--Resignation".
Resignation and Removal
By executing an instrument in writing and filing the same with the
Sponsor, the Trustee and any successor may resign. In such an event the
Sponsor is obligated to appoint a successor trustee as soon as possible.
If the Trustee becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, the Sponsor may remove the
Trustee and appoint a successor as provided in the Indenture. The Sponsor
may remove the Trustee in the event that the Sponsor determines that the
Trustee has materially failed to perform its duties under the Indenture and
the interest of Unit Holders has been substantially impaired as a result,
and such failure has continued for a period of sixty days following the
Trustee's receipt of notice of such determination by the Sponsor. The
Sponsor may also remove the Trustee in other instances as specified in the
Indenture. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If upon resignation of
a trustee no successor has been appointed or, if appointed, has not
accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee
becomes effective only when the successor trustee accepts its appointment
as such or when a court of competent jurisdiction appoints a successor
trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of Kenny
Information Systems, Inc., with main offices located at 65 Broadway, New
York, New York 10004.
Limitations on Liability
The Trustee, Sponsor and Unit Holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Indenture
shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee, the Sponsor, or Unit Holders for errors in
judgment. But this provision shall not protect the Evaluator in cases of
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willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Responsibility
The Indenture requires the Evaluator to evaluate the Securities in a
Trust on the basis of their bid prices on the last business day of June and
December in each year, on the day on which any Unit is tendered for
redemption and on any other day such evaluation is desired by the Trustee
or is requested by the Sponsor. For information relating to the
responsibility of the Evaluator to evaluate the Securities on the basis of
their offering or bid prices as appropriate, see "Public Offering of
Units--Public Offering Price".
Resignation
The Evaluator may resign or may be removed by the Sponsor, and in such
event, the Sponsor is to use its best efforts to appoint a satisfactory
successor. Such resignation or removal shall 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.
AMENDMENT AND TERMINATION OF THE INDENTURE
Amendment
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Unit Holders when such an amendment is
(1) to cure any ambiguity or to correct or supplement any provision of the
Indenture which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not
adversely affect the interests of the Unit Holders; provided that the
Indenture may also be amended by the Sponsor and the Trustee (or the
performance of any of the provisions of the Indenture may be waived) with
the consent of Unit Holders owning 51% of the Units of the Trust at the
time outstanding for the purposes of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of Unit Holders. In no event, however,
shall the Indenture be amended to increase the number of Units issuable
thereunder, to permit the deposit or acquisition of securities or other
property 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 such Securities as initially provided in the
Indenture or in connection with a supplemental deposit of Securities and
issuance of Additional Units, nor shall the Indenture be amended to provide
the Trustee with the power to engage in business or investment activities
not specifically authorized in the Indenture as originally adopted or so as
to affect adversely the characterization of the Trust as a grantor trust
for Federal income tax purposes. In the event of any amendment, the
Trustee is obligated to notify promptly all Unit Holders of the substance
of such amendment.
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Termination
The Trust may be terminated at any time by the consent of the holders
of 51% of the Units or by the Trustee upon the direction of the Sponsor
when the value of the Trust as shown on the last business day of June or
December in any year is less than 40% of the value of the Securities
initially deposited therein supplemented by the deposit of additional
Securities, if any. However, in no event may the Trust continue beyond the
Mandatory Termination Date set forth under Part A--"Summary of Essential
Information." In the event of termination, written notice thereof will be
sent by the Trustee to all Unit Holders. Within a reasonable period after
termination, the Trustee will sell any Securities remaining in the
terminated Trust, and, after paying all expenses and charges incurred by
the Trust, will distribute to each Unit Holder, upon surrender for
cancellation of his Certificate for Units, his pro rata share of the
balances remaining in the Interest and Principal Accounts. The sale of
Securities in a 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 Unit Holder upon
termination may be less than the principal amount of Securities represented
by the Units held by such Unit Holder.
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby have
been passed upon by Cahill Gordon & Reindel, a partnership including a
professional corporation, 80 Pine Street, New York, New York 10005, as
special counsel for the Sponsor.
AUDITORS
The financial statements of the Trust included in this Prospectus have
been audited by Deloitte & Touche, certified public accountants, as stated
in their report appearing herein, and are included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
BOND RATINGS
Standard & Poor's Corporation
A Standard & Poor's Corporation corporate or municipal debt rating is
a current assessment of the creditworthiness of an obligor with respect to
a specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's Corporation by the issuer or obtained by Standard & Poor's
Corporation from other sources it considers reliable. Standard & Poor's
Corporation does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
__________
2 As described by the rating agencies.
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be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation; (2) nature of and
provisions of the obligation; and (3) protection afforded by, and relative
position of, the obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's Corporation. 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, 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 bonds 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.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified
by the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by 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, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise judgment with respect to such
likelihood and risk.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories ("AAA," "AA," "A," "BBB," commonly known as "Investment
Grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
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Moody's Investors Service
A brief description of the applicable Moody's Investors Service's
rating symbols and their meanings is as follows:
Aaa -- Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. "Aa" bonds 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.
