<PAGE>
DEFINED
ASSET FUNDSSM
MUNICIPAL INVESTMENT
TRUST FUND
- ------------------------------------------------------------
INSURED SERIES--191
(A UNIT INVESTMENT TRUST)
PROSPECTUS, PART A
DATED JULY 22, 1994
SPONSORS:
Merrill Lynch,
Pierce, Fenner & Smith Inc.
Smith Barney Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Dean Witter Reynolds Inc.
INSURED - TAX-FREE - AAA RATED
This Defined Fund is a portfolio of preselected securities formed for the
purpose of providing safety of principal and interest income that in the opinion
of counsel is, with certain exceptions, exempt from regular Federal income taxes
under existing law through investment in an insured fixed portfolio of
fixed-rate Debt Obligations issued by states, municipalities, public authorities
and similar entities. All Debt Obligations in the Fund are insured as to
scheduled payments of principal and interest, as a result of which Units of the
Fund are rated AAA by Standard & Poor's Corporation. This insurance guarantees
the timely payment of principal and interest but does not guarantee the market
value of the Debt Obligations or the value of the Units. The market value of the
underlying Debt Obligations, and therefore the value of the Units, will
fluctuate with changes in interest rates and other factors.
Minimum Purchase: One Unit
- ------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
NOTE: PART A OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED
UNLESS ACCOMPANIED BY MUNICIPAL INVESTMENT TRUST FUND DEFINED ASSET FUNDS
PROSPECTUS, PART B.
This Prospectus consists of two parts. The first includes an Investment Summary
and certified financial statements of the Fund, including the related securities
portfolio; the second contains a general summary of the Fund.
- ------------------------------------------------------------------------
Read and retain both parts of this Prospectus for future reference.
<PAGE>
DEFINED ASSET FUNDSSM is America's oldest and largest family of unit investment
trusts with over $90 billion sponsored since 1970. Each Defined Fund is a
portfolio of preselected securities. The portfolio is divided into 'units'
representing equal shares of the underlying assets. Each unit receives an equal
share of income and principal distributions.
With Defined Asset Funds you know in advance what you are investing in and that
changes in the portfolio are limited. Most defined bond funds pay interest
monthly and repay principal as bonds are called, redeemed, sold or as they
mature. Defined equity funds offer preselected stock portfolios with defined
termination dates.
Your financial advisor can help you select a Defined Fund to meet your personal
investment objectives. Our size and market presence enable us to offer a wide
variety of investments. Defined Funds are available in the following types of
securities: municipal bonds, corporate bonds, government bonds, utility stocks,
growth stocks, even international securities denominated in foreign currencies.
Termination dates are as short as one year or as long as 30 years. Special funds
are available for investors seeking extra features: insured funds, double and
triple tax-free funds, and funds with 'laddered maturities' to help protect
against rising interest rates. Defined Funds are offered by prospectus only.
- --------------------------------------------------------------------------------
CONTENTS
Investment Summary.......................................... A-3
Accountants' Opinion Relating to the Fund................... D-1
Statement of Condition...................................... D-2
Portfolio................................................... D-6
A-2
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, INSURED SERIES--191 DEFINED ASSET FUNDS
INVESTMENT SUMMARY
AS OF APRIL 30, 1994, THE EVALUATION DATE
FACE AMOUNT OF SECURITIES $ 10,000,000+
NUMBER OF UNITS.......................................... 10,000
FACE AMOUNT OF SECURITIES
PER UNIT...............................................$ 1,000.00
FRACTIONAL UNDIVIDED INTEREST IN FUND REPRESENTED BY EACH
UNIT................................................... 1/10,000th
PUBLIC OFFERING PRICE
Aggregate bid side evaluation of underlying Se-
curities..........................................$ 9,311,227
--------------------
Divided by Number of Units..........................$ 931.12
Plus sales charge of 5.50% of Public Offering Price
(5.820% of net amount invested in Securities)*.... 54.19
--------------------
Public Offering Price per Unit......................$ 985.31
(plus cash
adjustments and
accrued interest)**
SPONSOR'S REPURCHASE PRICE AND REDEMPTION PRICE PER
UNIT...................................................$ 931.12
(based on bid side evaluation of Securities) ($54.19 (plus cash
less than Public Offering Price per Unit) adjustments and
accrued interest)**
CALCULATION OF ESTIMATED NET ANNUAL INTEREST RATE PER
UNIT (based on Face Amount per Unit)
Annual interest rate per Unit....................... 5.809%
Less estimated annual expenses per Unit ($1.82)
expressed as a percentage......................... .182%
--------------------
Estimated net annual interest rate per Unit......... 5.627%
--------------------
--------------------
DAILY RATE AT WHICH ESTIMATED NET INTEREST ACCRUES PER
UNIT................................................... .0156%
MONTHLY INCOME DISTRIBUTIONS
Estimated net annual interest rate per Unit times
Face Amount per Unit..............................$ 56.27
Divided by 12.......................................$ 4.68
RECORD DAY
The 10th day of each month.
DISTRIBUTION DAY
The 25th day of each month.
MINIMUM CAPITAL DISTRIBUTION
No distribution need be made from Capital Account if balance in Account is
less than $5.00 per Unit.
TRUSTEE'S ANNUAL FEE AND EXPENSES++
$1.82 per Unit (see Expenses and Charges in Part B).
PORTFOLIO SUPERVISION FEE+++
Maximum of $0.35 per $1,000 face amount of underlying Debt Obligations (see
Expenses and Charges in Part B).
EVALUATOR'S FEE FOR EACH EVALUATION
Maximum of $10 (see Expenses and Charges in Part B).
EVALUATION TIME
3:30 P.M. New York Time
PREMIUM AND DISCOUNT ISSUES IN PORTFOLIO
Face Amount of Debt Obligations with bid side
evaluation:
At a discount from par............................ 100%
MINIMUM VALUE OF FUND
Trust may be terminated if value of Fund is less than 40% of the Face Amount
of Securities on the date of their deposit. As of the Evaluation Date, the
value of the Fund was 93% of the Face Amount of Securities on the date of
their deposit.
- ------------------------------
*This is the maximum Effective Sales Charge on the date stated. The sales
charge will vary depending on the maturities of the underlying
Securities and will be reduced on a graduated scale for purchases of 250
or more Units (see Public Sale of Units--Public Offering Price in Part
B). Any resulting reduction in the Public Offering Price will increase
the effective current and long term returns on a Unit.
**For Units purchased or redeemed on the Evaluation Date, accrued interest
is approximately equal to the undistributed net investment income of the
Fund (see Statement of Condition on p. D-2) divided by the number of
outstanding Units, plus accrued interest per Unit to the expected date
of settlement (5 business days after purchase or redemption). The amount
of the cash adjustment which is added is equal to the cash per Unit held
in the Capital Account (see Public Sale of Units-- Public Offering Price
and Redemption in Part B).
+On the Initial Date of Deposit (May 25, 1993) the Face Amount of
Securities was $10,000,000. Cost of Securities is set forth under
Portfolio.
++Of this figure, the Trustee receives annually for its service as
Trustee, $0.70 per $1,000 face amount of Debt Obligations. The
Trustee's Annual Fee and Expenses also includes the Portfolio
Supervision Fee and Evaluator's Fee set forth herein.
+++The Sponsors also may be reimbursed for their costs of bookkeeping and
administrative services to the Fund. Portfolio supervision fees
deducted in excess of portfolio supervision expenses may be used for
this reimbursement. Additional deductions for this purpose are
currently estimated not to exceed an annual rate of $0.10 per Unit.
A-3
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND, INSURED SERIES--191 DEFINED ASSET FUNDS
INVESTMENT SUMMARY AS OF THE EVALUATION DATE (CONTINUED)
NUMBER OF ISSUES IN PORTFOLIO............................ 11
STANDARD & POOR'S CORPORATION
RATING ON UNITS OF THE FUND* ............................................ AAA
RANGE OF MATURITIES.................................................2012-2033
NUMBER OF ISSUES BY SOURCE OF
REVENUE:
General Obligation.................................. 2
Lease Rental........................................ 1
Special Tax......................................... 2
Hospital/Health Care Facility....................... 3
State and Local Municipal Utility................... 2
Municipal Water/Sewer............................... 1
CONCENTRATIONS+ EXPRESSED AS PERCENTAGE OF AGGREGATE FACE
AMOUNT OF PORTFOLIO:
Hospital/Health Care Facility....................... 29%
Issuers located in Illinois (20%), Texas (20%) and
Washington (10%).................................. 50%
PERCENTAGE OF AGGREGATE FACE AMOUNT OF PORTFOLIO INSURED*
TO MATURITY BY:
AMBAC............................................... 21%
MBIA................................................ 55%
Financial Guaranty.................................. 15%
FSA................................................. 9%
PUBLIC SALE OF UNITS--
The quantity discount to sales charges applies to all purchases of
Municipal Investment Trust Fund units in the secondary market on the same day,
irrespective of any differences in their rates of Effective Sales Charge. The
limitation to a range of 0.5%, described under Public Sale of Units--Volume
Purchase Discounts, has been eliminated.
- ------------------------------
* As a result of insurance the Units of the Fund and the Debt Obligations
are rated AAA by Standard & Poor's (see Risk Factors--Insured Obligations;
Description of Ratings in Part B.)
+ A Fund is considered to be 'concentrated' in a category when the
Securities in that category constitute 25% or more of the aggregate face amount
of the Portfolio. See Risk Factors in Part B for a description of certain
investment risks relating to these types of obligations.
A-4
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
REPORT OF INDEPENDENT ACCOUNTANTS
The Sponsors, Co-Trustees and Holders
of Defined Asset Funds - Municipal Investment Trust Fund,
Insured Series - 191:
We have audited the accompanying statement of condition of Defined Asset
Funds - Municipal Investment Trust Fund, Insured Series - 191, including
the portfolio, as of April 30, 1994, and the related statement of
operations and of changes in net assets for the period May 26, 1993 to
April 30, 1994. These financial statements are the responsibility of the
Co-Trustees. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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. Securities owned at April 30, 1994, as shown in such
portfolio, were confirmed to us by Investors Bank & Trust Company, a
Co-Trustee. An audit also includes assessing the accounting principles
used and significant estimates made by the Co-Trustees, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides 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 Defined Asset Funds -
Municipal Investment Trust Fund, Insured Series - 191 at April 30, 1994
and the results of its operations and changes in its net assets for the
above-stated period in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE
NEW YORK, N.Y.
June 16, 1994
D - 1
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
STATEMENT OF CONDITION
As of April 30, 1994
<TABLE>
<S> <C>
TRUST PROPERTY:
INVESTMENT IN MARKETABLE SECURITIES - AT VALUE (COST $9,898,722) (NOTE 1).................................. $ 9,311,227
ACCRUED INTEREST RECEIVABLE................................................................................ 186,994
-------------
TOTAL TRUST PROPERTY....................................................................................... 9,498,221
LESS LIABILITIES:
ADVANCE FROM CO-TRUSTEE...................................................................... $ 57,606
ACCRUED EXPENSES............................................................................. 2,345
-------------
TOTAL LIABILITIES............................................................................ 59,951
-------------
NET ASSETS, REPRESENTED BY:
10,000 UNITS OF FRACTIONAL UNDIVIDED INTEREST OUTSTANDING (NOTE 3).......................... 9,311,227
UNDISTRIBUTED NET INVESTMENT INCOME.......................................................... 127,043
-------------
NET ASSETS..................................................................................... $ 9,438,270
=============
UNITS OUTSTANDING............................................................................................ 10,000
=============
NET ASSET VALUE PER UNIT..................................................................................... $ 943.83
=============
See Notes To Financial Statements.
</TABLE>
D - 2
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
May 26,
1993
to
April 30,
1994
----
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME............................................................................................ $ 535,537
CO-TRUSTEES' FEES AND EXPENSES............................................................................. (7,762)
SPONSORS' FEES............................................................................................. (2,332)
-------------
NET INVESTMENT INCOME...................................................................................... 525,443
-------------
UNREALIZED LOSS ON INVESTMENTS:
UNREALIZED DEPRECIATION OF INVESTMENTS..................................................................... (587,495)
-------------
UNREALIZED LOSS ON INVESTMENTS............................................................................. (587,495)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS......................................................... $ (62,052)
=============
See Notes to Financial Statements.
</TABLE>
D - 3
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
May 26,
1993
to
April 30,
1994
----
<S> <C>
OPERATIONS:
NET INVESTMENT INCOME...................................................................................... $ 525,443
UNREALIZED DEPRECIATION OF INVESTMENTS..................................................................... (587,495)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................................... (62,052)
-------------
DISTRIBUTIONS TO HOLDERS: (NOTE 2)
INCOME..................................................................................................... (398,400)
-------------
TOTAL DISTRIBUTIONS........................................................................................ (398,400)
-------------
NET DECREASE IN NET ASSETS................................................................................... (460,452)
NET ASSETS AT BEGINNING OF PERIOD............................................................................ 9,898,722
-------------
NET ASSETS AT END OF PERIOD.................................................................................. $ 9,438,270
=============
PER UNIT:
INCOME DISTRIBUTIONS DURING PERIOD......................................................................... $ 39.84
=============
NET ASSET VALUE AT END OF PERIOD........................................................................... $ 943.83
=============
TRUST UNITS:
OUTSTANDING AT END OF PERIOD............................................................................... 10,000
=============
See Notes To Financial Statements.
</TABLE>
D - 4
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a
Unit Investment Trust. The following is a summary of significant
accounting policies consistently followed by the Fund in the
preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
(a) Securities are stated at value as determined by the Evaluator
based on bid side evaluations for the securities (see "Redemption
- Computation of Redemption Price Per Unit" in this Prospectus,
Part B), except that value on May 26, 1993 was based upon
offering side evaluations at May 24, 1993, the day prior to the
Date of Deposit. Cost of securities at May 26, 1993 was also
based on such offering side evaluations.
(b) The Fund is not subject to income taxes. Accordingly, no
provision for such taxes is required.
(c) Interest income is recorded as earned.
2. DISTRIBUTIONS
A distribution of net investment income is made to Holders each month.
Receipts other than interest, after deductions for redemptions and
applicable expenses, are distributed as explained in the
"Administration of the Fund - Accounts and Distributions" in this
Prospectus, Part B.
3. NET CAPITAL
Cost of 10,000 units as of Date of Deposit............. $ 10,365,122
Less sales charge...................................... 466,400
-------------
Net amount applicable to Holders....................... 9,898,722
Unrealized depreciation of investments................. (587,495)
-------------
Net capital applicable to Holders...................... $ 9,311,227
=============
4. INCOME TAXES
As of April 30, 1994, unrealized depreciation of investments, based
on cost for Federal income tax purposes, aggregated $587,495, all of
which related to depreciated securities. The cost of investment
securities for Federal income tax purposes was $9,898,722 at
April 30, 1994.
D - 5
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
PORTFOLIO
AS OF APRIL 30, 1994
<TABLE>
<CAPTION>
Portfolio No. and Rating of Face
Title of Securities(4) Issues(1) Amount Coupon Maturities(3)
______________________ _________ ______ ______ _____________
<S> <C> <C> <C> <C> <C>
1 Boca Raton Comnty Redev Agy, FL, Tax Increment Rev Bonds, AAA $ 500,000 5.875% 03/01/13
(Mizner Park Proj), Ser 1992 (Financial Guaranty Ins)
2 Coastal Bend Hlth Fac Dev Corp, TX, Rev Bonds (Incarnate AAA 905,000 6.000 11/15/22
Word Hlth Services), Ser 1993 A (FSA Ins)
3 Illinois Hlth Fac Auth Rev Bonds (Franciscan Sisters Hlth AAA 1,000,000 6.250 09/01/21
Care Corp Proj), Ser 1992 B (MBIA Ins)
4 Knox Cnty Hosp Association, IN, Lease Rev Bonds, Ser 1993 AAA 1,000,000 5.750 07/01/17
(MBIA Ins)
5 Marshall Econ Dev Corp, TX, Sales Tax Rev Bonds, Ser 1993 AAA 530,000 4.000 04/01/12
(AMBAC Ins)
565,000 4.000 04/01/13
6 Massachusetts Bay Transp Auth, Gen Transp Sys Bonds, Ser AAA 500,000 5.750 03/01/22
1992 A (MBIA Ins)
7 Piedmont Mun Pwr Agy, SC, Elec Rev Rfdg Bonds, Ser 1992 AAA 1,000,000 6.300 01/01/22
(MBIA Ins)
8 Provo City, UT, Energy Sys Rev Rfdg Bonds, Ser 1993 A AAA 1,000,000 5.750 05/15/14
(MBIA Ins)
9 Regnl Trans Auth, IL, Cook, DuPage, Kane, Lake, McHenry & AAA 1,000,000 6.125 06/01/22
Will Counties, Gen Oblig Bonds, Ser 1992 B (AMBAC Ins)
10 Municipality of Metro Seattle, WA, Swr Rev Bonds, Ser W AAA 1,000,000 6.300 01/01/33
(MBIA Ins)
11 Wisconsin Hlth and Educl Fac Auth Rev Bonds, (Meriter AAA 1,000,000 6.000 12/01/22
Hosp, Inc) Ser 1992 A (Financial Guaranty Ins) ____________
TOTAL $ 10,000,000
============
</TABLE>
D - 6
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
PORTFOLIO
AS OF APRIL 30, 1994
<TABLE>
<CAPTION>
Optional
Portfolio No. and Redemption
Title of Securities(4) Provisions(3) Cost(2) Value(2)
______________________ _____________ _______ ________
<S> <C> <C> <C> <C>
1 Boca Raton Comnty Redev Agy, FL, Tax Increment Rev Bonds, 03/01/02 @ $ 508,930 $ 483,645
(Mizner Park Proj), Ser 1992 (Financial Guaranty Ins) 102.000
2 Coastal Bend Hlth Fac Dev Corp, TX, Rev Bonds (Incarnate 11/15/02 @ 908,701 852,130
Word Hlth Services), Ser 1993 A (FSA Ins) 102.000
3 Illinois Hlth Fac Auth Rev Bonds (Franciscan Sisters Hlth 09/01/02 @ 1,028,400 969,360
Care Corp Proj), Ser 1992 B (MBIA Ins) 102.000
4 Knox Cnty Hosp Association, IN, Lease Rev Bonds, Ser 1993 01/01/03 @ 974,490 916,280
(MBIA Ins) 102.000
5 Marshall Econ Dev Corp, TX, Sales Tax Rev Bonds, Ser 1993 04/01/03 @ 434,685 402,026
(AMBAC Ins) 100.000
04/01/03 @ 460,396 421,976
100.000
6 Massachusetts Bay Transp Auth, Gen Transp Sys Bonds, Ser 03/01/02 @ 496,470 461,600
1992 A (MBIA Ins) 100.000
7 Piedmont Mun Pwr Agy, SC, Elec Rev Rfdg Bonds, Ser 1992 01/01/03 @ 1,037,440 984,440
(MBIA Ins) 102.000
8 Provo City, UT, Energy Sys Rev Rfdg Bonds, Ser 1993 A 05/15/03 @ 987,980 929,250
(MBIA Ins) 102.000
9 Regnl Trans Auth, IL, Cook, DuPage, Kane, Lake, McHenry & 06/01/02 @ 1,015,540 967,440
Will Counties, Gen Oblig Bonds, Ser 1992 B (AMBAC Ins) 100.000
10 Municipality of Metro Seattle, WA, Swr Rev Bonds, Ser W 01/01/03 @ 1,037,440 982,810
(MBIA Ins) 102.000
11 Wisconsin Hlth and Educl Fac Auth Rev Bonds, (Meriter 12/01/02 @ 1,008,250 940,270
Hosp, Inc) Ser 1992 A (Financial Guaranty Ins) 102.000 _______________ ____________
TOTAL $ 9,898,722 $ 9,311,227
=============== ============
See Notes To Portfolio.
</TABLE>
D - 7
<PAGE>
DEFINED ASSET FUNDS - MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES - 191
NOTES TO PORTFOLIO
AS OF APRIL 30, 1994
(1) A description of the rating symbols and their meanings appears under
"Description of Ratings" in this Prospectus, Part B. Ratings, which
have been provided by the Evaluator, are by Standard & Poor's (when
available) or by Moody's Investors Service (as indicated by "m") when
Standard & Poor's Ratings are not available. "NR", if applicable,
indicates that this security is not currently rated by either rating
service.
(2) See Notes to Financial Statements.
(3) Optional redemption provisions, which may be exercised in whole or in
part, are initially at prices of par plus a premium, then
subsequently at prices declining to par. Certain securities may
provide for redemption at par prior or in addition to any optional or
mandatory redemption dates or maturity, for example, through the
operation of a maintenance and replacement fund, if proceeds are not
able to be used as contemplated, the project is condemned or sold or
the project is destroyed and insurance proceeds are used to redeem
the securities. Many of the securities are also subject to mandatory
sinking fund redemptions commencing on dates which may be prior to
the date on which securities may be optionally redeemed. Sinking
fund redemptions are at par and redeem only part of the issue. Some
of the securities have mandatory sinking funds which contain optional
provisions permitting the issuer to increase the principal amount of
securities called on a mandatory redemption date. The sinking fund
redemptions with optional provisions may, and optional refunding
redemptions generally will, occur at times when the redeemed
securities have an offering side evaluation which represents a
premium over par. To the extent that the securities were acquired at
a price higher than the redemption price, this will represent a loss
of capital when compared with the Public Offering Price of the Units
when acquired. Distributions will generally be reduced by the amount
of the income which would otherwise have been paid with respect to
redeemed securities and there will be distributed to Holders any
principal amount and premium received on such redemption after
satisfying any redemption requests for Units received by the Fund.
The estimated current return may be affected by redemptions. The tax
effect on Holders of redemptions and related distributions is
described under "Taxes" in this Prospectus, Part B.
(4) All securities are insured, either on an individual basis or by
portfolio insurance, by a municipal bond insurance company which has
been assigned "AAA" claims paying ablility by Standard & Poor's.
Accordingly, Standard & Poor's has assigned "AAA" ratings to the
securities. Securities covered by portfolio insurance are rated
"AAA" only as long as they remain in this Trust. See "Risk Factors -
Insured Obligations" in this Prospectus, Part B.
D - 8
<PAGE>
MUNICIPAL INVESTMENT TRUST FUND
INSURED SERIES
DEFINED ASSET FUNDS
I want to learn more about automatic reinvestment in the Investment Accumulation
Program. Please send me information about participation in the Municipal Fund
Accumulation Program, Inc. and a current Prospectus.
My name (please
print) ________________________________________________________________________
My address (please print):
Street and Apt.
No. ___________________________________________________________________________
City, State, Zip
Code __________________________________________________________________________
This page is a self-mailer. Please complete the information above, cut along the
dotted line, fold along the lines on the reverse side, tape, and mail with the
Trustee's address displayed on the outside.
12345678
<PAGE>
BUSINESS REPLY MAIL NO POSTAGE
FIRST CLASS PERMIT NO. 7036 BOSTON, MA NECESSARY
IF MAILED
POSTAGE WILL BE PAID BY ADDRESSEE IN THE
INVESTORS BANK & TRUST COMPANY (MITF) UNITED STATES
P.O. BOX 1537
BOSTON, MA 02205-1537
- ------------------------------------------------------------------------------
(Fold along this line.)
- ------------------------------------------------------------------------------
(Fold along this line.)
<PAGE>
<PAGE>
DEFINED ASSET FUNDS
MUNICIPAL INVESTMENT TRUST FUND
AMT MONTHLY PAYMENT SERIES MONTHLY PAYMENT SERIES
CALIFORNIA SERIES MULTISTATE SERIES
CALIFORNIA INSURED SERIES NEW YORK SERIES
FLORIDA INSURED SERIES NEW YORK INSURED SERIES
FLOATING RATE SERIES NEW YORK PUT SERIES
MBIA SERIES NEW JERSEY SERIES
INSURED SERIES OHIO SERIES
INTERMEDIATE TERM SERIES PENNSYLVANIA SERIES
MASSACHUSETTS SERIES PUT SERIES
MICHIGAN SERIES TEXAS INSURED SERIES
MINNESOTA SERIES
PROSPECTUS, PART B
NOTE: PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PART A.
INDEX
PAGE
-----------
Fund Summary......................................... 1
Fund Structure....................................... 2
Risk Factors......................................... 3
Description of the Fund.............................. 23
Taxes................................................ 26
Public Sale of Units................................. 28
Market for Units..................................... 30
Redemption........................................... 31
PAGE
-----------
Expenses and Charges................................. 32
Administration of the Fund........................... 33
Resignation, Removal and Limitations on
Liability.......................................... 35
Miscellaneous........................................ 36
Description of Ratings............................... 38
Exchange Option...................................... 40
FUND SUMMARY
RISK FACTORS. Certain Debt Obligations may be redeemed or prepaid from time
to time pursuant to optional refunding or sinking fund redemption provisions or
may mature according to their terms or be sold under certain circumstances
described herein; accordingly, no assurance can be given that the Fund will
retain for any length of time its present size and composition (see Payment of
the Debt Obligations and Life of the Fund; Redemption; Administration of the
Fund--Portfolio Supervision). Units offered hereby may reflect redemptions,
prepayments, defaults or dispositions of Securities originally deposited in the
Fund. A reduction in the value of a Unit resulting from these events does not
mean that a Unit is valued at a market discount; market discounts, as well as
market premiums, on Units are determined solely by a comparison of a Unit's
outstanding face amount and its evaluated price. As they approach maturity,
discount securities tend to increase in market value while premium securities
tend to decrease in market value. If currently prevailing interest rates for
newly issued and otherwise comparable
1
<PAGE>
securities decline, the market discount of previously issued securities will be
reduced and the market premium of previously issued securities will increase.
Conversely, if currently prevailing interest rates increase, the market discount
of previously issued securities will become deeper and the market premium of
previously issued securities will decline. (See Special Considerations.) The
Investment Summary in Part A sets forth the percentages of the aggregate face
amount of the Portfolio valued at a discount from the par (maturity) value and
at a premium over par and sets forth the face amount of Securities underlying
each Unit and the value of the Unit as of the evaluation date.
THE PUBLIC OFFERING PRICE of the Units is generally based on the
Evaluator's determination of the aggregate bid side evaluation of the underlying
Securities divided by the number of Units outstanding. A sales charge (set forth
under Investment Summary in Part A) is added. The sales charge will vary
depending on the maturities of the underlying Securities and is reduced on a
graduated scale for purchases of 250 or more Units. Units are offered at the
Public Offering Price, computed as of the Evaluation Time for all sales made
subsequent to the previous evaluation, plus cash adjustments and accrued
interest. The Public Offering Price on the date of this Prospectus or on any
subsequent date will vary from the Public Offering Price set forth under
Investment Summary in Part A. (See Public Sale of Units--Public Offering Price.)
Units offered hereby are issued and outstanding Units which have been purchased
by the Sponsors in the secondary market or from the Trustee following tender for
redemption. Units purchased by the Sponsors in the secondary market or from the
Trustee upon tender may be reoffered at the Public Offering Price, deposited in
a new series or tendered to the Trustee for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsors. No proceeds from
the sale will be received by the Fund.
MARKET FOR UNITS. The Sponsors, though not obligated to do so, intend to
maintain a secondary market for Units at prices based for most Series on the
Evaluator's determination of the aggregate bid side evaluation of the underlying
Securities (see Market for Units). So long as the Sponsors are maintaining a
secondary market at prices not less than the Redemption Price per Unit, they
will repurchase any Units tendered for redemption. If this market is not
maintained, a Holder will be able to dispose of his Units through redemption at
prices also based on the aggregate bid side evaluation of the underlying
Securities. Market conditions may cause the prices available in the market
maintained by the Sponsors or available upon exercise of redemption rights to be
more or less than the amount paid for Units (see Redemption).
ESTIMATED CURRENT RETURN; ESTIMATED LONG-TERM RETURN. Estimated Current
Return on a Unit represents annual cash receipts from coupon-bearing debt
obligations (after estimated annual expenses) divided by the maximum Public
Offering Price (including the sales charge). 'Current return' provides different
information than 'yield' or 'long-term return', which involves a computation of
yield to maturity (or earlier call date) and takes into account not only the
interest payable on the bonds but also the amortization or accretion to a
specified date of any premium over or discount from the par (maturity) value in
the bond's purchase price. Long-term return on Units in the secondary market
will generally be lower, sometimes significantly, than current return. Estimated
Long-Term Return on a Unit shows a net annual long-term return to investors
holding to maturity based on the individual Debt Obligations in the Portfolio
weighted to reflect the time to maturity (or in certain cases to an earlier call
date) and market value of each Debt Obligation in the Portfolio, adjusted to
reflect the Public Offering Price (including the maximum applicable sales
charge) and estimated expenses. The net annual interest rate per Unit and the
net annual long-term return to investors will vary with changes in the fees and
expenses of the Trustee and Sponsors and the fees of the Evaluator which are
paid by the Fund, and with the exchange, redemption, sale, prepayment or
maturity of the underlying Securities; the Public Offering Price will vary with
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any reduction in sales charges paid in the case of quantity purchases of Units,
as well as with fluctuations in the offering side evaluation of the underlying
Securities. Therefore, it can be expected that the Estimated Current Return and
Estimated Long-Term Return will fluctuate in the future. Both current return and
long-term return to an investor may be substantially lower than originally
estimated (see Description of the Fund--Income; Estimated Current Return;
Estimated Long-Term Return).
DISTRIBUTIONS of interest and any principal or premium received by the Fund
WILL BE PAID IN CASH unless the Holder elects to reinvest in The Municipal Fund
Accumulation Program, Inc. Holders will be taxed in the manner described under
Taxes regardless of whether distributions from the Fund are actually received by
the Holders or are automatically reinvested. For more complete information about
the Program, including charges and expenses, return the enclosed card for a
prospectus. Read it carefully before you decide to participate. Also, see
Administration of the Fund--Investment Accumulation Program.
TAXATION. In the opinion of special counsel to the Sponsors, each Holder
will be considered to have received the interest on his pro rata portion of each
Debt Obligation (including debt obligations in any Other Funds) when interest on
the Debt Obligation is received by the Fund or an Other Fund, as the case may
be. In the opinion of bond counsel rendered on the date of issuance of the Debt
Obligation, that interest is excludable from gross income for regular Federal
income tax purposes under existing law (except in certain circumstances
depending on the Holder) but may be subject to state and local taxes; for State
and Multistate Series, that interest is also exempt from certain state and local
personal income taxes of the state for which the Trust is named (except in
certain circumstances depending on the Holder) but may be subject to other state
and local taxes. Capital gains, if any, are subject to tax. (See Taxes.)
FUND STRUCTURE
The Fund (including for all purposes hereunder each Trust of a series such
as a Multistate Series), a series of Municipal Investment Trust Fund, is a 'unit
investment trust' created under New York law by a Trust Indenture (the
'Indenture') among the Sponsors, the Trustee and the Evaluator. To the extent
that references in this Prospectus are to articles and sections of the
Indenture, which are hereby incorporated by reference, the statements made
herein are qualified in their entirety by this reference. The Fund may be an
appropriate investment vehicle for investors who desire to participate in a
portfolio of tax-exempt securities with greater diversification than they might
be able to acquire individually. In addition, bonds of the type deposited in the
Fund often are not available in small amounts.
The holders ('Holders') of units of interest ('Units') will have the right
to have their Units redeemed (see Redemption) at a price based on the aggregate
bid side evaluation of the Securities ('Redemption Price per Unit') if the Units
cannot be sold in the over-the-counter market which the Sponsors propose to
maintain at prices determined in the same manner (see Market for Units). The
Fund will not continuously offer Units for sale to the public. On the Evaluation
Date, each Unit represented the fractional undivided interest in the Securities
and net income of the Fund set forth under Investment Summary in Part A.
Thereafter, if any Units are redeemed, the face amount of Securities in the Fund
will be reduced and the fractional undivided interest represented by each
remaining Unit in the balance will be increased. Units will remain outstanding
until redeemed upon tender to the Trustee by any Holder (which may include the
Sponsors) or until termination of the Indenture (see Redemption; Administration
of the Fund--Amendment and Termination).
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The Units being offered by this Prospectus are issued and outstanding Units
which have been reacquired by the Sponsors either by purchase in the open market
or by purchase of Units tendered to the Trustee for redemption. No offering is
being made on behalf of the Fund and any profit or loss realized on the sale of
Units will accrue to the Sponsors.
RISK FACTORS
An investment in Units of the Fund (except Floating Rate and Put Series)
should be made with an understanding of the risks which an investment in
fixed-rate debt obligations may entail, including the risk that the value of the
Portfolio and hence of the Units will decline with increases in interest rates.
Investors in Floating Rate Series should understand the nature of floating-rate
obligations as described below. In recent years there have been wide
fluctuations in interest rates and thus in the value of fixedrate debt
obligations generally. The Sponsors cannot predict future economic policies or
their consequences or, therefore, the course or extent of any similar
fluctuations in the future. Furthermore, since the issuers of the Debt
Obligations are state and local governmental entities, political restrictions on
the ability to tax and budgetary constraints affecting the state government,
particularly in the current recessionary climate, may result in reductions of or
delays in the payment of state aid to cities, counties, school districts and
other local units of government, which in turn, may strain the financial
operations and have an adverse impact on the creditworthiness of these entities.
State agencies, colleges and universities and healthcare organizations, with
municipal debt outstanding, may also be negatively impacted by reductions in
state appropriations. To the extent that payment of amounts due on Debt
Obligations depends on revenue from publicly held corporations, an investor
should understand that these Debt Obligations, in many cases, do not have the
benefit of covenants which would prevent the corporations from engaging in
capital restructurings or borrowing transactions in connection with corporate
acquisitions, leveraged buyouts or restructurings, which could have the effect
of reducing the ability of the corporation to meet its obligations and may in
the future result in the ratings of the Debt Obligations and the value of the
underlying Portfolio being reduced.
Units offered in the secondary market may reflect redemptions or
prepayments, in whole or in part, or defaults on, certain of the Securities
originally deposited in the Fund or the disposition of certain Securities
originally deposited in the Fund to satisfy redemptions of Units or pursuant to
the exercise by the Sponsors of their supervisory role over the Fund (see Risk
Factors--Payment of the Debt Obligations and Life of the Fund and Administration
of the Fund--Portfolio Supervision). Accordingly, the face amount of Units may
be less than their original face amount at the time of the creation of the Fund.
A reduced value per Unit does not therefore mean that a Unit is necessarily
valued at a market discount; market discounts, as well as market premiums, on
Units are determined solely by a comparison of a Unit's outstanding face amount
and its evaluated price.
Certain of the Securities in the Fund may be valued at a market discount.
Securities trade at less than par value because the interest rates on the
Securities are lower than interest on comparable debt securities being issued at
currently prevailing interest rates. The current returns of securities trading
at a market discount are lower than the current returns of comparably rated debt
securities of a similar type issued at currently prevailing interest rates
because discount securities tend to increase in market value as they approach
maturity and the full principal amount becomes payable. If currently prevailing
interest rates for newly issued and otherwise comparable securities increase,
the market discount of previously issued securities will become deeper and if
currently prevailing interest rates for newly issued comparable securities
decline, the market discount of
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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.
Certain of the Securities in the Fund may be valued at a market premium.
Securities trade at a premium because the interest rates on the Securities are
higher than interest rates on comparable debt securities being issued at
currently prevailing interest rates. The current returns of securities trading
at a market premium are higher than the current returns of comparably rated debt
securities of a similar type issued at currently prevailing interest rates
because premium securities tend to decrease in market value as they approach
maturity when the face amount becomes payable. Because part of the purchase
price is thus returned not at maturity but through current income payments, an
early redemption of a premium security at par will result in a reduction in
yield. If currently prevailing interest rates for newly issued and otherwise
comparable securities increase, the market premium of previously issued
securities will decline and if currently prevailing interest rates for newly
issued comparable securities decline, the market premium of previously issued
securities will increase, other things being equal. Market premium attributable
to interest rate changes does not indicate market confidence in the issue.
The Securities are generally not listed on a national securities exchange.
Whether or not the Securities are listed, the principal trading market for the
Securities will generally be in the over-the-counter market. As a result, the
existence of a liquid trading market for the Securities may depend on whether
dealers will make a market in the Securities. There can be no assurance that a
market will be made for any of the Securities, that any market for the
Securities will be maintained or of the liquidity of the Securities in any
markets made. In addition, the Fund may be restricted under the Investment
Company Act of 1940 from selling Securities to any Sponsor. The price at which
the Securities may be sold to meet redemptions and the value of the Fund will be
adversely affected if trading markets for the Securities are limited or absent.
FLOATING RATE SERIES. The interest rate on most floating-rate obligations
is tied to one or more 'prime rates,' which is generally the rate charged by a
bank to its most creditworthy customers for short term loans. The prime rate of
a particular bank may differ from other banks and will be the rate announced by
each bank on a particular day. Changes in the prime rate may occur with great
frequency and generally become effective on the date announced. In the past
there have been wide fluctuations in prime rates, although the Sponsors cannot
predict whether these fluctuations will continue. While the value of the
underlying Debt Obligations may change with changes in interest rates generally,
the floating rate nature of the underlying Debt Obligations in Floating Rate
Series should decrease changes in value. Accordingly, as interest rates decrease
or increase the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
income securities. The portfolio of any Floating Rate Series may contain Debt
Obligations on which stated minimum and maximum rates limit the degree to which
interest on the Debt Obligations may fluctuate (see Portfolio in Part A); to the
extent they do, increases or decreases in value may be somewhat greater than
would be the case without such limits. Because the adjustment of interest rates
on the floating-rate debt obligations is made in relation to movements of the
applicable banks' prime rates, the Debt Obligations are not comparable to long-
term fixed-rate securities. Accordingly, interest rates on floating-rate debt
obligations may be higher or lower than current market rates for fixed-rate debt
obligations of comparable quality with similar maturities.
INTEREST RATE SWAP (OR EXCHANGE) AGREEMENTS. The indentures governing the
Debt Obligations may permit an issuer of Debt Obligations to enter into interest
rate swap (or exchange) agreements ('Swap Agreements') with another party (each
such counterparty a 'Swap Counterparty'). Under a Swap Agreement, the Swap
Counterparty will agree to pay the trustee of any affected Debt Obligation on
each interest payment date a fixed
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interest rate on the notional amount outstanding and the issuer will agree to
pay on each interest payment date, by causing the trustee to pay, the Swap
Counterparty a variable interest rate. The payment obligations of the issuer and
the Swap Counterparty to each other will be netted on each interest payment date
and only one payment will be made by one party to the other. At such times that
the fixed interest rate being paid by the Swap Counterparty is greater than the
variable interest rate, the ability of the trustee of any affected Debt
Obligation to make interest payments on the Debt Obligation will be affected by
the Swap Counterparty's ability to meet its net payment obligation to the
trustee. Typically, there is a provision for minimum rating of long-term
obligations of the Swap Counterparty. Any interest rate swap or exchange
agreement is subject to a determination by the relevant rating agency or
agencies that there is no adverse impact on rating of the Debt Obligations.
However, the issuer must have received written confirmation from the relevant
rating agency or agencies that the execution and delivery of such agreement will
not result in the lowering or withdrawal of any rating assigned to any of the
Debt Obligations. The Swap Counterparty to the Swap Agreement will be selected
by the issuer prior to the issuance of the Debt Obligations from a list of
potential counterparties approved by the issuer.
As set forth under Investment Summary in Part A, the Fund may contain or be
concentrated in one or more of the classifications of Debt Obligations referred
to below. An investment in Units of the Fund should be made with an
understanding of the risks which these investments may entail, certain of which
are described below.
GENERAL OBLIGATION BONDS
Certain of the Debt Obligations in the Portfolio may be general obligations
of a governmental entity that are secured by the taxing power of the entity.
General obligation bonds are backed by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. However, the
taxing power of any governmental entity may be limited by provisions of state
constitutions or laws and an entity's credit will depend on many factors,
including an erosion of the tax base due to population declines, natural
disasters, declines in the state's industrial base or inability to attract new
industries, economic limits on the ability to tax without eroding the tax base
and the extent to which the entity relies on Federal or state aid, access to
capital markets or other factors beyond the entity's control.
As a result of the recent recession's adverse impact upon both their
revenues and expenditures, as well as other factors, many state and local
governments are confronting deficits and potential deficits which are the most
severe in recent years. Many issuers are facing highly difficult choices about
significant tax increases and/or spending reductions in order to restore
budgetary balance. Failure to implement these actions on a timely basis could
force the issuers to depend upon market access to finance deficits and/or cash
flow needs.
In addition, certain of the Debt Obligations in the Fund may be obligations
of issuers (including California issuers) who rely in whole or in part on ad
valorem real property taxes as a source of revenue. Certain proposals, in the
form of state legislative proposals or voter initiatives, to limit ad valorem
real property taxes have been introduced in various states and an amendment to
the constitution of the state of California, commonly referred to as
'Proposition 13', provided for strict limitations on ad valorem real property
taxes and has had a significant impact on the taxing powers of local governments
and on the financial conditions of school districts and local governments in
California. It is not possible at this time to predict the final impact of
Proposition 13, or of similar future legislative or constitutional measures, on
school districts and local governments or on their abilities to make future
payments on their outstanding debt obligations.
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MORAL OBLIGATION BONDS
The Fund may also include 'moral obligation' bonds. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of the bonds
becomes a moral commitment but not a legal obligation of the state or
municipality in question. Even though the state may be called on to restore any
deficits in capital reserve funds of the agencies or authorities which issued
the bonds, any restoration generally requires appropriation by the state
legislature and accordingly does not constitute a legally enforceable obligation
or debt of the state. The agencies or authorities generally have no taxing
power.
REFUNDED DEBT OBLIGATIONS
Refunded Debt Obligations are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date. In
a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
INDUSTRIAL DEVELOPMENT REVENUE BONDS ('IDRS')
IDRs, including pollution control revenue bonds, are tax-exempt securities
issued by states, municipalities, public authorities or similar entities
('issuers') to finance the cost of acquiring, constructing or improving various
projects, including pollution control facilities and certain industrial
development facilities. These projects are usually operated by corporate
entities. IDRs are not general obligations of governmental entities backed by
their taxing power. Issuers are only obligated to pay amounts due on the IDRs to
the extent that funds are available from the unexpended proceeds of the IDRs or
receipts or revenues of the issuer under arrangements between the issuer and the
corporate operator of a project. These arrangements may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan agreement,
but in each case the payments to the issuer are designed to be sufficient to
meet the payments of amounts due on the IDRs.