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 condition.
The following summarizes the applicable designations used by Moody's
for short-term notes and short-term loans:
MIG 1 -- Loans bearing this designation are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
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MIG 2 -- Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding
group.
Fitch Investors Service, Inc.
A brief description of the applicable Fitch Investors Services, Inc.
rating symbols and their meanings is as follows:
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "AAA"
category.
Conditional: A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
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FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must
earn in various income brackets to produce, after Federal income tax,
returns equivalent to tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the
entire amount of any increase or decrease in his or her taxable income
resulting from a switch from taxable to tax-exempt securities or vice
versa. The table reflects the Federal income tax rates and tax brackets
for the 1994 taxable year under the Code as in effect on the date of this
Prospectus. Because the Federal rate brackets are subject to adjustment
based on changes in the Consumer Price Index, the taxable equivalent yields
for subsequent years may vary somewhat from those indicated in the table.
Use this table to find your tax bracket. Read across to determine the
approximate taxable yield you would need to equal a return free of Federal
income tax.
<TABLE>
1994 Tax Year
<CAPTION>
___________________________________________________________________________________
Taxable Income Bracket* Tax Exempt Yield
Joint Single Tax
Return Return Rate 4% 4.5% 5% 5.5% 6% 6.5% 7%
Taxable Equivalent Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $38,000 Up to $22,750 15.0% 4.705 5.294 5.882 6.470 7.059 7.647 8.235
$38,000-91,850 $22,750-55,100 28.0% 5.555 6.250 6.944 7.638 8.333 9.028 9.722
$91,850-140,000 $55,100-115,000 31.0% 5.797 6.521 7.246 7.971 8.696 9.420 10.145
$140,000-250,000 $115,000-250,000 36.0% 6.250 7.031 7.812 8.593 9.375 10.156 10.937
Over $250,000 Over $250,000 39.6% 6.622 7.450 8.278 9.105 9.933 10.761 11.589
</TABLE>
*The income amount shown is income subject to Federal income
tax reduced by adjustments to income, exemptions, and itemized
deductions or the standard deduction. It is assumed that the
investor is not subject to the alternative minimum tax. Where
applicable, investors should take into account the provisions of
the Code under which the benefit of certain itemized deductions
and the benefit of personal exemptions are limited in the case of
higher income individuals. Under the Code, an individual taxpayer
with adjusted gross income in excess of a $111,800 threshold
amount is subject to an overall limitation on certain itemized
deductions, requiring a reduction equal to the lesser of (i) 3% of
adjusted gross income in excess of the $111,800 threshold amount
or (ii) 80% of the amount of such itemized deductions otherwise
allowable. The benefit of each personal exemption is phased out
for married taxpayers filing a joint return with adjusted gross
income in excess of $167,700 and for single taxpayers with
adjusted gross income in excess of $111,800. Personal exemptions
are phased out at the rate of two percentage points for each
$2,450 (or fraction thereof) of adjusted gross income in excess of
the applicable threshold amount. The first three Federal tax
brackets, the threshold amounts at which itemized deductions are
subject to reduction, and the range over which personal exemptions
are phased out will be adjusted for inflation in each year after
1994. The 36% and the 39.6% Federal tax brackets will be adjusted
for inflation for each year after 1994, using 1993 as the base
year.
54
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following
documents:
The facing sheet.
The Cross Reference Sheet.
The Prospectus.
The signatures.
Consents of the Evaluator, Independent Auditors and
Standard & Poor's Ratings Services; all other
consents were previously filed.
The following exhibits:
23. 1a. Consent of Kenny S&P Evaluation Services,
a division of J.J. Kenny Co., Inc.
1b. Consent of Independent Auditors.
1d. Consent of Standard & Poor's Ratings
Services, a division of The McGraw-Hill
Companies, Inc.
27. Financial Data Schedule.
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of its name in the
Prospectus included in this Registration Statement is contained
in its opinion filed as Exhibit 3. to this Registration
Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant, Dean Witter Select Municipal Trust,
Insured Long Term Series 38, 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 Post-Effective Amendment No. 4 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New
York and State of New York on the 28th day of September, 1995.
DEAN WITTER SELECT MUNICIPAL TRUST,
INSURED LONG TERM SERIES 38
(Registrant)
By: DEAN WITTER REYNOLDS INC.
(Depositor)
Thomas Hines
Thomas Hines
Authorized Signatory
Pursuant to the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 4 to the Registration
Statement has been signed on behalf of Dean Witter Reynolds
Inc., the Depositor, by the following person in the following
capacities and by the following persons who constitute a
majority of the Depositor's Board of Directors in The City of
New York and State of New York on this 28th day of September,
1995.
DEAN WITTER REYNOLDS INC.1
Name Office
Philip J. Purcell Chairman and Chief)
Executive Officer )
and Director<F32> )
By: Thomas Hines
Thomas Hines
Attorney-in-fact<F32>
_________________________
<F32> Executed copies of the Powers of Attorney have been filed with the
Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 for File No. 33-56389.