IDRs are generally issued under bond resolutions, agreements or trust
indentures pursuant to which the revenues and receipts payable under the
issuer's arrangements with the corporate operator of a particular project have
been assigned and pledged to the holders of the IDRs or a trustee for the
benefit of the holders of the IDRs. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the IDRs or a trustee as
additional security for the IDRs. In addition, IDRs are frequently directly
guaranteed by the corporate operator of the project or by another affiliated
company. Regardless of the structure, payment of IDRs is solely dependent upon
the creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors that are industrial companies may
be affected by many factors which may have an adverse impact on the credit
quality of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions, litigation
resulting from accidents or environmentally-caused illnesses, extensive
competition (including that of low-cost foreign companies), unfunded pension
fund liabilities or off-balance sheet items, and financial deterioration
resulting from leveraged buy-outs or takeovers. In certain cases, the different
industry groups on behalf of which the IDRs in the Portfolio are issued may be
set forth under the Investment Summary. In addition, as discussed below, certain
of the IDRs in the Portfolio may be additionally insured or secured by letters
of credit issued by banks or otherwise guaranteed or secured to cover amounts
due on the IDRs in the event of default in payment by an issuer.
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STATE AND LOCAL MUNICIPAL UTILITY OBLIGATIONS
The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction, (f)
problems of cost and availability of fuel, (g) compliance with rapidly changing
and complex environmental, safety and licensing requirements, (h) litigation and
proposed legislation designed to delay or prevent construction of generating and
other facilities, (i) the uncertain effects of conservation on the use of
electric energy, (j) uncertainties associated with the development of a national
energy policy, (k) regulatory, political and consumer resistance to rate
increases and (l) increased competition as a result of the availability of other
energy sources. These factors may delay the construction and increase the cost
of new facilities, limit the use of, or necessitate costly modifications to,
existing facilities, impair the access of electric utilities to credit markets,
or substantially increase the cost of credit for electric generating facilities.
In addition, there are various proposals for a new energy tax before Congress.
The Sponsors cannot predict at this time the ultimate effect of such factors on
the ability of any issuers to meet their obligations with respect to Debt
Obligations.
The National Energy Policy Act ('NEPA'), which became law in October, 1992,
makes it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to provide
electricity to retail customers (particularly industrial retail customers) of a
utility. However, under NEPA, a state can mandate retail wheeling under certain
conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the '1990 Amendments'). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ('EPA') must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two phases.
Phase I addresses specific generating units named in the 1990 Amendments. In
Phase II the total U.S. emissions will be capped at 8.9 million tons by the year
2000. The 1990 Amendments contain provisions for allocating allowances to power
plants based on historical or calculated levels. An allowance is defined as the
authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be conducted over the next three to four years
with respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
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Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the recovery
of replacement power costs. Risks of substantial liability also arise from the
operation of nuclear facilities and from the use, handling, and possible
radioactive emissions associated with nuclear fuel. Insurance may not cover all
types or amounts of loss which may be experienced in connection with the
ownership and operation of a nuclear plant and severe financial consequences
could result from a significant accident or occurrence. The Nuclear Regulatory
Commission (the 'NRC') has promulgated regulations mandating the establishment
of funded reserves to assure financial capability for the eventual
decommissioning of licensed nuclear facilities. These funds are to be accrued
from revenues in amounts currently estimated to be sufficient to pay for
decommissioning costs.
Certain of the problems related to electric utilities particularly affect
the bonds of Washington Public Power Supply System ('WPPSS'). The percentage of
any WPPSS obligations in the Portfolio is set forth under Investment Summary in
Part A. These Debt Obligations were issued to help finance construction of WPPSS
nuclear plant Project Nos. 4 and 5. On July 22, 1983, WPPSS declared that it was
unable to pay principal and interest on bonds issued to finance nuclear Project
Nos. 4 and 5. As a result of the default, interest on any Project Nos. 4 and 5
bonds in the Portfolio has not been accrued since 1983 in computing the sale,
redemption and repurchase prices of the Units, and the semiannual interest
payments due January 1, 1984 and thereafter on Project Nos. 4 and 5 bonds were
not made to bondholders (including the Fund). The following information is based
on official statements, annual reports to bondholders by Chemical Bank, the bond
trustee, and certain subsequent news reports as well as pleadings and decisions
in various court cases.
Following rapidly escalating construction costs and forecasts of a
reduction in the need for additional power production, WPPSS terminated
construction of Project Nos. 4 and 5 in January 1982. Debt service on the $2.25
billion face amount of WPPSS bonds outstanding for these projects was payable
through revenues received by WPPSS pursuant to agreements (the 'Participants'
Agreements') with 88 municipal corporations and cooperatives (the
'Participants'). Under such Participants' Agreements, the Participants were
obligated to pay their respective shares of the debt service on the bonds,
whether or not the projects were ever completed or put into operation ('take or
pay' obligations). On June 15, 1983, the Supreme Court of Washington determined
that certain of the Participants located in Washington (holding shares
representing approximately one-half of the projects) lacked the authority to
enter into the Participants' Agreements and therefore could not be bound by the
take or pay obligations contained in such Agreements. On August 9, 1983, a
Washington Superior Court Judge ruled that the Participants' Agreements were
unenforceable as to the remaining Participants which were not covered by the
June 15 decision.
On August 3, 1983, Chemical Bank, the bond trustee, filed suit in Federal
court in Seattle, Washington, charging WPPSS, the Participants, the 23 utilities
which originally formed WPPSS and various individuals
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including former members of WPPSS' board of directors, with fraud and negligence
in connection with the issuance of the bonds for Project Nos. 4 and 5.
A number of class action lawsuits were filed by and on behalf of purchasers
of WPPSS Project Nos. 4 and 5 bonds. The suits alleged various Federal
securities law violations and sought recovery for damages caused by such
violations. Defendants named in the various lawsuits included WPPSS, the
Participants, certain engineering firms and consultants for WPPSS, several law
firms and securities rating services as well as underwriting firms including
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Prudential-Bache
Securities Inc.
The class actions were consolidated as In re Washington Public Power Supply
System Securities Litigation, MDL 551 ('MDL 551'). The Chemical Bank action and
MDL 551 were consolidated for discovery purposes and for trial. Settlement
agreements providing for the payment of more than $686,000,000 were reached with
the defendants and approved by the district court. On February 4, 1992 the court
of appeals affirmed the district court's approval of the settlement agreements
in all respects and also affirmed the district courts' September 16, 1990
approval of a plan for allocation of the settlement proceeds.
On November 3, 1992, the court authorized a partial distribution of the
settlement funds to the eligible claimants (including the Trustee). In
mid-November 1992, the Trustee received checks equal to substantially all of its
portion of the partial distribution. Distributions of the remaining settlement
funds and any interest are expected to occur upon the resolution of any disputed
claims, a determination of what taxes are payable to the Internal Revenue
Service and the amount of the fee award to class plaintiffs' counsel and other
entities and a completion of all procedural tasks regarding the court's
dismissal of the remaining appeals. Therefore, the Trustee cannot predict when
it will receive the distribution of the remaining settlement funds.
Because it is unclear whether certain former or current unitholders are
entitled to the recovery, the Trustee cannot at this time make any distribution
of the settlement proceeds. The Trustee has brought an action in Federal court
in New York to obtain a judicial determination of which class of unitholders
should receive the settlement proceeds. The court has been asked to determine if
the settlement proceeds should be distributed (a) to some or all of those
persons who purchased units prior to June 15, 1983 when the contracts that
provided for payment of the Bonds were declared invalid or (b) to those persons
who held units when the settlement proceeds were received by the Trustee. It is
difficult to estimate how long the court process will take, but during this
judicial proceeding the settlement proceeds are being held and invested by the
Trustee as agent of the court.
The settlement proceeds received by the Trustee were not deposited in the
Trust and therefore the net asset value of the Trust's units does not include
any amount reflecting any part of the settlement proceeds. If the settlement
proceeds are ultimately distributed by the court to unitholders of record as of
a date following the sale or redemption by a unitholder of his or her units,
this former unitholder will probably have given up his or her right to a share
of the settlement proceeds, regardless of when the units were purchased. In
contrast, if the settlement proceeds are allocated by the court to unitholders
who purchased or held units during an earlier period, a unitholder's subsequent
sale of units will not affect any right to share in the settlement proceeds so
long as the unitholder purchased or held units during the appropriate period.
On March 9, 1993, the Trustee received a distribution in partial payment of
principal and interest on the WPPSS bonds from Chemical Bank, the bond trustee,
to the extent that Bonds were still held in the Trust. The Trustee distributed
such partial payment to unitholders of record on March 9, 1993. This
distribution was not related to or dependent upon the judicial proceeding
regarding the settlement proceeds from the class action
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lawsuits discussed above and reflected amounts in the WPPSS bond fund held by
Chemical Bank for the benefit of current WPPSS bond holders under the WPPSS bond
indenture. It is not known when Chemical Bank will make any further
distributions from the bond fund.
Assuming the market value of the Bonds in the portfolio accurately reflects
the value of any future distributions from Chemical Bank, a unitholder should
receive substantially the same amount if a unitholder sells his or her units
prior to the record date for any future Chemical Bank distribution. However,
there can be no assurance that the market value of these Bonds will accurately
reflect these distributions because of the uncertainty of the amount that will
be distributed and when it will be distributed.
Standard & Poor's Corporation ('Standard & Poor's') downgraded its ratings
of bonds for Project Nos. 4 and 5 to 'D' on August 24, 1983, and Moody's
Investors Service ('Moody's') has withdrawn its ratings of these bonds.
LEASE RENTAL OBLIGATIONS
Lease rental obligations are issued for the most part by governmental
authorities that have no taxing power or other means of directly raising
revenues. Rather, the authorities are financing vehicles created solely for the
construction of buildings (administrative offices, convention centers and
prisons, for example) or the purchase of equipment (police cars and computer
systems, for example) that will be used by a state or local government (the
'lessee'). Thus, the obligations are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the obligations. Willingness to pay may be subject to changes in the
government officials' or citizens' views as to the essential nature of the
finance project. Lease rental obligations are subject, in almost all cases, to
the annual appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments beyond the current
fiscal year. These obligations are also subject to the risk of abatement in many
states--rental obligations cease in the event that damage, destruction or
condemnation of the project prevents its use by the lessee. (In these cases,
insurance provisions and reserve funds designed to alleviate this risk become
important credit factors). In the event of default by the lessee government,
there may be significant legal and/or practical difficulties involved in the
re-letting or sale of the project. Some of these issues, particularly those for
equipment purchase, contain the so-called 'substitution safeguard', which bars
the lessee government, in the event it defaults on its rental payments, from the
purchase or use of similar equipment for a certain period of time. This
safeguard is designed to insure that the lessee government will appropriate the
necessary funds even though it is not legally obligated to do so, but its
legality remains untested in most, if not all, states.
SINGLE FAMILY AND MULTI-FAMILY HOUSING OBLIGATIONS
Multi-family housing revenue bonds and single family mortgage revenue bonds
are state and local housing issues that have been issued to provide financing
for various housing projects. Multi-family housing revenue bonds are payable
primarily from the revenues derived from mortgage loans to housing projects for
low to moderate income families. Single-family mortgage revenue bonds are issued
for the purpose of acquiring from originating financial institutions notes
secured by mortgages on residences.
Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs as
well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage
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under these programs or any legal or administrative determinations that the
coverage of these programs is not available to a housing issuer, probably will
result in a decrease or elimination of subsidies available for payment of
amounts due on the issuer's obligations. The ability of housing issuers to make
debt service payments on their obligations will also be affected by various
economic and non-economic developments including, among other things, the
achievement and maintenance of sufficient occupancy levels and adequate rental
income in multi-family projects, the rate of default on mortgage loans
underlying single family issues and the ability of mortgage insurers to pay
claims, employment and income conditions prevailing in local markets, increases
in construction costs, taxes, utility costs and other operating expenses, the
managerial ability of project managers, changes in laws and governmental
regulations and economic trends generally in the localities in which the
projects are situated. Occupancy of multi-family housing projects may also be
adversely affected by high rent levels and income limitations imposed under
Federal, state or local programs.
All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Single-family issues are subject to mandatory
redemption in whole or in part from prepayments on underlying mortgage loans;
mortgage loans are frequently partially or completely prepaid prior to their
final stated maturities as a result of events such as declining interest rates,
sale of the mortgaged premises, default, condemnation or casualty loss.
Multi-family issues are characterized by mandatory redemption at par upon the
occurrence of monetary defaults or breaches of covenants by the project
operator. Additionally, housing obligations are generally subject to mandatory
partial redemption at par to the extent that proceeds from the sale of the
obligations are not allocated within a stated period (which may be within a year
of the date of issue). To the extent that these obligations were valued at a
premium when a Holder purchased Units, any prepayment at par would result in a
loss of capital to the Holder and, in any event, reduce the amount of income
that would otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends on
qualification under Section 143 of the Internal Revenue Code of 1986, as amended
(the 'Code'), in the case of single family mortgage revenue bonds or Section
142(a)(7) of the Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8 assisted bonds). These
sections of the Code or other provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage revenue
bonds and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing revenue bonds. While the issuers of the
bonds and other parties, including the originators and servicers of the
single-family mortgages and the owners of the rental projects financed with the
multi-family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure that
these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
from the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Furthermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.
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HOSPITAL AND HEALTH CARE FACILITY OBLIGATIONS
The ability of hospitals and other health care facilities to meet their
obligations with respect to revenue bonds issued on their behalf is dependent on
various factors, including the level of payments received from private
third-party payors and government programs and the cost of providing health care
services.
A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government programs
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially decrease the rate of program payments for health care facilities.
There can be no assurance that payments under governmental programs will remain
at levels comparable to present levels or will, in the future, be sufficient to
cover the costs allocable to patients participating in such programs. In
addition, there can be no assurance that a particular hospital or other health
care facility will continue to meet the requirements for participation in such
programs.
The costs of providing health care services are subject to increase as a
result of, among other factors, changes in medical technology and increased
labor costs. In addition, health care facility construction and operation is
subject to federal, state and local regulation relating to the adequacy of
medical care, equipment, personnel, operating policies and procedures,
rate-setting, and compliance with building codes and environmental laws.
Facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with the various standards necessary
for licensing and accreditation. These regulatory requirements are subject to
change and, to comply, it may be necessary for a hospital or other health care
facility to incur substantial capital expenditures or increased operating
expenses to effect changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or that
insurance coverage will be available to a facility. In addition, a substantial
increase in the cost of insurance could adversely affect the results of
operations of a hospital or other health care facility. The Clinton
Administration may impose regulations which could limit price increases for
hospitals, the level of reimbursements for third-party payors or other measures
to reduce health care costs and make health care available to more individuals,
which would reduce profits for hospitals. Some states, such as New Jersey, have
significantly changed their reimbursement systems. If a hospital cannot adjust
to the new system by reducing expenses or raising rates, financial difficulties
may arise. Also, Blue Cross has denied reimbursement for some hospitals for
services other than emergency room services. The lost volume would reduce
revenue unless replacement patients were found.
Certain hospital bonds may provide for redemption at par at any time upon
the sale by the issuer of the hospital facilities to a non-affiliated entity, if
the hospital becomes subject to ad valorem taxation, or in various other
circumstances. For example, certain hospitals may have the right to call bonds
at par if the hospital may be legally required because of the bonds to perform
procedures against specified religious principles or to disclose information
that it considers confidential or privileged. Certain FHA-insured bonds may
provide that all or a portion of those bonds, otherwise callable at a premium,
can be called at par in certain circumstances. If a hospital defaults upon a
bond obligation, the realization of Medicare and Medicaid receivables may be
uncertain and, if the bond obligation is secured by the hospital facilities,
legal restrictions on the ability to foreclose upon
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the facilities and the limited alternative uses to which a hospital can be put
may severely reduce its collateral value.
The Internal Revenue service is currently engaged in a program of intensive
audits of certain tax-exempt hospital and health care facility organizations.
Although these audits have not yet been completed, it has been reported that the
tax-exempt status of some of these organizations will be revoked. At this time,
it is uncertain whether any of the hospital and health care facility obligations
held by the Fund will be affected by such audit proceedings.
AIRPORT, PORT AND HIGHWAY REVENUE OBLIGATIONS
Certain facility revenue bonds are payable from and secured by the revenues
from the ownership and operation of particular facilities, such as airports
(including airport terminals and maintenance facilities), bridges, marine
terminals, turnpikes and port authorities. For example, the major portion of
gross airport operating income is generally derived from fees received from
signatory airlines pursuant to use agreements which consist of annual payments
for airport use, occupancy of certain terminal space, facilities, service fees,
concessions and leases. Airport operating income may therefore be affected by
the ability of the airlines to meet their obligations under the use agreements.
The air transport industry is experiencing significant variations in earnings
and traffic, due to increased competition, excess capacity, increased aviation
fuel and other costs, deregulation, traffic constraints, the current recession
and other factors. As a result, several airlines are experiencing severe
financial difficulties. Several airlines including Trans World Airlines, Inc.
and America West Airlines have sought protection from their creditors under
Chapter 11 of the Bankruptcy Code. In addition, other airlines such as Eastern
Airlines, Inc., Midway Airlines, Inc. and Pan American Corporation have been
liquidated. The Sponsors cannot predict what effect these industry conditions
may have on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport facility.
Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports, tolls on turnpikes and
bridges and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors and increased cost of maintenance
or decreased use of a facility, lower cost of alternative modes of
transportation or scarcity of fuel and reduction or loss of rents.
SOLID WASTE DISPOSAL BONDS
Bonds issued for solid water disposal facilities are generally payable from
tipping fees and from revenues that may be earned by the facility on the sale of
electrical energy generated in the combustion of waste products. The ability of
solid waste disposal facilities to meet their obligations depends upon the
continued use of the facility, the successful and efficient operation of the
facility and, in the case of waste-to-energy facilities, the continued ability
of the facility to generate electricity on a commercial basis. All of these
factors may be affected by a failure of municipalities to fully utilize the
facilities, an insufficient supply of waste for disposal due to economic or
population decline, rising construction and maintenance costs, any delays in
construction of facilities, lower-cost alternative modes of waste processing and
changes in environmental regulations. Because of the relatively short history of
this type of financing, there may be technological risks involved in the
satisfactory construction or operation of the projects exceeding those
associated with most municipal enterprise projects. Increasing environmental
regulation on the federal, state and local level has a significant impact on
waste disposal facilities. While regulation requires more waste producers to use
waste disposal facilities, it also imposes significant costs on the facilities.
These costs include compliance with frequently changing and complex regulatory
requirements, the
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cost of obtaining construction and operating permits, the cost of conforming to
prescribed and changing equipment standards and required methods of operation
and, for incinerators or waste-to-energy facilities, the cost of disposing of
the waste residue that remains after the disposal process in an environmentally
safe manner. In addition, waste disposal facilities frequently face substantial
opposition by environmental groups and officials to their location and
operation, to the possible adverse effects upon the public health and the
environment that may be caused by wastes disposed of at the facilities and to
alleged improper operating procedures. Waste disposal facilities benefit from
laws which require waste to be disposed of in a certain manner but any
relaxation of these laws could cause a decline in demand for the facilities'
services. Finally, waste-to-energy facilities are concerned with many of the
same issues facing utilities insofar as they derive revenues from the sale of
energy to local power utilities (see State and Local Municipal Utility
Obligations above).
SPECIAL TAX BONDS
Special tax bonds are payable from and secured by the revenues derived by a
municipality from a particular tax such as a tax on the rental of a hotel room,
on the purchase of food and beverages, on the rental of automobiles or on the
consumption of liquor. Special tax bonds are not secured by the general tax
revenues of the municipality, and they do not represent general obligations of
the municipality. Therefore, payment on special tax bonds may be adversely
affected by a reduction in revenues realized from the underlying special tax due
to a general decline in the local economy or population or due to a decline in
the consumption, use or cost of the goods and services that are subject to
taxation. Also, should spending on the particular goods or services that are
subject to the special tax decline, the municipality may be under no obligation
to increase the rate of the special tax to ensure that sufficient revenues are
raised from the shrinking taxable base.
TRANSIT AUTHORITY OBLIGATIONS
Mass transit is generally not self-supporting from fare revenues.
Therefore, additional financial resources must be made available to ensure
operation of mass transit systems as well as the timely payment of debt service.
Often such financial resources include Federal and state subsidies, lease
rentals paid by funds of the state or local government or a pledge of a special
tax such as a sales tax or a property tax. If fare revenues or the additional
financial resources do not increase appropriately to pay for rising operating
expenses, the ability of the issuer to adequately service the debt may be
adversely affected.
MUNICIPAL WATER AND SEWER REVENUE BONDS
Water and sewer bonds are generally payable from user fees. The ability of
state and local water and sewer authorities to meet their obligations may be
affected by failure of municipalities to utilize fully the facilities
constructed by these authorities, economic or population decline and resulting
decline in revenue from user charges, rising construction and maintenance costs
and delays in construction of facilities, impact of environmental requirements,
failure or inability to raise user charges in response to increased costs, the
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs and the impact of 'no growth' zoning ordinances. In
some cases this ability may be affected by the continued availability of Federal
and state financial assistance and of municipal bond insurance for future bond
issues.
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UNIVERSITY AND COLLEGE OBLIGATIONS
The ability of universities and colleges to meet their obligations is
dependent upon various factors, including the size and diversity of their
sources of revenues, enrollment, reputation, management expertise, the
availability and restrictions on the use of endowments and other funds, the
quality and maintenance costs of campus facilities, and, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.
Legislative or regulatory action in the future at the Federal, state or
local level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.
PUERTO RICO
The Portfolio may contain Debt Obligations of issuers which will be
affected by general economic conditions in Puerto Rico. Puerto Rico's
unemployment rate remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated.
The Puerto Rican economy is affected by a number of Commonwealth and
Federal investment incentive programs. For example, Section 936 of the Internal
Revenue Code (the 'Code') provides for a credit against Federal income taxes for
U.S. companies operating on the island if certain requirements are met. From
time to time proposals are introduced in Congress which, if enacted into law,
would eliminate some or all of the benefits of Section 936. Although no
assessment can be made at this time of the precise effect of the elimination or
limitation of any of these programs, it is expected that the elimination of
Section 936 would have a strongly negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on Federal
programs, and current Federal budgetary policies suggest that an expansion of
aid to Puerto Rico is unlikely. 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.
Congress is currently considering legislation which provides for a
referendum in which the Puerto Rican electorate would decide whether Puerto Rico
continues in its current Commonwealth status, becomes a state or gains
independence from the United States. Previously proposed legislation, which was
not enacted, would have preserved the federal tax exempt status of the
outstanding debts of Puerto Rico and its public corporations regardless of the
outcome of the referendum, to the extent that similar obligations issued by
states are so treated and subject to the provisions of the Code currently in
effect. There can be no assurance that any pending or future legislation finally
enacted will include the same or similar protection against loss of tax
exemption. Depending on its result, such a referendum can be expected to have
both direct and indirect consequences on such matters as the basic
characteristics of future Puerto Rico debt obligations, the markets for these
obligations, and the types, levels and quality of revenue sources pledged for
the payment of existing and future debt obligations, including, without
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limitation, the status of Section 936 benefits that Puerto Rico enjoys under the
existing Code. However, no assessment can be made at this time of the economic
and other effects of a change in federal laws affecting Puerto Rico as a result
of a change in status.
INSURED OBLIGATIONS
Certain Debt Obligations (the 'Insured Debt Obligations') may be insured or
guaranteed by Asset Guaranty Reinsurance Company ('Asset Guaranty') AMBAC
Indemnity Corporation ('AMBAC'), Bond Investors Guaranty Insurance Company
('BIG'), Capital Markets Assurance Corp. ('CAPMAC'), Capital Guaranty Insurance
Company ('CGIC'), Connie Lee Insurance Company ('Connie Lee'), Continental
Casualty Company ('Continental'), Financial Guaranty Insurance Company
('Financial Guaranty'), Financial Security Assurance Inc. ('FSA'), Firemen's
Insurance Company of Newark, New Jersey ('Firemen's'), Industrial Indemnity
Insurance Company ('IIC') (which operates the Health Industry Bond Insurance
('HIBI') Program), Municipal Bond Investors Assurance Corporation ('MBIA Corp.')
or National Union Fire Insurance Company of Pittsburgh, Pa. ('National Union')
(collectively the 'Insurance Companies').
The Portfolios of certain Insured Series contain Portfolios consisting
entirely of insured Debt Obligations that are rated AAA by Standard & Poor's
because the Insurance Companies have insured the Debt Obligations. The
assignment of such AAA ratings is due to Standard & Poor's assessment of the
creditworthiness of the Insurance Companies and of their ability to pay claims
on their policies of insurance. In the event that Standard & Poor's reassesses
the creditworthiness of any Insurance Company which would result in the Fund's
rating being reduced, the Sponsors are authorized to direct the Trustee to
obtain other insurance. The claims-paying ability of each of the Insurance
Companies, unless otherwise indicated, is rated AAA by Standard & Poor's or
another acceptable national rating service. The ratings are subject to change at
any time at the discretion of the rating agencies. In determining whether to
insure bonds, the Insurance Companies severally apply their own standards. The
cost of this insurance (except the portfolio insurance referred to below) is
borne by either the issuers or previous owners of the bonds or by the Sponsors.
The insurance policies are non-cancellable and, except in the case of any
portfolio insurance, will continue in force so long as the insured Debt
Obligations are outstanding and the insurers remain in business. The insurance
policies guarantee the timely payment of principal and interest on but do not
guarantee the market value of the insured Debt Obligations or the value of the
Units. The insurance policies generally do not provide for accelerated payments
of principal or, except in the case of any portfolio insurance policies, cover
redemptions resulting from events of taxability. If the issuer of any Insured
Debt Obligation should fail to make an interest or principal payment, the
insurance policies generally provide that the Trustee or its agent shall give
notice of nonpayment to the Insurance Company or its agent and provide evidence
of the Trustee's right to receive payment. The Insurance Company is then
required to disburse the amount of the failed payment to the Trustee or its
agent and is thereafter subrogated to the Trustee's right to receive payment
from the issuer.
Certain Debt Obligations may be entitled to portfolio insurance ('Portfolio
Insurance') that guarantees the scheduled payment of the principal of and
interest on those Debt Obligations ('Portfolio-Insured Debt Obligations') while
they are retained in the Fund. Since the Portfolio Insurance applies to Debt
Obligations only while they are retained in the Fund, the value of
Portfolio-Insured Debt Obligations (and hence the value of the Units) may
decline if the credit quality of any Portfolio-Insured Debt Obligation is
reduced. Premiums for Portfolio Insurance are payable monthly in advance by the
Trustee on behalf of the Fund.
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As Portfolio-Insured Debt Obligations are redeemed by their respective
issuers or are sold by the Trustee, the amount of the premium payable for the
Portfolio Insurance will be correspondingly reduced. Nonpayment of premiums on
any policy obtained by the Fund will not result in the cancellation of insurance
but will permit the portfolio insurer to take action against the Trustee to
recover premium payments due it. Upon the sale of a Portfolio-Insured Debt
Obligation from the Fund, the Trustee has the right, pursuant to an irrevocable
commitment obtained from the portfolio insurer, to obtain insurance to maturity
('Permanent Insurance') on the Debt Obligation upon the payment of a single
predetermined insurance premium from the proceeds of the sale. It is expected
that the Trustee will exercise the right to obtain Permanent Insurance only if
the Fund would receive net proceeds from the sale of the Debt Obligation (sale
proceeds less the insurance premium attributable to the Permanent Insurance) in
excess of the sale proceeds that would be received if the Debt Obligations were
sold on an uninsured basis. The premiums for Permanent Insurance for each
Portfolio-Insured Debt Obligation will decline over the life of the Debt
Obligation.
The Public Offering Price does not reflect any element of value for
Portfolio Insurance. The Evaluator will attribute a value to the Portfolio
Insurance (including the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units only if the Portfolio-Insured
Debt Obligations are in default in payment of principal or interest or, in the
opinion of the Agent for the Sponsors, in significant risk of default. In making
this determination the Agent for the Sponsors has established as a general
standard that a Portfolio-Insured Debt Obligation which is rated less than BB by
Standard & Poor's or Ba by Moody's will be deemed in significant risk of default
although the Agent for the Sponsors retains the discretion to conclude that a
Portfolio-Insured Debt Obligation is in significant risk of default even though
at the time it has a higher rating, or not to reach that conclusion even if it
has a lower rating (see Description of Ratings). The value of the insurance will
be equal to the difference between (i) the market value of the Portfolio-Insured
Debt Obligation assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance)
and (ii) the market value of the Portfolio-Insured Debt Obligation not covered
by Permanent Insurance.
In addition, certain Funds may contain Debt Obligations that are insured to
maturity as well as being Portfolio-Insured Debt Obligations. The following are
brief descriptions of certain of the insurance companies that may insure or
guarantee certain Debt Obligations. The financial information presented for each
company has been determined on a statutory basis and is unaudited.
AMBAC is a Wisconsin-domiciled stock insurance company, regulated by the
Insurance Department of the State of Wisconsin, and licensed to do business in
various states, with admitted assets of approximately $1,598,000,000 and
policyholders' surplus of approximately $604,000,000 as of December 31, 1992.
AMBAC is a wholly-owned subsidiary of AMBAC Inc., a financial holding company
which is publicly owned following a complete divestiture by Citibank during the
first quarter of 1992.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset Guaranty
commenced operations in mid-1988 by providing reinsurance to several major
monoline insurers. The parent holding company of Asset Guaranty, Asset Guarantee
Inc. (AGI), merged with Enhance Financial Services (EFS) in June, 1990 to form
Enhance Financial Services Group Inc. (EFSG). The two main, 100%-owned
subsidiaries of EFSG, Asset Guaranty and Enhance Reinsurance Company, share
common management and physical resources. EFSG is 14% owned by Merrill Lynch &
Co., Inc. and its affiliates. Both EFSG and Asset Guaranty are rated 'AAA' for
claims paying ability by Duff & Phelps but are not
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rated by Standard & Poor's. As of December 31, 1992 Asset Guaranty had admitted
assets of $126,000,000 and policyholders' surplus of $71,000,000.
CAPMAC commenced operations in December 1987, as the second mono-line
financial guaranty insurance company (after FSA) organized solely to insure
non-municipal obligations. CAPMAC, a New York corporation, is a wholly-owned
subsidiary of CAPMAC Holdings, Inc. (CHI), which was sold in 1992 by Citibank
(New York State) to a group of 12 investors led by the following: Dillon Read's
Saratoga Partners II; L.P. (Saratoga), an acquisition fund; Caprock Management,
Inc., representing Rockefeller family interests; Citigrowth Fund, a Citicorp
venture capital group; and CAPMAC senior management and staff. These groups
control approximately 70% of the stock of CHI. CAPMAC had traditionally
specialized in guaranteeing consumer loan and trade receivable asset-backed
securities. Under the new ownership group CAPMAC intends to become involved in
the municipal bond insurance business, as well as their traditional
non-municipal business. As of December 31, 1992 CAPMAC's admitted assets were
approximately $173,000,000 and its policyholders' surplus was approximately
$148,000,000.
CGIC, a monoline bond insuror headquartered in San Francisco, California,
was established in November 1986 to assume the financial guaranty business of
United States Fidelity and Guaranty Company ('USF&G'). It is a wholly-owned
subsidiary of Capital Guaranty Corporation ('CGC') whose stock is owned by:
Constellation Investments, Inc., an affiliate of Baltimore Gas & Electric,
Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag Finance
Corporation, an affiliate of Siemens AG, and USF&G, the 8th largest
property/casualty company in the U.S. as measured by net premiums written. In
addition to initial paid-in capital of $100 million the ownership group, under a
binding agreement through October 1, 1993, is committed to provide another $100
million to CGC, if and when needed. As of December 31, 1992, CGIC had total
admitted assets of approximately $227,000,000 and policyholders' surplus of
approximately $116,000,000.
Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ('CCLIA'), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of
tax-exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan Marketing
Association ('Sallie Mae'), which owns 14%. The other principal owners are:
Pennsylvania Public School Employees' Retirement System, Metropolitan Life
Insurance Company, Kemper Financial Services, Johnson family funds and trusts,
Northwestern University, Rockefeller & Co., Inc. administered trusts and funds,
and Stanford University. Connie Lee is domiciled in the state of Wisconsin and
has licenses to do business in 47 states and the District of Columbia. As of
December 31, 1992, its total admitted assets were approximately $161,000,000 and
policyholders' surplus was approximately $101,000,000.
Continental is a wholly-owned subsidiary of CNA Financial Corp. and was
incorporated under the laws of Illinois in 1948. As of December 31, 1992,
Continental had policyholders' surplus of approximately $3,136,000,000 and
admitted assets of approximately $22,171,000,000. Continental is the lead
property-casualty company of a fleet of carriers nationally known as 'CNA
Insurance Companies'. CNA is rated AAI by Standard & Poor's.
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Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation which is wholly-owned by General Electric Capital
Corporation. The investors in the FGIC Corporation are not obligated to pay the
debts of or the claims against Financial Guaranty. Financial Guaranty commenced
its business of providing insurance and financial guarantees for a variety of
investment instruments in January 1984 and is currently authorized to provide
insurance in 49 states and the District of Columbia. It files reports with state
regulatory agencies and is subject to audit and review by those authorities. As
of December 31, 1992, its total admitted assets were approximately
$1,594,000,000 and its policyholders' surplus was approximately $621,000,000.
FSA is a monoline property and casualty insurance company incorporated in
New York in 1984. It is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd., which was acquired in December 1989 by US West, Inc.,
the regional Bell Telephone Company serving the Rocky Mountain and Pacific
Northwestern states. U.S. West is currently seeking to sell FSA. FSA is licensed
to engage in the surety business in 42 states and the District of Columbia. FSA
is engaged exclusively in the business of writing financial guaranty insurance,
on both tax-exempt and non-municipal securities. As of December 31, 1992, FSA
had policyholders' surplus of approximately $379,000,000 and total admitted
assets of approximately $739,000,000.
Firemen's, which was incorporated in New Jersey in 1855, is a wholly-owned
subsidiary of The Continental Corporation and a member of The Continental
Insurance Companies, a group of property and casualty insurance companies the
claims paying ability of which is rated AA-by Standard & Poor's. It provides
unconditional and non-cancellable insurance on industrial development revenue
bonds. As of December 31, 1992, the total admitted assets of Firemen's were
approximately $2,211,000,000 and its policyholders' surplus was approximately
$450,000,000.
MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company, The
Fund American Companies Inc., subsidiaries of CIGNA Corporation and Credit Local
de France, CAECL, S.A. These principal shareholders now own approximately 13% of
the outstanding common stock of MBIA Inc., following a series of four public
equity offerings over a five-year period. As of December 31, 1992, MBIA had
admitted assets of approximately $2,594,000,000 and policyholders' surplus of
approximately $896,000,000.
BIG, a stock insurance company incorporated in Illinois and now known as
'MBIA Insurance Corp. of Illinois', is a wholly-owned subsidiary of Bond
Investors Group, Inc., a Delaware insurance holding company. Effective December
31, 1989, MBIA Inc. acquired Bond Investors Group, Inc. On January 5, 1990, MBIA
acquired all of the outstanding stock of Bond Investors Group, Inc. Through a
reinsurance agreement, BIG has ceded all of its net insured risks, as well as
its unearned premium and contingency reserves to MBIA Corp. and MBIA Corp. has
reinsured BIG's net outstanding exposure. Neither MBIA Inc., nor Bond Investors
Group, Inc. or any of their shareholders are obligated to pay the debts of or
claims against MBIA Corp. or BIG.
IIC, which was incorporated in California in 1920, is a wholly-owned
subsidiary of Crum and Forster, Inc., a New Jersey holding company and a
wholly-owned subsidiary of Xerox Corporation. IIC is a property and casualty
insurer which, together with certain other wholly-owned insurance subsidiaries
of Crum and Forster, Inc., operates under a Reinsurance Participation Agreement
whereby all insurance written by these companies is pooled among them. As of
December 31, 1992 the total admitted assets and policyholders' surplus of IIC on
a consolidated-statutory basis were $1,733,000,000 and $215,000,000
respectively. Standard & Poor's has rated IIC's claims-paying ability A. Any
IIC/HIBI - rated Debt Obligations in an Insured Series are additionally insured
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for as long as they remain in the Fund and as long as IIC/HIBI's rating is below
AAA, in order to maintain the AAA-rating of Fund Units. The cost of any
additional insurance is paid by the Fund and such insurance would expire on the
sale or maturity of the Debt Obligation.
National Union is a stock insurance company incorporated in Pennsylvania
and a wholly-owned subsidiary of American International Group, Inc. National
Union was organized in 1901 and is currently licensed to provide insurance in 50
states and the District of Columbia. It files reports with state insurance
regulatory agencies and is subject to regulation, audit and review by those
authorities including the State of New York Insurance Department. As of December
31, 1992, the total admitted assets and policyholders' surplus of National Union
were approximately $7,593,000,000 and approximately $1,401,000,000,
respectively.
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. Regulatory
agencies require that premium rates not be excessive, inadequate or unfairly
discriminatory. Insurance regulation in many states also includes 'assigned
risk' plans, reinsurance facilities, and joint underwriting associations, under
which all insurers writing particular lines of insurance within the jurisdiction
must accept, for one or more of those lines, risks unable to secure coverage in
voluntary markets. 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 can significantly impact the insurance business.
Current and proposed Federal measures which may significantly affect the
insurance business include pension regulation (ERISA), controls on medical care
costs, minimum standards for no-fault automobile insurance, national health
insurance, personal privacy protection, tax law changes affecting life insurance
companies or the relative desirability of various personal investment vehicles
and repeal of the current antitrust exemption for the insurance business. (If
this exemption is eliminated, it will substantially affect the way premium rates
are set by all property-liability insurers.) 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
redefinitions of 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 opportunities for business growth. 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
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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.
The above financial information relating to the Insurance Companies has
been obtained from publicly available information. No representation is made as
to the accuracy or adequacy of the information or as to the absence of material
adverse changes since the information was made available to the public.
OBLIGATIONS BACKED BY LETTERS OF CREDIT, GUARANTEES OR REPURCHASE COMMITMENTS
Certain Debt Obligations may be secured by letters of credit or guarantees
issued by commercial banks, by collateralized letters of credit or guarantees
issued by savings banks, savings and loan associations and similar institutions
('thrifts'), or by direct obligations of banks or thrifts pursuant to
'loans-to-lenders' programs. Letters of credit and guarantees are irrevocable
obligations of the issuing institutions; they may be called upon, and the
related Debt Obligation consequently redeemed, should the issuer of the Debt
Obligation fail to make payments of amounts due, or default under its
reimbursement agreement with the issuer of the letter of credit or guarantee or,
in certain cases, in the event the interest on the Debt Obligation should be
deemed to be taxable and full payment of amounts due is not made by the issuer.
Certain of these letters of credit and guarantees may be secured by a security
interest in collateral (see Collateralized Obligations below).
Certain Intermediate Term and Put Series and certain other Series contain
Debt Obligations purchased from one or more commercial banks or thrifts or other
institutions ('Sellers') which have committed under certain circumstances
specified below to repurchase the Debt Obligations from the Fund ('Repurchase
Commitments'). The Debt Obligations in these Funds may be secured by one or more
Repurchase Commitments (see Investment Summary in Part A) which, in turn may be
backed by a letter of credit or secured by a security interest in collateral
(see Collateralized Obligations below.) A Seller may have committed to
repurchase from the Fund any Debt Obligations sold by it, within a specified
period after receiving notice from the Trustee, to the extent necessary to
satisfy redemptions of Units despite the market-making activity of the Sponsors
(a 'Liquidity Repurchase'). The required notice period may be 14 days (a '14 Day
Repurchase') or, if a repurchase date is set forth under Investment Summary in
Part A, the Trustee may at any time not later than two hours after the
Evaluation Time on the repurchase date (or if a repurchase date is not a
business day, on the first business day thereafter), deliver this notice to the
Seller. Additionally, if the Sponsors elect to remarket Units which have been
received at or before the Evaluation Time on any repurchase date (the 'Tendered
Units'), a Seller may have committed to repurchase from the Fund on the date 15
business days after that repurchase date, any Debt Obligations sold by the
Seller to the Fund in order to satisfy any tenders for redemption by the
Sponsors made within 10 business days after the Evaluation Time. A Seller may
also have made any of the following commitments: (i) to repurchase at any time
on 14 calendar days' notice any Debt Obligations if the issuer thereof shall
fail to make any payments of principal thereof and premium and interest thereon
(a 'Default Repurchase'); (ii) to repurchase any Debt Obligation on a fixed
disposition date (a 'Disposition Date') if the Trustee elects not to sell the
Debt Obligation in the open market (because a price in excess of its Put Price
(as defined under Investment Summary in Part A) cannot be obtained) on this date
(a 'Disposition Repurchase'); (iii) to repurchase at any time on 14 calendar
days' notice any Debt Obligation in the event that the interest thereon should
be deemed to be taxable (a 'Tax Repurchase'); and (iv) to repurchase immediately
all Debt Obligations if the Seller becomes or is deemed to be bankrupt or
insolvent (an 'Insolvency Repurchase'). (See Investment Summary in Part A.) Any
repurchase of a Debt Obligation will be at a price no lower than its original
purchase
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price to the Fund, plus accrued interest to the date of repurchase, plus any
further adjustments as described under Investment Summary in Part A.
Upon the sale of a Debt Obligation by the Fund to a third party prior to
its Disposition Date, any related Liquidity and Disposition Repurchase
commitments will be transferable, together with an interest in any collateral or
letter of credit backing the repurchase commitments and the Liquidity Repurchase
commitments will be exercisable by the buyer free from the restriction that the
annual repurchase right may only be exercised to meet redemptions of Units. Any
Default Repurchase, Tax Repurchase and Insolvency Repurchase commitments also
will not terminate upon disposition of the Debt Obligation by the Fund but will
be transferable, together with an interest in the collateral or letter of credit
backing the Repurchase Commitments or both, as the case may be.