<PAGE>
Name Office
Richard M. DeMartini Director<F32>
Nancy S. Donovan Director<F32>
Robert J. Dwyer Director<F32>
Christine A. Edwards Director<F32>
James F. Higgins Director<F32>
Stephen R. Miller Director<F32>
Richard F. Powers Director<F32>
Philip J. Purcell Director<F32>
_________________________
<F32> Executed copies of the Powers of Attorney have been filed with the
Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 for File No. 33-56389.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT
23. 1a. Consent of Kenny S&P Evaluation
Services, a division of J.J. Kenny
Co., Inc.
1b. Consent of Deloitte & Touche LLP
1d. Consent of Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc.
27. Financial Data Schedule
<PAGE>
Exhibit 23.1a.
Letterhead of KENNY S&P EVALUATION SERVICES,
A Division of J.J. Kenny Co., Inc.
September 28, 1995
Dean Witter Reynolds Inc.
Two World Trade Center
New York, NY 10048
Re: Dean Witter Select Municipal Trust,
Insured Long Term Series 38
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-7230 for the above-captioned
trust. We hereby acknowledge that Kenny S&P Evaluation
Services, a division of J.J. Kenny Co., Inc. is currently
acting as the evaluator for the trust. We hereby consent to
the use in the Registration Statement of the references to
Kenny S&P Evaluation Services, a division of J.J. Kenny Co.,
Inc. as evaluator.
In addition, we hereby confirm that the ratings
indicated in the Registration Statement for the respective
bonds comprising the trust portfolio are the ratings indicated
in our KENNYBASE database as of the date of the evaluation
report.
You are hereby authorized to file a copy of this
letter with the Securities and Exchange Commission.
Sincerely,
Frank A. Ciccotto
Frank A. Ciccotto
Vice President
<PAGE>
Exhibit 23.1b.
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated September 15, 1995, accompanying
the financial statements of the Dean Witter Select Municipal Trust Insured
Long Term Series 38, included herein and to the reference to our Firm as
experts under the heading "Auditors" in the prospectus which is a part of
this registration statement.
DELOITTE & TOUCHE LLP
September 28, 1995
New York, New York
<PAGE>
Exhibit 23.1d.
Letterhead of Standard & Poor's Ratings Services,
A Division of The McGraw-Hill Companies, Inc.
September 28, 1995
Dean Witter Reynolds Inc.
Two World Trade Center
New York, New York 10048
Re: Dean Witter Select Municipal Trust,
Insured Long Term Series 38
Gentlemen:
We have received the post-effective amendment to the
registration statement SEC file number 33-7230 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 ratings by Standard &
Poor's, we reaffirm the assignment of a "AAA" rating to the
units of the trust and a "AAA" rating to the securities
contained in the trust.
You have permission to use the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. 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 on the units does not take
into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce
payment to the unit holders of the interest and principal
<PAGE>
-2-
required to be paid on the portfolio assets. Standard & Poor's
reserves the right to advise its own clients, subscribers, and
the public of the ratings. Standard & Poor's 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. Standard & Poor's 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 Ratings Services, a division of The
McGraw-Hill Companies, Inc. 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 & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. in
connection with the ratings assigned to the securities
contained in the trust. You are hereby authorized to file a
copy of this letter with the Securities and Exchange
Commission.
We are pleased to have had the opportunity to be of
service to you. If we can be of further help, please do not
hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Sanford B. Bragg
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR DEAN WITTER SELECT MUNICIPAL
TRUST INSURED LONG TERM SERIES 38
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
<RESTATED>
<SERIES>
<NAME> DEAN WITTER SELECT MUNICIPAL TRUST
INSURED LONG TERM SERIES
<NUMBER> 38
<MULTIPLIER> 1
<FISCAL-YEAR-END> Jul-31-1995
<PERIOD-START> Aug-1-1994
<PERIOD-END> Jul-31-1995
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 2,795,473
<INVESTMENTS-AT-VALUE> 3,039,256
<RECEIVABLES> 62,530
<ASSETS-OTHER> 5,028
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,106,814
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,009
<TOTAL-LIABILITIES> 2,009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,793,668
<SHARES-COMMON-STOCK> 2,869
<SHARES-COMMON-PRIOR> 2,920
<ACCUMULATED-NII-CURRENT> 67,354
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 243,783
<NET-ASSETS> 3,104,805
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 196,250
<OTHER-INCOME> 1,580
<EXPENSES-NET> 5,414
<NET-INVESTMENT-INCOME> 192,416
<REALIZED-GAINS-CURRENT> 4,773
<APPREC-INCREASE-CURRENT> 16,676
<NET-CHANGE-FROM-OPS> 213,865
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 190,797
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,329
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 51
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (36,551)
<ACCUMULATED-NII-PRIOR> 68,451
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