A Seller's Repurchase Commitments apply only to Debt Obligations which it
has sold to the Fund; consequently, if a particular Seller fails to meet its
commitments, no recourse is available against any other Seller nor against the
collateral or letters of credit of any other Seller. Each Seller's Repurchase
Commitments relating to any Debt Obligation terminate (i) upon repurchase by the
Seller of the Debt Obligation, (ii) on the Disposition Date of the Debt
Obligation if its holder does not elect to have the Seller repurchase the Debt
Obligation on that date and (iii) in the event notice of redemption shall have
been given on or prior to the Disposition Date for the entire outstanding
principal amount of the Debt Obligation and that redemption or maturity of the
Debt Obligation occurs on or prior to the Disposition Date. On the scheduled
Disposition Date of a Debt Obligation, the Trustee will sell that Debt
Obligation in the open market if a price in excess of the Put Price as of the
Disposition Date can be obtained.
An investment in Units of a Fund containing any of these types of credit
supported Debt Obligations should be made with an understanding of the
characteristics of the commercial banking and thrift industries and of the risks
which an investment in Units may entail. Banks and thrifts are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged. The profitability of these industries is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. Also, general
economic conditions play an important part in the operations of this industry
and exposure to credit losses arising from possible financial difficulties of
borrowers might affect an institution's ability to meet its obligations. Since
the late 1980's the ratings of U.S. and foreign banks and holding companies have
been subject to extensive downgrades due primarily to deterioration in asset
quality and the attendant impact on earnings and capital adequacy. Major U.S.
banks, in particular, have suffered from a decline in asset quality in the areas
of loans to Lesser Developed Countries (LDC's), construction and commercial real
estate loans and lending to support Highly Leveraged Transactions (HLT's). LDC
loan problems have been addressed to some extent, although construction and
commercial real estate loans and HLT exposure remain areas of concern. The
Federal Deposit Insurance Corporation indicates that in 1990 168 federally
insured banks with an aggregate total of $15.7 billion in assets failed, and
that in 1991 124 federally insured banks with an aggregate total of $64.3
billion in assets failed. These factors also affect bank holding companies and
other financial institutions, which may not be as highly regulated as banks, and
may be more able to expand into other non-financial and non-traditional
businesses.
In December 1991 Congress passed and the President signed into law the
Federal Deposit Insurance Corporation Improvement Act of 1991 ('FDICIA') and the
Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of
1991. Those laws imposed many new limitations on the way in which
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banks, savings banks, and thrifts may conduct their business and mandated early
and aggressive regulatory intervention for unhealthy institutions. Periodic
efforts to introduce legislation broadening the ability of banks and thrifts to
compete with new products have not been successful, but if enacted could lead to
more failures as a result of increased competition and added risks. Failure to
enact such legislation, on the other hand, may lead to declining earnings and an
inability to compete with unregulated financial institutions. Efforts to expand
the ability of federal thrifts to branch on an interstate basis have been
initially successful through promulgation of regulations, but legislation to
liberalize interstate branching for banks has stalled in the Congress.
Consolidation is likely to continue in both cases. The Securities and Exchange
Commission ('SEC') is attempting to require the expanded use of market value
accounting by banks and thrifts, and adoption of such rules may result in
increased volatility in the reported health of the industry, and mandated
regulatory intervention to correct such problems.
In addition, historically, thrifts primarily financed residential and
commercial real estate by making fixed-rate mortgage loans and funded those
loans from various types of deposits. Thrifts were restricted as to the types of
accounts which could be offered and the rates that could be paid on those
accounts. During periods of high interest rates, large amounts of deposits were
withdrawn as depositors invested in Treasury bills and notes and in money market
funds which provided liquidity and high yields not subject to regulation. As a
result the cost of thrifts' funds exceeded income from mortgage loan portfolios
and other investments, and their financial positions were adversely affected.
Laws and regulations eliminating interest rate ceilings and restrictions on
types of accounts that may be offered by thrifts are designed to permit thrifts
to compete for deposits on the basis of current market rates and to improve
their financial positions. However, with respect to any Debt Obligations
included in the Fund that are secured by collateralized letters of credit,
guarantees or Repurchase Commitments of thrifts, the Sponsors believe that
investors in the Units should rely solely on the collateral securing the
performance of the thrifts' obligations with respect to those Debt Obligations
and not on the financial positions of the thrifts.
In certain cases, the Sponsors have agreed that the sole recourse in
connection with any default, including insolvency, by thrifts whose
collateralized letter of credit, guarantee or Repurchase Commitments may back
any of the Debt Obligations will be to exercise available remedies with respect
to the collateral pledged by the thrift; should the collateral be insufficient,
the Fund will, therefore, be unable to pursue any default judgment against that
thrift. Certain of these collateralized letters of credit, guarantees or
Repurchase Commitments may provide that they are to be called upon in the event
the thrift becomes or is deemed to be insolvent. Accordingly, investors should
recognize that they are subject to having the principal amount of their
investment represented by a Debt Obligation secured by a collateralized letter
of credit, guarantee or Repurchase Commitment returned prior to the termination
date of the Fund or the maturity or disposition dates of the Debt Obligations if
the thrift becomes or is deemed to be insolvent, as well as in any of the
situations outlined under Repurchase Commitments below.
The thrift industry has experienced severe strains as demonstrated by the
failure of numerous savings banks and savings and loan associations. One
consequence of this was the insolvency of the deposit insurance fund of the
Federal Savings and Loan Insurance Corporation ('FSLIC'). As a result, in 1989
Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act
('FIRREA') which significantly altered the legal rules and regulations governing
banks and thrifts. Among other things, FIRREA abolished the FSLIC and created a
new agency, the Resolution Trust Corporation ('RTC'), investing it with certain
of the FSLIC's powers. The balance of the FSLIC's powers were transferred to the
Federal Deposit Insurance Corporation ('FDIC'). Under FIRREA, as subsequently
amended in 1990, the RTC was normally to be appointed as receiver or conservator
of thrifts that failed between January 1, 1989 and October 1, 1993 if their
deposits, prior to FIRREA, were insured
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by the FSLIC. The FDIC is normally to be appointed as receiver or conservator
for all thrifts the deposits of which, before FIRREA, were insured by the FDIC,
and those thrifts the deposits of which, prior to FIRREA, were insured by the
FSLIC that fail on or after October 1, 1993.
FIRREA generally permits the FDIC or the RTC, as the case may be, to
prevent the exercise of a Seller's Insolvency Repurchase commitment and empowers
that agency to repudiate a Seller's contracts, including a Seller's other
Repurchase Commitments. FIRREA also creates a risk that damages against the FDIC
or RTC would be limited and that investors could be left without the full
protections afforded by the Repurchase Commitments and the Collateral.
Policy statements adopted by the FDIC and the RTC concerning collateralized
repurchase commitments have partially ameliorated these risks for the Funds.
According to these policy statements, the FDIC or the RTC, as conservator or
receiver, will not assert the position that it can repudiate the repurchase
commitments without the payment of damages from the collateral, and will instead
either (i) accelerate the collateralized repurchase commitments, in which event
payment will be made under the repurchase commitments to the extent of available
collateral, or (ii) enforce the repurchase commitments, except that any
insolvency clause would not be enforceable against the FDIC and the RTC. Should
the FDIC choose to accelerate, however, there is some question whether the
payment made would include interest on the defaulted Debt Obligations for the
period after the appointment of the receiver or conservator through the payment
date.
The RTC has also given similar comfort with respect to collateralized
letters of credit, but the FDIC has not done so at this time. Consequently,
there can be no assurance that collateralized letters of credit issued by
thrifts for which the FDIC would be the receiver or conservator appointed, as
described two paragraphs earlier, will be available in the event of the failure
of any such thrift. Absent legislation, the FDIC will serve as conservator or
receiver for all thrifts for which a conservator or receiver is appointed after
September 30, 1993.
Investors should realize that should the FDIC or the RTC make payment under
a letter of credit or Repurchase Commitment prior to the scheduled maturity or
disposition dates of the related Debt Obligation their investment will be
returned sooner than originally anticipated.
The possibility of such early payment has been increased significantly by
the enactment in December 1991 of FDICIA. FDICIA requires federal regulators of
insured banks, savings banks, and thrifts to act more quickly to address the
problems of undercapitalized institutions than previously, and specifies in more
detail the actions they must take. One such requirement virtually compels the
appointment of a receiver or conservator for any institution when its ratio of
tangible equity to total assets declines to two percent. Others force aggressive
intervention in the business of an institution at even earlier stages of
deterioration.
Certain letters of credit or guarantees backing Debt Obligations may have
been issued by a foreign bank or corporation or similar entity (a 'Foreign
Guarantee'). On the basis of information available to the Sponsors at the
present time no Foreign Guarantee is subject to exchange control restrictions
under existing law which would materially interfere with payments to the Fund
under the Foreign Guarantee. However, there can be no assurance that exchange
control regulations might not be adopted in the future which might affect
adversely the payments to the Fund. Nor are there any withholding taxes under
existing law applicable to payments made on any Foreign Guarantee. While there
can be no assurance that withholding taxes might not be imposed in the future,
provision is made in the instruments governing any Foreign Guarantee that, in
substance, to the extent permitted by applicable law, additional payments will
be made by the guarantor so that the total amount paid, after deduction
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of any applicable tax, will not be less than the amount then due and payable on
the Foreign Guarantee. The adoption of exchange control regulations and other
legal restrictions could have an adverse impact on the marketability of any Debt
Obligations backed by a Foreign Guarantee and on the ability of the Fund to
satisfy its obligation to redeem Units tendered to the Trustee for redemption
(see Redemption).
COLLATERALIZED OBLIGATIONS
Funds providing collateralized letters of credit, guarantees or Repurchase
Commitments have been structured so that, notwithstanding interest rate
fluctuations and any consequent changes in the financial positions of the
issuers thereof, investors in Units should in any event rely solely on the
collateral for their performance. The Sponsors have provided the
collateralization provisions to afford to Holders security which, in the opinion
of the Sponsors, is reasonably adequate to support the letters of credit,
guarantees or Repurchase Commitments without regard to the ability of the
issuers thereof to meet their obligations or to provide additional collateral if
called for. The types of 'Eligible Collateral' that initially may be pledged are
set forth below. Eligible Collateral may consist of mortgage-backed securities
issued by private parties and guaranteed as to full and timely payment of
interest and principal by the Government National Mortgage Association ('GNMA')
('GNMA Pass-Throughs') or by the Federal National Mortgage Association ('FNMA')
('FNMA Pass-Throughs'), mortgage-backed securities issued by the Federal Home
Loan Mortgage Corporation ('FHLMC') and guaranteed as to full and timely payment
of interest and full collection of principal by FHLMC ('FHLMC PCs'),
conventional, FHA insured, VA guaranteed and privately insured mortgages
('Mortgages'), debt obligations of states and their political subdivisions and
public authorities ('Municipal Obligations'), debt obligations of public
nongovernmental corporations rated at least A by Standard & Poor's (or another
acceptable rating agency at the time rating the Fund)('Corporate Obligations'),
U.S. Government Securities and cash. In addition, Eligible Collateral may also
consist of other securities specified by the Sponsors,and may also be deemed to
include the Portfolio Securities, provided that Standard & Poor's (or another
acceptable rating agency) confirms that the pledging of the other securities
will not result in the reduction of its rating then assigned to Units. Standard
& Poor's (or another acceptable rating agency) has no obligation to review or
approve any proposed additions to the types of Eligible Collateral and may, at
any time, change or withdraw any rating on Units. Additions to types of Eligible
Collateral and changes in collateral levels are permitted without the consent of
Holders of Units.
GNMA Pass-Throughs. GNMA is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. GNMA is authorized by
Section 306(g) of Title III of the National Housing Act to guarantee the timely
payment of the principal of, and interest on, certificates which are based on
and backed by pools of residential mortgage loans insured or guaranteed by the
Federal Housing Administration ('FHA'), the Farmers' Home Administration
('FMHA') or the Department of Veteran's Affairs ('VA'). The GNMA Pass-Throughs
will be of the 'modified pass-through' type, the terms of which provide for
timely monthly payments by the issuers to the registered holders of their pro
rata shares of the scheduled principal payments, whether or not collected by the
issuers, on account of the mortgages backing such GNMA Pass-Throughs, plus any
prepayment of principal of such mortgages received, and interest (net of the
servicing and other charges) on the aggregate unpaid principal balance of such
GNMA Pass-Throughs, whether or not interest on account of these mortgages has
been collected by the issuers. The GNMA Pass-Throughs will be guaranteed as to
timely payment of principal and interest by GNMA. The full faith and credit of
the United States is pledged to the payment of all amounts which may be required
to be paid under the guarantee.
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FNMA Pass-Throughs. FNMA Pass-Throughs are certificates of beneficial
interest evidencing pro rata undivided ownership interests in pools of
residential mortgages either previously owned by FNMA or purchased by it in
connection with the formation of a pool. FNMA guarantees the full and timely
payment of principal and interest (adjusted to the pass-through rate) on the
mortgage loans in the pool, whether or not received by FNMA or recovered by it
in foreclosure. If FNMA were unable to fulfill its guarantee, distributions to
holders of FNMA Pass-Throughs would consist solely of payments and other
recoveries upon the underlying mortgages, and, accordingly, delinquencies and
defaults would diminish distributions to the holders. The obligations of FNMA
under its guarantee are solely those of FNMA and are not backed by the full
faith and credit of the United States. Moreover, neither the United States nor
any of its agencies is obligated to finance the operations of FNMA or to assist
it.
FHLMC PCs. FHLMC PCs are certificates issued by FHLMC which represent
undivided interests in identified pools of residential mortgage loans purchased
by FHLMC. FHLMC guarantees the full and timely payment of interest (adjusted to
the certificate rate) on the unpaid principal balance of mortgage loans in the
pool as determined or estimated by FHLMC and the collection of principal without
any offset or deduction. Payment of principal is subject to delay due to federal
and state laws. FHLMC is a corporate instrumentality of the United States
created pursuant to the Emergency Home Finance Act of 1970. The principal
activity of FHLMC consists of the purchase of first lien, fixed rate
conventional mortgage loans and participations therein, which FHLMC repackages
and sells as guaranteed mortgage securities, primarily FHLMC Certificates. These
loans must be considered by FHLMC of a quality, type and class to meet generally
the purchase standards imposed by private institutional mortgage investors. To
minimize interest rate risk FHLMC generally matches its purchases of mortgages
and sales of guaranteed mortgage related securities. Mortgage loans retained by
FHLMC are financed by debt and equity capital. The obligations of FHLMC under
its guarantee are solely those of FHLMC and are not backed by the full faith and
credit of the United States nor are they an obligation of any Federal Home Loan
Bank.
Mortgages. In order to be eligible as Collateral a Mortgage must either be
insured by FHA or guaranteed by VA or must (i) secure a loan not in excess of
80% of the lesser of the purchase price or appraised value, (ii) be secured by a
first lien on a single-family (one unit) detached structure that at the time of
origination was owner-occupied and designed and intended for use as a primary
residence, (iii) not have had any payment of principal or interest or escrow
payment in arrears for 60 or more days at any time during the twelve months
preceding its pledge date and, as of its pledge date, have no payments more than
30 days due and unpaid, (iv) provide for level monthly payments of principal and
interest for an original term to maturity not in excess of 30 years, (v) bear
interest at a fixed annual rate and (vi) if originated subsequent to January 1,
1977, be written on then-applicable FHLMC/FNMA documentation.
The regulations governing the FHA single family programs under which a
Mortgage may be insured provide that a mortgage will be considered to be in
default if the mortgagor fails to make any payment or perform any other
obligation under the mortgage and such failure continues for a period of thirty
days. Insurance benefits are payable to the mortgagee either upon foreclosure or
other acquisition of the property (which, in either case, may be subject to
certain delays) or upon assignment of the defaulted Mortgage to the United
States Department of Housing and Urban Development ('HUD'). Under most FHA
insurance programs for single family residences the Federal Housing Commissioner
has the option of paying insurance claims in cash or in debentures, although
current FHA policy is to pay insurance claims in cash.
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Claims for the payment of a VA guarantee may be submitted when any default
of the mortgagor continues for a period of three months. A guarantee may be paid
without the mortgagee instituting foreclosure proceedings or otherwise acquiring
title. The maximum amount of guarantee that may be paid is limited to the lesser
of (1) sixty percent (60%) of the original principal balance of the mortgage
loan or (2) $27,500 for mortgage loans made on or after October 7, 1980. The
liability on the guarantee is reduced or increased pro rata with any reduction
or increase in the amount of the indebtedness.
Private mortgage insurance policies currently being issued by private
mortgage insurers approved by FHLMC contain provisions substantially as follows:
(a) the private mortgage insurer must pay a claim, including unpaid principal,
accrued interest and certain expenses, within 60 days of presentment of the
claim by the insured; (b) in order for the insured to present a claim, the
insured must have acquired, and tendered to the insurer, title to the property
free and clear of all liens and encumbrances including any right of redemption
by the mortgagor; (c) when a claim is presented, the insurer will have the
option of paying the claim in full and taking title to the property and
arranging for its sale or of paying the insured percentage of the claim (the
insured percentages vary but are customarily 20-25% of the claim) and allowing
the insured to retain title to the property; and (d) claims may also be settled
by the insurer at the option of the insured for actual losses where such losses
are less than the insured percentage of the claim.
Mortgages insured by FHA or guaranteed by VA are subject to current Federal
regulations which provide that a mortgagee may not initiate foreclosure
proceedings on an FHA insured or VA guaranteed loan unless at least three full
monthly installments are due and unpaid. An administrative appeal prior to
foreclosure is available to a mortgagor, and, if the mortgagor utilizes this
procedure, the foreclosure may be delayed an additional three months. No delay
in the foreclosure action is required if the property is encumbered by an FHA/VA
mortgage and is abandoned by the Mortgagor.
U.S. Government Securities. Direct obligations of the United States that
mature within 30 years at the time of being pledged under the Collateral
Agreement.
Municipal Obligations. Debt Obligations issued by or on behalf of states or
their political subdivisions or public authorities, bearing interest at a fixed
or variable rate and rated at least BBB by Standard & Poor's (or another
acceptable rating agency).
Corporate Obligations. Marketable direct obligations of public,
nongovernmental corporations payable in U.S. dollars, bearing dividends or
interest at a fixed or variable rate and rated at least A by Standard & Poor's
(or another acceptable rating agency at the time rating the Fund), or which
have, in the opinion of the Agent for the Sponsors, credit characteristics
comparable to obligations rated at least A by Standard & Poor's.
With respect to each Debt Obligation as to which Eligible Collateral has
been pledged, the Sponsors have established minimum percentage levels
('Collateral Requirements') of the aggregate market value of each type of
Eligible Collateral to the unpaid principal amount of the Debt Obligations.
Eligible Collateral is to be valued no less often than quarterly. If on any
valuation date it is determined that the aggregate market value of the Eligible
Collateral does not satisfy the applicable Collateral Requirements, additional
Eligible Collateral must be delivered. Eligible Collateral may be withdrawn or
substituted at any time, provided that the remaining or substituted Eligible
Collateral meets the applicable Collateral Requirements. Although the Sponsors
believe that the Collateral Requirements are sufficient to provide a high degree
of protection against loss on the Debt Obligations backed by collateralized
letters of credit or guarantees, investors in the Units should be aware that if
28
<PAGE>
liquidation of the collateral is required and proves insufficient to provide for
payment in full of the principal and accrued interest on such Debt Obligations,
then the full principal amount of their investment could not be returned.
Valuation and Maintenance of Collateral
The Market Value of each Mortgage is determined by using a discount rate
determined on the basis of prevailing mortgage market yields. The Market Value
of all other Collateral (other than cash) is determined by the Evaluator or by
quotations provided by certain securities dealers. Whenever the Collateral Agent
notifies a Seller that the aggregate Market Value of the Collateral does not
satisfy the aggregate applicable Collateral Requirements, the Seller is required
to deposit additional Collateral within a maximum of 10 business days. Failure
to do so requires the Collateral Agent to liquidate the Seller's Collateral and
reinvest the proceeds in short-term U.S. Government obligations and may lead to
a repurchase of Debt Obligations. Collateral may be withdrawn or substituted at
any time, provided that the remaining or substituted Eligible Collateral meets
the applicable Collateral Requirements and the Seller is not in default.
Mortgages are permitted to be withdrawn for servicing purposes, subject to a
trust receipt. If the Collateral of a Seller should prove insufficient to cover
its repurchase commitments upon a default, the Securities sold by that Seller
may be liquidated and the proceeds used to help fulfill the repurchase
commitments. For this reason, in determining Collateral levels, the Securities
in the Portfolio are deemed to be Collateral so long as they meet the Eligible
Collateral requirements.
Collateral Requirements--The Collateral Requirements currently in effect
are as follows on weekly, monthly, or quarterly regular valuation basis (at the
election of each Seller):
<TABLE>
<CAPTION>
QUARTERLY MONTHLY
VALUATION VALUATION
------------- -------------
<S> <C> <C>
Cash....................................................................................... 105% 105%
Direct Obligations of the United States with a maturity of:
1 year or less........................................................................ 117 115
5 years or less....................................................................... 145 135
10 years or less...................................................................... 155 145
15 years or less...................................................................... 160 150
30 years or less...................................................................... 170 160
GNMA Pass-Throughs......................................................................... 160 150
FNMA Pass-Throughs......................................................................... 170 160
FHLMC PCs.................................................................................. 170 160
Mortgages--Fixed Rate...................................................................... 180 170
Mortgages--Adjustable-Rate................................................................. 200 190
Municipal Obligations...................................................................... 360 175
Corporate Obligations--Bonds............................................................... 190 165
Corporate Obligations--Preferred Stocks.................................................... 205 180
</TABLE>
<TABLE>
<CAPTION>
WEEKLY
VALUATION
-------------
<S> <C>
Cash....................................................................................... 105%
Direct Obligations of the United States with a maturity of:
1 year or less........................................................................ 113
5 years or less....................................................................... 133
10 years or less...................................................................... 140
15 years or less...................................................................... 145
30 years or less...................................................................... 155
GNMA Pass-Throughs......................................................................... 145
FNMA Pass-Throughs......................................................................... 155
FHLMC PCs.................................................................................. 155
Mortgages--Fixed Rate...................................................................... N/A
Mortgages--Adjustable-Rate................................................................. N/A
Municipal Obligations...................................................................... 150
Corporate Obligations--Bonds............................................................... 155
Corporate Obligations--Preferred Stocks.................................................... 160
</TABLE>
(The foregoing valuation figures are based upon a period of 10 business days in
the case of quarterly and monthly valuations, and 5 business days in the case of
weekly valuations, in which any failure to meet a given collateral requirement
may be cured.)
29
<PAGE>
Percentages shown are minimum coverage levels and may be subject to
increase by Standard & Poor's upon completion of its review of the mortgage
underwriting procedures of the particular Seller. Standard & Poor's may also
specify a maximum amount of mortgages that may be pledged in order to ensure the
availability of more readily marketable Collateral for payment of quarterly
dividend requirements with respect to the underlying Securities.
Fees of the Collateral Agent--Under the Collateral Agreement, the Sellers
pay the Collateral Agent's fees set forth in the Collateral Agreement and
reimburse the Collateral Agent for its expenses. If payments are not made, the
Collateral Agent has a lien against the Collateral for the amounts due and may
seek payment from the Fund to the extent not otherwise paid (see Expenses and
Charges).
Servicing Arrangement
Each Seller will act as Servicing Agent with respect to its Debt
Obligations and, as such, will collect from the underlying obligors the payments
of principal, premium, if any, and interest on the Debt Obligations and shall
transfer the payments to the Trustee. As Servicing Agent each Seller shall make
all decisions regarding amendments to or defaults on its Debt Obligations but
prior to taking any material action with respect to a Debt Obligation, it shall
secure from the Sponsors approval of any action proposed to be taken by it.
LIQUIDITY
Certain of the Debt Obligations may have been purchased by the Sponsors
from various banks and thrifts in large denominations and may not have been
issued under bond resolutions or trust indentures providing for issuance of
bonds in small denominations. These Debt Obligations were generally directly
placed with the banks or thrifts and held in their portfolios prior to sale to
the Sponsors. There is no established secondary market for those Debt
Obligations. The Sponsors believe that there should be a readily available
market among institutional investors for the Debt Obligations which were
purchased from these portfolios in the event it is necessary to sell Debt
Obligations to meet redemptions of Units (should redemptions be made despite the
market making activity of the Sponsors) in light of the following
considerations: (i) the credit characteristics of the companies obligated to
make payments on the Debt Obligations; (ii) the fact that these Debt Obligations
may be backed by irrevocable letters of credit or guarantees of banks or
thrifts; and (iii) the fact that banks or thrifts selling these Debt Obligations
to the Sponsors for deposit in the Fund or the placement agent acting in
connection with their sale generally have stated their intentions, although they
are not legally obligated to do so, to remarket or to repurchase, at the
then-current bid side evaluation, any of these Debt Obligations proposed to be
sold by the Trustee. The interest on these Debt Obligations received by the Fund
is net of the fee for the related letter of credit or guarantee charged by the
bank or thrift issuing the letter of credit or guarantee.
Any Debt Obligations which were purchased from these portfolios are exempt
from the registration provisions of the Federal securities laws, and, therefore,
can be sold free of the registration requirements of the securities laws.
Because there is no established secondary market for these Debt Obligations,
however, there is no assurance that the price realized on sale of these Debt
Obligations will not be adversely affected. Consequently it is more likely that
the sale of these Debt Obligations may cause a decline in the value of Units
than a sale of debt obligations for which an established secondary market
exists. In addition, in certain Intermediate Term and Put Series and certain
other Series, liquidity of the Fund is additionally augmented by the Sellers'
collateralized or letter of credit-backed Liquidity Repurchase commitment in the
event it is necessary to sell any Debt Obligations to meet redemptions of Units.
If, upon the scheduled Disposition Date for any Debt Obligation, the Trustee
elects
30
<PAGE>
not to sell the Debt Obligation scheduled for disposition on this date in the
open market (because, for example, a price in excess of its Put Price cannot be
obtained), the Seller of the Debt Obligation is obligated to repurchase the Debt
Obligation pursuant to its collateralized or letter of credit-backed Disposition
Repurchase commitment. There can be no assurance that the prices that can be
obtained for the Debt Obligations at any time in the open market will exceed the
Put Price of the Debt Obligations. In addition, if any Seller should become
unable to honor its repurchase commitments and the Trustee is consequently
forced to sell the Debt Obligations in the open market, there is no assurance
that the price realized on this sale of the Debt Obligations would not be
adversely affected by the absence of an established secondary market for certain
of the Debt Obligations.
In some cases, the Sponsors have entered into an arrangement with the
Trustee whereby certain of the Debt Obligations may be transferred to a trust (a
'Participation Trust') in exchange for certificates of participation in the
Participation Trust which could be sold in order to meet redemptions of Units.
The certificates of participation would be issued in readily marketable
denominations of $5,000 each or any greater multiple thereof and the holder
thereof would be fully entitled to the repayment protections afforded by the
Collateral arrangements to any holder of the underlying Debt Obligations. These
certificates would be exempt from registration under the Securities Act of 1933
pursuant to Section 3(a)(2) thereof.
Certain of the Debt Obligations may have been guaranteed or similarly
secured by insurance companies or other corporations or entities. The guarantee
or similar commitment may constitute a security (a 'Restricted Security') that
cannot, in the opinion of counsel, be sold publicly by the Trustee without
registration under the Securities Act of 1933, as amended, or similar provisions
of law subsequently exacted. The Sponsors nevertheless believe that, should a
sale of these Debt Obligations be necessary in order to meet redemptions, the
Trustee should be able to consummate a sale with institutional investors. Up to
40% of the Portfolio may initially have consisted of Debt Obligations purchased
from various banks and thrifts and other Debt Obligations with guarantees which
may constitute Restricted Securities.
The Fund may contain certain Debt Obligations purchased directly from
issuers. These Debt Obligations are generally issued under bond resolutions or
trust indentures providing for the issuance of bonds in publicly saleable
denominations (usually $5,000), may be sold free of the registration
requirements of the Securities Act of 1933 and are otherwise structured in
contemplation of ready marketability. In addition, the Sponsors generally have
obtained letters of intention to repurchase or to use best efforts to remarket
these Debt Obligations from the issuers, the placement agents acting in
connection with their sale or the entities providing the additional credit
support, if any. These letters do not express legal obligations; however, in the
opinion of the Sponsors, these Debt Obligations should be readily marketable.
LITIGATION AND LEGISLATION
To the best knowledge of the Sponsors, there is no litigation pending as of
the Initial Date of Deposit in respect of any Debt Obligations which might
reasonably be expected to have a material adverse effect upon the Fund. At any
time after the Initial Date of Deposit, litigation may be initiated on a variety
of grounds with respect to Debt Obligations in the Fund. Litigation, for
example, challenging the issuance of pollution control revenue bonds under
environmental protection statutes may affect the validity of Debt Obligations or
the tax-free nature of their interest. While the outcome of litigation of this
nature can never be entirely predicted, opinions of bond counsel are delivered
on the date of issuance of each Debt Obligation to the effect that the Debt
Obligation has been validly issued and that the interest thereon is exempt from
Federal income tax. In addition, other factors
31
<PAGE>
may arise from time to time which potentially may impair the ability of issuers
to make payments due on Debt Obligations.
Under the Federal Bankruptcy Act a political subdivision or public agency
or instrumentality of any state, including municipalities, may proceed to
restructure or otherwise alter the terms of its obligations, including those of
the type comprising the Fund's Portfolio. The Sponsors are unable to predict
what effect, if any, this legislation will have on the Fund.
From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Debt Obligations. The Supreme Court clarified
in South Carolina v. Baker (decided April 20, 1988) that the U.S. Constitution
does not prohibit Congress from passing a nondiscriminatory tax on interest on
state and local obligations. This type of legislation, if enacted into law,
could adversely affect an investment in Units. Holders are urged to consult
their own tax advisers.
PAYMENT OF THE DEBT OBLIGATIONS AND LIFE OF THE FUND
Because certain of the Debt Obligations from time to time may be redeemed
or prepaid or will mature in accordance with their terms or may be sold under
certain circumstances described herein, no assurance can be given that the Fund
will retain for any length of time its present size and composition (see
Redemption). Many of the Debt Obligations may be subject to redemption prior to
their stated maturity dates pursuant to optional refunding or sinking fund
redemption provisions or otherwise. In general, optional refunding redemption
provisions are more likely to be exercised when the offering side evaluation is
at a premium over par than when it is at a discount from par. Generally, the
offering side evaluation of Debt Obligations will be at a premium over par when
market interest rates fall below the coupon rate on the Debt Obligations. The
percentage of the face amount of Debt Obligations in the Portfolio which had a
bid side evaluation on the Evaluation Date in excess of par is set forth under
the Investment Summary. Certain Debt Obligations in the Portfolio may be subject
to sinking fund provisions early in the life of the Fund. These provisions are
designed to redeem a significant portion of an issue gradually over the life of
the issue; obligations to be redeemed are generally chosen by lot. The Portfolio
contains a listing of the sinking fund and optional redemption provisions with
respect to the Debt Obligations. Additionally, the size and composition of the
Fund will be affected by the level of redemptions of Units that may occur from
time to time and the consequent sale of Debt Obligations (see Redemption).
Principally, this will depend upon the number of Holders seeking to sell or
redeem their Units and whether or not the Sponsors continue to reoffer Units
acquired by them in the secondary market. Factors that the Sponsors will
consider in the future in determining to cease offering Units acquired in the
secondary market include, among other things, the diversity of the portfolio
remaining at that time, the size of the Fund relative to its original size, the
ratio of Fund expenses to income, the Fund's current and long-term returns and
the degree to which Units may be selling at a premium over par relative to other
funds sponsored by the Sponsors, and the cost of maintaining a current
prospectus for the Fund. These factors may also lead the Sponsors to seek to
terminate the Fund earlier than would otherwise be the case (see Administration
of the Fund--Amendment and Termination).
TAX EXEMPTION
In the opinion of bond counsel rendered on the date of issuance of each
Debt Obligation, the interest on each Debt Obligation is excludable from gross
income under existing law for regular Federal income tax purposes (except in
certain circumstances depending on the Holder) but may be subject to state and
local taxes. As discussed under Taxes below, interest on some or all of the Debt
Obligations may become subject to regular
32
<PAGE>
Federal income tax, perhaps retroactively to their date of issuance, as a result
of changes in Federal law or as a result of the failure of issuers (or other
users of the proceeds of the Debt Obligations) to comply with certain ongoing
requirements.
Moreover, the Intenal Revenue Service announced on June 14, 1993 that it
will be expanding its examination program with respect to tax-exempt bonds. The
expanded examination program will consist of, among other measures, increased
enforcement against abusive transactions, broader audit coverage (including the
expected issuance of audit guidelines) and expanded compliance achieved by means
of expected revisions to the tax-exempt bond information return forms. At this
time, it is uncertain whether the tax exempt status of any of the Debt
Obligations would be affected by such proceedings, or whether such effect, if
any, would be retroactive.
In certain cases, a Debt Obligation may provide that if the interest on the
Debt Obligation should ultimately be determined to be taxable, the Debt
Obligation would become due and payable by its issuer, and, in addition, may
provide that any related letter of credit or other security could be called upon
if the issuer failed to satisfy all or part of its obligation. In other cases,
however, a Debt Obligation may not provide for the acceleration or redemption of
the Debt Obligation or a call upon the related letter of credit or other
security upon a determination of taxability. In those cases in which a Debt
Obligation does not provide for acceleration or redemption or in which both the
issuer and the bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the amounts due on the Debt
Obligation as a result of a determination of taxability, the Trustee would be
obligated to sell the Debt Obligation and, since it would be sold as a taxable
security, it is expected that it would have to be sold at a substantial discount
from current market price. In addition, as mentioned above, under certain
circumstances Holders could be required to pay income tax on interest received
prior to the date on which the interest is determined to be taxable.
DESCRIPTION OF THE FUND
THE PORTFOLIO
The Portfolio contains different issues of debt obligations with fixed
final maturity or disposition dates. In addition up to 10% of the initial value
of the Portfolio may have consisted of units ('Other Fund Units') of
previously-issued Series of Municipal Investment Trust Fund ('Other Funds')
sponsored and underwritten by certain of the Sponsors and acquired by the
Sponsors in the secondary market. The Other Fund Units are not debt obligations
as such but represent interests in the securities, primarily state, municipal
and public authority debt obligations, in the portfolios of the Other Funds. As
used herein, the term 'Debt Obligations' means the debt obligations deposited in
the Fund and described under Portfolio in Part A and the term 'Securities' means
the Debt Obligations and any Other Fund Units. See Investment Summary in Part A
for a summary of particular matters relating to the Portfolio.
In selecting Debt Obligations for deposit in the Fund, the Unit Investment
Trusts division of Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Agent
for the Sponsors, considered the following factors, among others: (i) whether
the Debt Obligations were rated in the category BBB or better by Standard &
Poor's or Baa or better by Moody's (A or better for the 51st Monthly Payment,
certain Intermediate Term, 7th New York, 11th Pennsylvania and all subsequent
Series and all other State and Multistate Series and, as insured, AAA by
Standard & Poor's for Insured Series) or had, in the opinion of the Agent for
the Sponsors, comparable credit characteristics (see Description of Ratings);
(ii) the yield and price of the Debt Obligations relative to comparable debt
securities and (iii) the diversification of the Portfolio as to purpose and
location of issuer, taking into account
33
<PAGE>
the availability in the market of issues that met the Fund's criteria. In
selecting Debt Obligations to be deposited in Floating Rate Series and certain
Intermediate Term Series, in place of the rating standard set forth under (i)
above, the Agent for the Sponsors considered whether the Debt Obligations on the
Date of Deposit (a) were issued or guaranteed by, or otherwise obligate, issuers
or corporate obligors which have outstanding debt obligations rated in the
category A or better by either Standard & Poor's or Moody's, or (b) were
themselves rated in such category, or (c) if not rated, had in the opinion of
the Agent for the Sponsors comparable credit characteristics, or (d) were
additionally secured by a letter of credit issued by a bank whose debt
obligations, or those of a parent bank holding company (if the debt obligations
of that bank are not actually rated), had, in the opinion of the Agent for the
Sponsors, credit characteristics comparable to those of banks with outstanding
debt obligations which have been rated in the category A or better by Standard &
Poor's or Moody's, or (e) were additionally secured by insurance or guarantees
issued by insurance companies or other corporations or entities, and therefore
had, in the opinion of the Agent for the Sponsors, credit characteristics
comparable to obligations rated in the category A or better by either Standard &
Poor's or Moody's.
The Portfolio may contain debt obligations rated BBB by Standard & Poor's
and Baa by Moody's, which are the lowest 'investment grade' ratings assigned by
the two rating agencies or debt obligations rated below investment grade. The
Portfolio may also contain debt obligations that have received investment grade
ratings from one agency but 'junk bond' ratings from the other agency. In
addition, the Portfolio may contain debt obligations which are not rated by
either agency but have in the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Agent for the Sponsors, comparable credit characteristics to
debt obligations rated near or below investment grade. Investors should
therefore be aware that these debt obligations may have speculative
characteristics and that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments on these debt obligations than is the case with higher rated bonds.
Moreover, conditions may develop with respect to any of the issuers of debt
obligations in the Portfolio which may cause the rating agencies to lower their
ratings below investment grade on a given security or cause the Agent for the
Sponsors to determine that the credit characteristics of a given security are
comparable to debt obligations rated below investment grade. As a result of
timing lags or a lack of current information, there can be no assurance that the
rating currently assigned to a given debt obligation by either agency or the
credit assessment of the Agent for the Sponsors actually reflects all current
information about the issuer of that debt obligation.
Subsequent to the Date of Deposit, a Debt Obligation or other obligations
of the issuer or guarantor or bank or other entity issuing a letter of credit
related thereto may cease to be rated, its rating may be reduced or the credit
assessment of the Agent for the Sponsors may change. Because of the fixed nature
of the Portfolio, none of these events require an elimination of that Debt
Obligation from the Portfolio, but the lowered rating or changed credit
assessment may be considered in the Sponsors' determination to direct the
disposal of the Debt Obligation (see Administration of the Fund--Portfolio
Supervision).
Because ratings may be lowered or the credit assessment of the Agent for
the Sponsors may change, an investment in Units of the Trust should be made with
an understanding of the risks of investing in 'junk bonds' (bonds rated below
investment grade or unrated bonds having similar credit characteristics),
including increased risk of loss of principal and interest on the underlying
debt obligations and the risk that the value of the Units may decline with
increases in interest rates. In recent years there have been wide fluctuations
in interest rates and thus in the value of fixed-rate debt obligations
generally. Debt obligations which are rated below investment grade or unrated
debt obligations having similar credit characteristics are often subject to
greater market fluctuations
34
<PAGE>
and risk of loss of income and principal than securities rated investment grade,
and their value may decline precipitously in response to rising interest rates.
This effect is so not only because increased interest rates generally lead to
decreased values for fixed-rate instruments, but also because increased interest
rates may indicate a slowdown in the economy generally, which could result in
defaults by less creditworthy issuers. Because investors generally perceive that
there are greater risks associated with lower-rated securities, the yields and
prices of these securities tend to fluctuate more than higher-rated securities
with changes in the perceived credit quality of their issuers, whether these
changes are short-term or structural, and during periods of economic
uncertainty. Moreover, issuers whose obligations have been recently downgraded
may be subject to claims by debtholders and suppliers which, if sustained, would
make it more difficult for these issuers to meet payment obligations.
Debt rated below investment grade or having similar credit characteristics
also tends to be more thinly traded than investment-grade debt and held
primarily by instituions, and this lack of liquidity can negatively affect the
value of the debt. Debt which is not rated investment grade or having similar
credit characteristics may be subordinated to other obligations of the issuer.
Senior debtholders would be entitled to receive payment in full before
subordinated debtholders receive any payment at all in the event of a bankruptcy
or reorganization. Lower rated debt obligations and debt obligations having
similar credit characteristics may also present payment-expectation risks. For
example, these bonds may contain call or redemption provisions that would make
it attractive for the issuers to redeem them in periods of declining interest
rates, and investors would therefore not be able to take advantage of the higher
yield offered.
The value of Units reflects the value of the underlying debt obligations,
including the value (if any) of any issues which are in default. In the event of
a default in payment of principal or interest, the Trust may incur additional
expenses in seeking payment under the defaulted debt obligations. Beacuse
amounts recovered (if any) in respect of a defaulted debt obligation may not be
reflected in the value of Units until actually received by the Trust, it is
possible that a Holder who sells Units would bear a portion of the expenses
without receiving a portion of the payments received. It is possible that new
laws could be enacted which could hurt the market for bonds which are not rated
investment grade. For example, federally regulated financial institutions could
be required to divest their holdings of these bonds, or proposals could be
enacted which might limit the use, or tax or other advantages, of these bonds.
The yields on debt obligations of the type deposited in the Fund are
dependent on a variety of factors, including general money market conditions,
general conditions of the municipal bond market, size of a particular offering,
the maturity of the obligation and rating or other credit assessment of the
issue. Accordingly, the yields of debt obligations deposited in the Fund will
vary with changes in these factors, including changes in ratings or other credit
assessments. The ratings represent the opinions of the rating organizations as
to the quality of the debt obligations that they undertake to rate. Similarly,
the credit assessments of the Agent for the Sponsors represent the opinion of
the Agent for the Sponsors as to the credit quality of the debt obligations that
it assesses. It should be emphasized, however, that ratings and other credit
assessments 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.
The portfolios underlying any Other Fund Units (the units of no one Other
Fund represented more than 5%, and all Other Fund Units represented less than
10%, of the aggregate offering side evaluation of the Portfolio on the Date of
Deposit) are substantially similar to that of the Fund. The percentage of the
Portfolio, if any,
35
<PAGE>
represented by Other Fund Units on the Evaluation Date is set forth under
Investment Summary in Part A. On their respective dates of deposit, the
underlying debt obligations in any Other Funds were rated BBB or better by
Standard & Poor's or Baa or better by Moody's. While certain of those debt
obligations may not currently meet these criteria, they did not represent more
than 0.5% of the face amount of the Portfolio on the Date of Deposit. Debt
obligations in each Other Fund which do not mature according to their terms
within 10 years after the Date of Deposit had an aggregate bid side evaluation
of at least 40% of the initial face amount of the Other Fund. The investment
objectives of the Other Funds are similar to the investment objective of the
Fund, and the Sponsors, Trustee and Evaluator of the Other Funds have
responsibilities and authority paralleling in most important respects those
described in this Prospectus and receive similar fees. The names of any Other
Funds represented in the Portfolio and the number of units of each Other Fund in
the Fund may be obtained without charge by writing to the Trustee.
The Fund consists of the Securities listed under Portfolio in Part A
(including certain securities deposited in the Fund in exchange or substitution
for Debt Obligations upon certain refundings) as long as they may continue to be
held in the Fund, together with accrued and undistributed interest thereon and
undistributed and uninvested cash realized from the disposition or redemption of
Securities (see Administration of the Fund-- Portfolio Supervision). Neither the
Sponsors nor the Trustee shall be liable in any way for any default, failure or
defect in any Security.
INCOME; ESTIMATED CURRENT RETURN; ESTIMATED LONG-TERM RETURN
Generally. The estimated net annual interest rate per Unit on the
Evaluation Date is set forth under Investment Summary in Part A. This rate shows
the percentage return based on the face amount per Unit after deducting
estimated annual fees and expenses expressed as a percentage. Interest on the
Securities in the Fund, less estimated fees of the Trustee and (if applicable)
Sponsors and certain other expenses, is expected to accrue (except on Floating
Rate Series) at the daily rate (based on a 360-day year) shown under Investment
Summary in Part A. These rates will vary as Securities are exchanged, redeemed,
paid or sold, or as the expenses of the Fund change.
Estimated Current Return on a Unit represents annual cash receipts from
coupon-bearing debt obligations in the Portfolio (after estimated annual
expenses) divided by the maximum Public Offering Price (including the sales
charge). For investors interested primarily in cash flow, current return is a
readily ascertainable measure.
'Current return' provides different information than 'yield' or 'long-term
return'. Under accepted bond practice, tax-exempt bonds are customarily offered
to investors on a 'yield' basis, which involves a computation of yield to
maturity (or earlier call date), and which takes into account not only the
interest payable on the bonds but also the amortization or accretion to a
specified date of any premium over or discount from the par (maturity) value in
the bond's purchase price. The Estimated Long-Term Return represents an average
of the yields to maturity (or earliest call date for obligations trading at
prices above the particular call price) of the Debt Obligations in the
Portfolio, calculated in accordance with accepted bond practice and adjusted to
reflect expenses and sales charges. In calculating Estimated Long-Term Return,
the average yield for the Portfolio is derived by weighting each Debt
Obligation's yield by the market value of the Debt Obligation and by the amount
of time remaining to the date to which the Debt Obligation is priced. Once the
average Portfolio yield is computed, this figure is then adjusted for estimated
expenses and the effect of the maximum sales charge paid by investors. The
Estimated Long-Term Return calculation does not take into account certain delays
in distributions of income and
36
<PAGE>
the timing of other receipts and distributions on Units and may, depending on
maturities, over or understate the impact of sales charges. Both of these
factors may result in a lower figure.
Both Estimated Current Return and Estimated Long-Term Return are subject to
fluctuation with changes in Portfolio composition (including changes in the
ratings or other credit assessments of as well as the redemption, sale or other
disposition of Debt Obligations in the Portfolio), changes in market value of
the underlying Debt Obligations and changes in fees and expenses, including
sales charges. The size of any difference between Estimated Current Return and
Estimated Long-Term Return can also be expected to fluctuate at least as
frequently. In addition, both return figures may not be directly comparable to
yield figures used to measure other investments, and since the return figures
are based on certain assumptions and variables the actual returns received by a
Holder may be higher or lower.
Floating Rate Series. The yield on Units will vary from time to time. The
Current Yield Quotation is calculated by multiplying net current interest rate
per Unit, based on the interest rates applicable to the underlying Debt
Obligations as of the day of calculation, times $1,000 face amount per Unit and
dividing the result by the Public Offering Price (which does not include accrued
interest). The Public Offering will vary with fluctuations in the offering side
evaluation of the underlying Debt Obligations. The net current interest income
per Unit will change as the interest rates on the Debt Obligations (which are
determined as often as daily) fluctuate with the movement of the applicable
prime rates and as Debt Obligations are redeemed, paid or sold or as the fees
and expense of the Trustee, Sponsors and Evaluator vary. Any change in either
net current interest income per Unit or the Public Offering Price will result in
a change in the Current Yield Quotation. There is no assuance that the current
yield on Units will be realized in the future.
Accrued Interest. In addition to the Public Offering Price, the price of a
Unit includes accrued interest on the Securities. At the time of the original
offering of the Fund, and to avoid having Holders pay accrued interest to the
initial Date of Deposit, the Trustee was responsible for the payment of accrued
interest on the Debt Obligations to the original Date of Deposit and then
recovered this amount from the earliest interest payments received by the Fund.
Additionally, interest on the Debt Obligations in the Fund is paid on a
semi-annual (or less frequently, annual) basis. Because interest on the
Securities is not received by the Fund at a constant rate throughout the year,
Monthly Income Distribution may be more or less than the interest actually
received by the Fund. In order to eliminate fluctuations in Series making
Monthly Income Distributions (except Floating Rate Series), the Trustee is
required to advance the amounts necessary to provide approximately equal Monthly
Income Distributions. The Trustee will be reimbursed, without interest, for
these advances from interest received on the Securities. Therefore, to account
for these factors, accrued interest is always added to the value of the Units.
And because of the varying interest payment dates of the Securities, accrued
interest at any time will be greater than the amount of interest actually
received by the Fund and distributed to Holders. If a Holder sells all or a
portion of his Units, he will receive his proportionate share of the accrued
interest from the purchaser of his Units. Similarly, if a Holder redeems all or
a portion of his Units, the Redemption Price per Unit will include accrued
interest on the Securities. And if a Security is sold, redeemed or otherwise
disposed of, accrued interest will be received by the Fund and will be
distributed periodically to Holders.
Certain of the Debt Obligations may have been purchased on a when, as and
if issued basis or had a delayed delivery. Since interest on these Debt
Obligations did not begin accruing to the benefit of Holders until they were
delivered, in order to provide tax-exempt income to the Holders for this
non-accrual period, the Trustee's Annual Fee and Expenses (set forth under
Investment Summary in Part A) may be reduced in an amount equal to the
37
<PAGE>
amount of interest that would have accrued on these Debt Obligations between the
initial settlement date for Units and the dates of delivery. The reduction of
the Trustee's Annual Fee and Expenses eliminates the necessity of reducing
Monthly Income Distributions.
TAXES
The following discussion addresses only the tax consequences to those
holding Units as capital assets and does not address the tax consequences of
holding Units to dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsors,
under existing law:
The Fund* is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Fund will be treated as the
income of the Holders in the manner set forth below.
Each Holder will be considered the owner of a pro rata portion of each
Debt Obligation in the Fund and of each debt obligation in any Other Fund
under the grantor trust rules of Sections 671-679 of the Internal Revenue
Code of 1986, as amended (the 'Code'). The total cost to a Holder of his
Units, including sales charges, is allocated among his pro rata portion of
each Security (in proportion to the fair market values thereof on the date
the Holder purchases his Units) in order to determine his tax cost for his
pro rata portion of each Security. A Holder's tax cost for his pro rata
portion of any Other Fund Unit as determined above is further allocated
among his pro rata portion of each of the debt obligations in the Other
Fund in order to determine the Holder's tax cost for his pro rata portion
of each such debt obligation. The term 'Debt Obligations' as used
hereinafter under Taxes shall include the debt obligations in any Other
Fund.
Each Holder will be considered to have received the interest on his pro
rata portion of each Debt Obligation when interest on the Debt Obligation
is received by the Fund or an Other Fund, as the case may be. In the
opinion of bond counsel (delivered on the date of issuance of the Debt
Obligation), such interest will be excludable from gross income for regular
Federal income tax purposes (except in certain limited circumstances
referred to below). Amounts received by the Fund or an Other Fund, as the
case may be, pursuant to a bank letter of credit, guarantee or insurance
policy with respect to payments of principal, premium or interest on a Debt
Obligation will be treated for Federal income tax purposes in the same
manner as if such amounts were paid by the issuer of the Debt Obligation.
The Fund or any Other Fund may contain Debt Obligations which were
originally issued at a discount ('original issue discount'). In general,
original issue discount is defined as the difference between the price at
which a debt obligation was issued and its stated redemption price at
maturity. Original issue discount on a tax-exempt obligation issued after
September 3, 1982 is deemed to accrue as tax-exempt interest over the life
of the obligation under a formula based on the compounding of interest.
Original issue discount on a tax-exempt obligation issued before July 2,
1982 is deemed to accrue as tax-exempt interest ratably over the life of
the obligation. Original issue discount on any tax-exempt obligation issued
during the period beginning July 2, 1982 and ending September 3, 1982 is
also deemed to accrue as tax-exempt interest over the life of the
obligation, although it is not clear whether such accrual is ratable or is
determined under a formula based on the compounding of interest. If a
Holder's tax cost for his pro rata portion of a Debt Obligation issued with
original issue discount is greater than the 'adjusted issue price' thereof
but less than its stated
- ---------------
*For purposes of any Series including multiple Trusts, the term 'Fund' shall
refer to each Trust separately.
38
<PAGE>
redemption price at maturity (as may be adjusted for certain payments), the
Holder will be considered to have purchased his pro rata portion of the
Debt Obligation at an 'acquisition premium'. Increases to the Holder's tax
basis in his pro rata portion of the Debt Obligation resulting from the
accrual of original issue discount will be reduced by the amount of such
acquisition premium.
If a Holder's tax cost for his pro rata portion of a Debt Obligation
exceeds the redemption price at maturity thereof, subject to certain
adjustments, the Holder will be considered to have purchased his pro rata
portion of the Debt Obligation at a 'premium'. The Holder is required to
amortize the premium prior to the maturity of the Debt Obligation. Such
amortization is only an adjustment to basis (i.e., a reduction of the
Holder's tax cost) for his pro rata portion of the Debt Obligation and does
not result in any deduction against the Holder's income. Therefore, under
some circumstances, a Holder may recognize taxable gain when his pro rata
portion of a Debt Obligation is disposed of for an amount equal to or less
than his original tax cost therefor.
A Holder will recognize taxable gain or loss, when all or part of his
pro rata portion of a Debt Obligation is disposed of for an amount greater
or less than his original tax cost therefor plus any accrued original issue
discount (net of any acquisition premium) or minus any amortized bond
premium. Under current law, any such taxable gain or loss will be capital
gain or loss, except that any gain from the disposition of a Holder's pro
rata portion of a Debt Obligation acquired by the Holder at a 'market
discount' (i.e., where the Holder's original cost for his pro rata portion
of the Debt Obligation (plus any original issue discount which will accrue
thereon) is less than its stated redemption price at maturity) would be
treated as ordinary income to the extent the gain does not exceed the
accrued market discount. Capital gains are generally taxed at the same rate
as ordinary income. However, the excess of net long-term capital gains over
short-term capital losses may be taxed at a lower rate than ordinary income
for certain noncorporate taxpayers. A capital gain or loss is long-term if
the asset is held for more than one year and short-term if held for one
year or less. The deduction of capital losses is subject to limitations. A
Holder will be considered to have disposed of all or part of his pro rata
portion of each Debt Obligation when he sells or redeems all or some of his
Units. A Holder will be considered to have disposed of all or part of his
pro rata portion of each Debt Obligation in any Other Fund when the Fund
sells or redeems all or some of the Units in the Other Fund. A Holder will
also be considered to have disposed of all or part of his pro rata portion
of a Debt Obligation when all or part of the Debt Obligation is sold by the
Fund or an Other Fund, as the case may be, or is redeemed or paid at
maturity.
Under Section 265 of the Code, a Holder (except a corporate Holder) is
not entitled to a deduction for his pro rata share of fees and expenses of
the Fund because the fees and expenses are incurred in connection with the
production of tax-exempt income. Further, if borrowed funds are used by a
Holder to purchase or carry Units of the Fund, interest on this
indebtedness will not be deductible for Federal income tax purposes. In
addition, under rules used by the Internal Revenue Service, the purchase of
Units may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of Units.
Under the income tax laws of the State and City of New York, the Fund is
not an association taxable as a corporation and income received by the Fund
will be treated as the income of the Holders in the same manner as for
Federal income tax purposes, but will not necessarily be tax-exempt.
39
<PAGE>
* * *
Interest on certain tax-exempt bonds issued after August 7, 1986
(identified under Investment Summary and Portfolio in Part A) is a preference
item for purposes of the alternative minimum tax ('AMT'). Interest on other Debt
Obligations should not be subject to the AMT for individuals or corporations
under this rule. In addition, a corporate Holder should be aware that the
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's 'adjusted current
earnings' for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code. In addition, interest on Debt Obligations
must be taken into consideration in computing the portion, if any, of social
security benefits that will be included in an individual's gross income and
subject to Federal income tax. Holders are urged to consult their own tax
advisers concerning an investment in Units.
At the time of issuance of each Debt Obligation, an opinion relating to the
validity of the Debt Obligation and to the exemption of interest thereon from
regular Federal income taxes was rendered by bond counsel. Neither the Sponsors,
Davis Polk & Wardwell nor any of the special counsel for state tax matters have
made any review of the proceedings relating to the issuance of the Debt
Obligations or the basis for these opinions. The tax exemption is dependent upon
the issuer's (and other users') compliance with certain ongoing requirements,
and the opinion of bond counsel assumes that the requirements will be complied
with. However, there can be no assurance that the issuer (and other users) will
comply with these requirements, in which event the interest on the Debt
Obligation could be determined to be taxable retroactively from the date of its
issuance.
In the case of certain of the Debt Obligations, the opinions of bond
counsel indicate that interest on these Debt Obligations received by a
'substantial user' of the facilities being financed with the proceeds of these
Debt Obligations, or persons related thereto, for periods while these Debt
Obligations are held by such a user or related person, will not be exempt from
regular Federal income taxes, although interest on these Debt Obligations
received by others would be exempt from regular Federal income taxes.
'Substantial user' is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of these facilities, or who occupies more than 5% of the usable area of these
facilities or for whom these facilities or a part thereof were specifically
constructed, reconstructed or acquired. 'Related persons' are defined to include
certain related natural persons, affiliated corporations, partners and
partnerships.
After the end of each calendar year, the Trustee will furnish to each
Holder an annual statement containing information relating to the interest
received by the Fund on the Debt Obligations, the gross proceeds received by the
Fund from the disposition of any Debt Obligation (resulting from redemption or
payment at maturity of any Debt Obligation or the sale by the Fund of any Debt
Obligation or Other Fund Unit), and the fees and expenses paid by the Fund. The
Trustee will also furnish annual information returns to each Holder and to the
Internal Revenue Service. Holders are required to report to the Internal Revenue
Service the amount of tax-exempt interest received during the year.
Holders will be taxed in the manner described above regardless of whether
distributions from the Fund are actually received by the Holders or are
automatically reinvested in the Municipal Fund Accumulation Program, Inc.
40
<PAGE>
From time to time proposals are introduced in Congress and state
legislatures which, if enacted into law, could have an adverse impact on the
tax-exempt status of the Debt Obligations. It is impossible to predict whether
any legislation in respect of the tax status of interest on such obligations may
be proposed and eventually enacted at the Federal or state level. The foregoing
discussion relates only to Federal and New York State and City income taxes.
Holders may be subject to state and local taxation depending on their state of
residence and should consult their own tax advisers in this regard. Holders of
State Trusts should also consult Part C of the Municipal Investment Trust Fund
Prospectus.
PUBLIC SALE OF UNITS
PUBLIC OFFERING PRICE
Except for Funds specified in the tables below, the Public Offering Price
in the secondary market reflects sales charges which may be at different rates
depending on the maturities of the various bonds in the Portfolio. The Public
Offering Price per Unit will be computed by adding to the Evaluator's
determination of the bid side evaluation of each Security, a sales charge at a
rate based on the time to maturity of that Security as described below, and
dividing the sum of these calculations for all Securities in the Portfolio by
the number of Units outstanding. For this purpose, 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 used; or (b) the
Security is subject to a mandatory tender, in which case the mandatory tender
date will be used.
SALES CHARGE
(AS PERCENT (AS PERCENT
TIME TO OF BID SIDE OF PUBLIC
MATURITY 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 total sales charge per Unit, as a percent of the Public Offering Price,
is referred to below as the 'Effective Sales Charge'. For example, a Fund
consisting entirely of Securities maturing in more than 8 but no more than 15
years would have an Effective Sales Charge of 4.50% of the Public Offering Price
(4.712% of the net amount invested) while a Fund consisting entirely of
Securities maturing in more than 15 years would have an Effective Sales Charge
of 5.50% of the Public Offering Price (5.820% of the net amount invested) and so
forth. A Fund consisting of Securities in each of these maturity ranges would
have an Effective Sales Charge between these rates. The Public Offering Price of
the Units will vary from day to day in accordance with fluctuations in the
evaluations of the underlying Securities and any difference in the applicable
percentage of sales charge.
41
<PAGE>
VOLUME PURCHASE DISCOUNTS
The sales charge per Unit determined as described above will be reduced on
a graduated scale for sales to any single purchaser on a single day of specified
numbers of Units set forth below. Units held in the name of the spouse of the
purchaser or in the name of a child of the purchaser under 21 years of age are
deemed to be registered in the name of the purchaser. The graduated sales
charges are also applicable to a trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary account. The number of
units of other series sponsored by the Sponsors (or an equivalent number in case
of units originally offered at about $1, $10 or $100 each) purchased in the
secondary market on the same day will be added in determining eligibility for
this reduction, provided that only units of series with Effective Sales Charges
within a range of 0.5% of their public offering prices will be eligible. For
example, if an investor purchases units of three series of Municipal Investment
Trust Fund in the secondary market on the same day--200 units with an Effective
Sales Charge of 3.4%, 200 units with an Effective Sales Charge of 3.6% and 100
units with an Effective Sales Charge of 3.9%, he would be entitled to a 40%
reduction on each sales charge (an actual sales charge of 60% of each Effective
Sales Charge based on purchase of 500 units). If the lowest sales charge were
3.3%, the purchaser would only be entitled to a 20% reduction on two of those
purchases (actual sales charge of 80% of Effective Sales Charge based on
purchase of more than 249 units). The reduction will be applied on whichever
basis is more favorable for the purchaser.
ACTUAL SALES CHARGE AS % DEALER CONCESSION AS % OF
OF EFFECTIVE SALES CHARGE EFFECTIVE SALES CHARGE
NUMBER OF UNITS DETERMINED ABOVE DETERMINED ABOVE
- ----------------- ------------------------- -------------------------
1-249 100% 65%
250-499 80% 52%
500-749 60% 39%
750-999 45% 29.25%
1,000 or more 35% 22.75%
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 the Prospectus or is purchased for its own account
and not for distribution.
Unless otherwise specified below, the Public Offering Price of Units for
the Funds listed below is computed by adding to the aggregate bid side
evaluation of the Securities (as determined by the Evaluator), divided by the
number of Units outstanding, the sales charge at the applicable percentage of
the evaluation per Unit (the net amount invested).
The following tables set forth the applicable percentage of sales charge
and the concession to dealers for the Funds specified. These amounts are reduced
on a graduated scale for quantity purchases and will be applied on whichever
basis is more favorable to the purchaser. Sales charges and dealer concessions
are as follows:
42
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE DEALER
(GROSS UNDERWRITING PROFIT) CONCESSION
--------------------------------
AS PERCENT OF AS PERCENT OF AS PERCENT OF
PUBLIC OFFERING NET AMOUNT PUBLIC
NUMBER OF UNITS PRICE INVESTED OFFERING
------------------- ----------------- ------------- PRICE
-------------
<S> <C> <C> <C> <C>
Municipal Investment Trust Fund, Floating Rate Series 3, Less than 1,000 1.00% 1.010% 0.650%
4, 5, 13, 20, 21, 22 and 23: 1,000 or more 0.30% 0.301% 0.195%
</TABLE>
The number of Units includes all Units of this and any other Fund sponsored
by the Sponsors with the same rates of sales charge purchased on one day by a
single purchaser as described above.
For the Funds listed below, there is no reduction for quantity purchases,
and the sales charge and dealer concession are as follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER
(GROSS UNDERWRITING PROFIT) CONCESSION
-------------------------------- AS PERCENT OF
AS PERCENT OF AS PERCENT OF PUBLIC
PUBLIC OFFERING NET AMOUNT OFFERING
PRICE INVESTED PRICE
----------------- ------------- -------------
<S> <C> <C> <C>
Municipal Investment Trust Fund, New York Series A, B and
Put Series 1-3 and Pennsylvania Put Series A 1.00% 1.010% 0.650%
</TABLE>
For the Funds listed below, the Public Offering Price of Units is computed
on the basis of the Evaluator's determination of the aggregate offering side
evaluation of the underlying Securities, as follows:
Municipal Investment Trust Fund, Put Series no sales charge
4-9, New York Put Series 1-4:
Municipal Investment Trust Fund, Put Series .203% per annum of
10: outstanding principal
amount--deferred sales
charge
PRICE PAID BY PURCHASERS
A proportionate share of any cash held by the Fund in the Capital Account
not allocated to the purchase of specific Securities and net accrued and
undistributed interest on the Securities to the date of delivery of the Units to
the purchaser is added to the Public Offering Price.
Employees of certain of the Sponsors and their affiliates may purchase
Units of the Fund at prices based on a reduced sales charge of not less than
$5.00 per Unit.
Evaluations of the Securities are determined by the Evaluator, taking into
account the same factors referred to under Redemption--Computation of Redemption
Price per Unit. The determination is made each business day as of the Evaluation
Time set forth under Investment Summary in Part A (the 'Evaluation Time'),
effective for all sales made since the last of these evaluations (Section 4.01).
The term 'business day', as used herein and under 'Redemption', shall exclude
Saturdays, Sundays and the following holidays as observed by the New York
43
<PAGE>
Stock Exchange: New Year's Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
COMPARISON OF PUBLIC OFFERING PRICE, SPONSORS' REPURCHASE PRICE AND REDEMPTION
PRICE
On the Evaluation Date the Public Offering Price per Unit (which includes
the sales charge) exceeded the Sponsors' Repurchase Price per Unit and the
Redemption Price per Unit (each based on the bid side evaluation of the
Securities in the Fund--see Redemption) by the amount set forth under Investment
Summary in Part A. For various reasons (including fluctuations in the market
prices of the Securities and the fact that the Public Offering Price includes
the sales charge), the amount realized by a Holder upon any sale or redemption
of Units may be less than the price paid by him for the Units.
PUBLIC DISTRIBUTION
The Sponsors intend to continue to qualify Units for sale in certain states
in the U.S. in which qualification is deemed necessary by the Sponsors and by
dealers who are members of the National Association of Securities Dealers, Inc.
The Sponsors do not intend to qualify Units for sale in any foreign countries,
and this Prospectus does not constitute an offer to sell Units in any state or
country where Units cannot lawfully be sold. Sales to dealers are currently made
at prices which represent a concession of the applicable rate specified above,
but the Agent for the Sponsors reserves the right to change the amount of the
concession to dealers from time to time. Any dealer may reallow a concession not
in excess of the concession to dealers.
UNDERWRITERS' AND SPONSORS' PROFITS
In maintaining a market for Units (see Market for Units) the Sponsors will
realize profits or sustain losses in the amount of any difference between the
prices at which they buy Units and the prices at which they resell these Units
(which include the sales charge) or the prices at which they redeem these Units,
as the case may be. Cash, if any, made available by buyers of Units to the
Sponsors prior to the settlement date for the purchase of Units may be used in
the Sponsors' businesses subject to the limitations of Rule 15c3-3 under the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors.
MARKET FOR UNITS
While the Sponsors are not obligated to do so, it is their intention to
maintain a secondary market for Units of this Series and continuously to offer
to purchase Units of this Series at prices, subject to change at any time, which
will be computed based on the bid side of the market, taking into account the
same factors referred to in determining the bid side evaluation of Securities
for purposes of redemption (see Redemption). The Sponsors may discontinue
purchases of these Units at prices based on the bid side evaluation of the
Securities should the supply of Units exceed demand or for other business
reasons. In this event the Sponsors may nonetheless under certain circumstances
purchase Units, as a service to Holders, at prices based on current redemption
prices for those Units (see Redemption). The Sponsors, of course, do not in any
way guarantee the enforceability, marketability or price of any Securities in
the Portfolio or of the Units. Prospectuses relating to certain other unit
trusts indicate an intention, subject to change on the part of the respective
sponsors of such trusts, to purchase units of those trusts on the basis of a
price higher than the bid prices of the bonds in the trusts. Consequently,
depending upon the prices actually paid, the repurchase price of other sponsors
for units of their trusts may be computed on a somewhat more favorable basis
than the repurchase price offered by the Sponsors for Units of this
44
<PAGE>
Series in secondary market transactions. As in this Series, the purchase price
per unit of such unit trusts will depend primarily on the value of the bonds in
the portfolio of the trust.
The Sponsors may redeem any Units they have purchased in the secondary
market or through the Trustee in accordance with the procedures described below
if they determine it is undesirable to continue to hold these Units in their
inventories. Factors which the Sponsors will consider in making this
determination will include the number of units of all series of all funds which
they hold in their inventories, the saleability of the units and their estimate
of the time required to sell the units and general market conditions. For a
description of certain consequences of any redemption for remaining Holders, see
Redemption.
A Holder who wishes to dispose of his Units should inquire of his bank or
broker as to current market prices in order to determine if there exist
over-the-counter prices in excess of the repurchase price.
REDEMPTION
While it is anticipated that Units in most cases can be sold in the
over-the-counter market for an amount equal to the Redemption Price per Unit
(see Market for Units), Units may be redeemed at the office of the Trustee upon
tender on any business day, as defined under Public Sale of Units--Public
Offering Price, of Certificates or, in the case of uncertificated Units,
delivery of a request for redemption, and payment of any relevant tax, without
any other fee (Section 5.02). Certificates to be redeemed must be properly
endorsed or accompanied by a written instrument or instruments of transfer.
Holders must sign exactly as their names appear on the face of the Certificate
with the signatures guaranteed by an eligible guarantor institution or in some
other manner acceptable to the Trustee. In certain instances the Trustee may
require additional documents including, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
On the seventh calendar day following the tender (or if the seventh
calendar day is not a business day on the first business day prior thereto), the
Holder will be entitled to receive the proceeds of the redemption in an amount
per Unit equal to the Redemption Price per Unit (see below) as determined as of
the Evaluation Time next following the tender. So long as the Sponsors are
maintaining a market at prices not less than the Redemption Price per Unit, the
Sponsors will repurchase any Units tendered for redemption no later than the
close of business on the second business day following the tender (see Market
for Units). The Trustee is authorized in its discretion, if the Sponsors do not
elect to repurchase any Units tendered for redemption or if a Sponsor tenders
Units for redemption, to sell the Units in the over-the-counter market at prices
which will return to the Holder a net amount in cash equal to or in excess of
the Redemption Price per Unit for the Units (Section 5.02).
The Trustee is empowered to sell Securities in order to make funds
available for redemption (Section 5.02) if funds are not otherwise available in
the Capital and Income Accounts (see Administration of the Fund-- Accounts and
Distributions). The Securities to be sold will be selected from a list supplied
by the Sponsors. Securities will be chosen for this list by the Sponsors on the
basis of those market and credit factors as they may determine are in the best
interests of the Fund. Provision is made under the Indenture for the Sponsors to
specify minimum face amounts in which blocks of Securities are to be sold in
order to obtain the best price for the Fund. While these minimum amounts may
vary from time to time in accordance with market conditions, the Sponsors
believe that the minimum face amounts which would be specified would range from
$25,000 for readily marketable Securities to $250,000 for certain Restricted
Securities which can be distributed on short notice only
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by private sale, usually to institutional investors. Provision is also made that
sales of Securities may not be made so as to (i) result in the Fund owning less
than $250,000 of any Restricted Security or (ii) result in more than 50% of the
Fund consisting of Restricted Securities. In addition, the Sponsors will use
their best efforts to see that these sales of Securities are carried out in such
a way that no more than 40% in face amount of the Fund is invested in Restricted
Securities, provided that sales of unrestricted Securities may be made if the
Sponsors' best efforts with regard to timely sales of Restricted Securities at
prices they deem reasonable are unsuccessful and if as a result of these sales
more than 50% of the Fund does not consist of Restricted Securities. Thus the
redemption of Units may require the sale of larger amounts of Restricted
Securities than of unrestricted Securities.
To the extent that Securities are sold, the size and diversity of the Fund
will be reduced. Sales will usually be required at a time when Securities would
not otherwise be sold and may result in lower prices than might otherwise be
realized. The price received upon redemption may be more or less than the amount
paid by the Holder depending on the value of the Securities in the Portfolio at
the time of redemption.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange, Inc. is closed other than for
customary weekend and holiday closings, or (2) for any period during which, as
determined by the SEC, (i) trading on that Exchange is restricted or (ii) an
emergency exists as a result of which disposal or evaluation of the Securities
is not reasonably practicable, or (3) for any other periods which the SEC may by
order permit (Section 5.02).
COMPUTATION OF REDEMPTION PRICE PER UNIT
Redemption Price per Unit is computed by the Trustee, as of the Evaluation
Time, on each June 30 and December 31 (or the last business day prior thereto),
on any business day as of the Evaluation Time next following the tender of any
Unit for redemption, and on any other business day desired by the Trustee or the
Sponsors, by adding (a) the aggregate bid side evaluation of the Securities, (b)
cash on hand in the Fund (other than cash covering contracts to purchase
Securities), (c) accrued and unpaid interest on the Securities up to but not
including the date of redemption and (d) all other assets of the Fund; deducting
therefrom the sum of (x) taxes or other governmental charges against the Fund
not previously deducted, (y) accrued fees and expenses of the Trustee (including
legal and auditing expenses), the Sponsors, the Evaluator and counsel, and
certain other expenses and (z) cash held for distribution to Holders of record
as of a date prior to the evaluation; and dividing the result by the number of
Units outstanding as of the date of computation (Section 5.01).
The aggregate current bid or offering side evaluation of the Securities is
determined by the Evaluator in the following manner: if the Securities are
traded on the over-the-counter market, this evaluation is generally based on the
closing sale prices on the over-the-counter market (unless the Evaluator deems
these prices inappropriate as a basis for evaluation). If closing sale prices
are unavailable, the evaluation is generally determined (a) on the basis of
current bid or offering prices for the Securities, (b) if bid or offering prices
are not available for any Securities, on the basis of current bid or offering
prices for comparable securities, (c) by appraising the value of the Securities
on the bid or offering side of the market or (d) by any combination of the above
(Section 4.01).
The value of any insurance, other than any Portfolio Insurance, is
reflected in the market value of any Insured Debt Obligations. The Evaluator
will consider the value of any Portfolio Insurance (including the right to
obtain Permanent Insurance) in its evaluation of Portfolio-Insured Debt
Obligations only when they are in default in payment of principal or interest or
in significant risk of default. It is the position of the Sponsors that this is
a
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fair method of valuing the Insured Debt Obligations and the insurance and
reflects a proper valuation method in accordance with the provisions of the
Investment Company Act of 1940.
EXPENSES AND CHARGES
FEES
An estimate of the total annual expenses of the Fund is set forth under
Investment Summary in Part A. The Trustee receives for its services as Trustee
and for reimbursement of expenses incurred on behalf of the Fund, payable in
monthly installments, the amount set forth under Investment Summary as Trustee's
Annual Fee and Expenses, which includes the Evaluator's Fee, the estimated
Sponsors' Portfolio Supervision Fee, estimated reimbursable bookkeeping or other
administrative expenses paid to the Sponsors and certain mailing and printing
expenses. The Trustee also receives benefits to the extent that it holds funds
on deposit in the various non-interest bearing accounts created under the
Indenture.
The Sponsors' Portfolio Supervision Fee is based on the average of the
largest face amount of Debt Obligations in the Fund during each month of a
calendar year in which any additional Debt Obligations are deposited, and
thereafter on the largest face amount of Debt Obligations in the Fund at any
time during the year. This fee, which is not to exceed the maximum amount set
forth under Investment Summary in Part A, may exceed the actual costs of
providing portfolio supervisory services for this Fund, but at no time will the
total amount the Sponsors receive for portfolio supervisory services rendered to
all series of Municipal Investment Trust Fund in any calendar year exceed the
aggregate cost to them of supplying these services in that year. In addition,
the Sponsors may also be reimbursed for bookkeeping and other administrative
services provided to the Fund in amounts not exceeding their costs of providing
these services (Section 3.04, 7.05 or 7.06).
The foregoing fees may be adjusted for inflation in accordance with the
terms of the Indenture without approval of Holders (Sections 4.03, 7.06 and
8.05).
OTHER CHARGES
Other charges that may be incurred by the Fund include: (a) fees of the
Trustee for extraordinary services (Section 8.05), (b) certain extraordinary
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsors (Sections 3.04, 3.08 or 3.09, 7.05(b), 8.01, 8.03 and
8.05), (c) various governmental charges (Sections 3.03 and 8.01(h)), (d)
expenses and costs of action taken to protect the Fund (Section 8.01(d)), (e)
indemnification of the Trustee for any losses, liabilities and expenses incurred
without gross negligence, bad faith or wilful misconduct on its part (Section
8.05), (f) indemnification of the Sponsors for any losses, liabilities and
expenses incurred without gross negligence, bad faith, wilful misconduct or
reckless disregard of their duties (Section 7.05(b)), (g) expenditures incurred
in contacting Holders upon termination of the Fund (Section 9.02) and (h) any
premiums for additional insurance necessary to retain the rating of any Insured
Fund that is rated (see Description of the Fund--Insurance). The amounts of
these charges and fees are secured by a lien on the Fund and, if the balances in
the Income and Capital Accounts (see below) are insufficient, the Trustee has
the power to sell Securities to pay these amounts (Section 8.05).
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ADMINISTRATION OF THE FUND
RECORDS
The Trustee keeps a register of the names, addresses and holdings of all
Holders. The Trustee also keeps records of the transactions of the Fund,
including a current list of the Securities and a copy of the Indenture, which
are available to Holders for inspection at the office of the Trustee at
reasonable times during business hours (Sections 6.01, 8.02 and 8.04).
ACCOUNTS AND DISTRIBUTIONS
Interest received is credited to an Income Account and other receipts to a
Capital Account (Sections 3.01 and 3.02). For Funds making Monthly Income
Distributions these will be made to each Holder as of each Record Day on the
following Distribution Day or shortly thereafter. For Funds making Monthly
Income Distributions (except Floating Rate Series, on which the amount changes
monthly) each distribution shall consist of an amount substantially equal to
one-twelfth of the Holder's pro rata share of the estimated annual income to the
Income Account, after deducting estimated expenses, plus the Holder's pro rata
share of the distributable cash balance of the Capital Account computed as of
the close of business on the preceding Record Day. An estimate of the Monthly
Income Distribution is set forth under Investment Summary in Part A. This amount
will change as Securities are redeemed, paid or sold. Proceeds received from the
disposition, payment or prepayment of any of the Securities subsequent to a
Record Day and prior to the succeeding Distribution Day will be held in the
Capital Account to be distributed on the second succeeding Distribution Day. The
first distribution for persons who purchase Units between a Record Day and a
Distribution Day will be made on the second Distribution Day following their
purchase of Units. No distribution need be made from the Capital Account if the
balance therein is less than the amount set forth under Investment Summary in
Part A (Section 3.04). A Reserve Account may be created by the Trustee by
withdrawing from the Income or Capital Accounts, from time to time, those
amounts deemed requisite to establish a reserve for any taxes or other
governmental charges that may be payable out of the Fund (Section 3.03). Funds
held by the Trustee in the various accounts created under the Indenture do not
bear interest (Section 8.01).
For Funds making Semi-Annual Distributions, the pro rata share of the
Income Account represented by each Unit will be computed by the Trustee
semi-annually on Computation Days (see Investment Summary in Part A), and the
pro rata share of the cash in the Capital Account represented by each Unit will
be computed semi-annually each year as of the Record Days. The distribution to
Holders as of each Record Day will be made on the fifth day following each
respective Computation Day or shortly thereafter.
INVESTMENT ACCUMULATION PROGRAM
Distributions of interest and any principal or premium received by the Fund
will be paid in cash. However, except for Floating Rate Series, a Holder may
elect to have these distributions reinvested without sales charge in The
Municipal Fund Accumulation Program, Inc. (the 'Program'). The Program is an
open-end management investment company whose primary investment objective is to
obtain income that is exempt from regular Federal income tax through investment
in a diversified portfolio consisting primarily of state, municipal and public
authority debt obligations with credit characteristics comparable to those of
securities in Monthly Payment Series of Municipal Investment Trust Fund.
Investors should note that obligations in the Program are not insured or backed
by other third-party obligations and that distributions from the Program
probably will not be exempt
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from the personal income taxes of any state. Holders participating in the
Program will be taxed on their reinvested distributions in the manner described
under Taxes even though distributions are reinvested in the Program. For more
complete information about the Program, including charges and expenses, return
the enclosed form for a prospectus. Read it carefully before you decide to
participate. Notice of election to participate must be received by the Trustee
in writing at least ten days before the Record Day for the first distribution to
which the notice is to apply.
PORTFOLIO SUPERVISION
The Fund is a unit investment trust and is not an actively managed fund.
Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analyses. The Portfolio of the Fund, however, will not be
managed and therefore the adverse financial condition of an issuer will not
necessarily require the sale of its securities from the Portfolio. However,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Agent for the Sponsors,
may direct the disposition of Securities upon default in payment of amounts due
on any of the Securities, institution of certain legal proceedings, default
under certain documents adversely affecting debt service, default in payment of
amounts due on other securities of the same issuer or guarantor, decline in
projected income pledged for debt service on revenue bond issues, or decline in
price or the occurrence of other market or credit factors, including advance
refunding (i.e., the issuance of refunding bonds and the deposit of the proceeds
thereof in trust or escrow to retire the refunded Securities on their respective
redemption dates), that in the opinion of the Sponsors would make the retention
of these Securities detrimental to the interest of the Holders. If a default in
the payment of amounts due on any Security occurs and if the Sponsors fail to
give instructions to sell or to hold the Security, the Indenture provides that
the Trustee, within 30 days of that failure by the Sponsors, may sell the
Security (Sections 3.06 or 3.07 and 3.09 or 3.10). In addition, the Agent for
the Sponsors may occasionally, at the expense of the Fund, seek to supplement
existing credit support arrangements for the Securities with letters of credit
or guarantees issued by banks or thrifts if the support can be obtained at a
reasonable cost (Section 3.15).
The Sponsors are required to instruct the Trustee to reject any offer made
by an issuer of any of the Debt Obligations to issue new Debt Obligations in
exchange or substitution for any Debt Obligations pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept or
reject any offer or to take any other action with respect thereto as the
Sponsors may deem proper if (a) the issuer is in default with respect to these
Debt Obligations or (b) in the written opinion of the Sponsors the issuer will
probably default with respect to these Debt Obligations in the reasonably
foreseeable future. Any Debt 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 Debt Obligations originally deposited thereunder. Within
five days after the elimination of a Debt Obligation and the acquisition of a
replacement Debt Obligation in exchange or substitution therefor, the Trustee is
required to give notice thereof to each Holder, identifying the Debt Obligations
eliminated and the Debt Obligations substituted therefor (Section 3.07 or 3.08).
Except as stated herein, the acquisition by the Fund of any securities other
than the Securities initially deposited and certain substitute Debt Obligations
is prohibited.
REPORTS TO HOLDERS
With each distribution, the Trustee furnishes Holders with a statement of
the amounts of interest and other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit. After the end of each
calendar year, the Trustee will furnish to each person who at any time during
the calendar year was a Holder
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of record a statement (i) summarizing transactions for the year in the Income
and Capital Accounts, (ii) listing the Securities held and the number of Units
outstanding at the end of that calendar year, (iii) stating the Redemption Price
per Unit based upon the computation thereof made at the end of that calendar
year and (iv) specifying the amounts distributed during that calendar year from
the Income and Capital Accounts (Section 3.05 or 3.06). The accounts of the Fund
are audited at least annually by independent certified public accountants
designated by the Sponsors and the report of the accountants shall be furnished
by the Trustee to Holders upon request (Section 8.01(e)).
In order to enable them to comply with Federal and state tax reporting
requirements, Holders will be furnished upon request to the Trustee with
evaluations of Securities furnished to it by the Evaluator (Section 4.02) and
evaluations of the debt obligations in any Other Funds.
CERTIFICATES
Each purchaser is entitled to receive, on request, a registered Certificate
for his Units. Certain of the Sponsors may collect charges for registering and
shipping Certificates to purchasers. These Certificates are transferable or
interchangeable upon presentation at the office of the Trustee with a payment of
$2.00 if required by the Trustee (or other amounts specified by the Trustee and
approved by the Sponsors) for each new Certificate and any sums payable for
taxes or other governmental charges imposed upon the transaction (Section 6.01)
and compliance with the formalities necessary to redeem Certificates (see
Redemption). Mutilated, destroyed, stolen or lost Certificates will be replaced
upon delivery of satisfactory indemnity and payment of expenses incurred
(Section 6.02).
AMENDMENT AND TERMINATION
The Sponsors and Trustee may amend the Indenture, without the consent of
the Holders, (a) to cure any ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to change any provision
thereof as may be required by the SEC or any successor governmental agency or
(c) to make any other provisions which do not adversely affect the interest of
the Holders (as determined in good faith by the Sponsors). The Indenture may
also be amended in any respect by the Sponsors and the Trustee, or any of the
provisions thereof may be waived, with the consent of the Holders of 66% of the
Units in the case of the 1st California Series, the 1st through 26th
Intermediate Term Series, the 1st and 2nd Minnesota Series, the 7th through 37th
New York Series, the 9th through 16th Pennsylvania Series, or the 9th through
185th Monthly Payment Series, and of Holders of 51% of the Units in the 186th
and subsequent Monthly Payment Series, the 2nd and subsequent California Series,
the 27th and subsequent Intermediate Term Series, the 3rd and subsequent
Minnesota Series, the 38th and subsequent New York Series, the 17th and
subsequent Pennsylvania Series, all Floating Rate Series, Multistate Series,
Insured Series, Put Series, and all other State Series, provided that none of
these amendments or waivers will reduce the interest in the Fund of any Holder
without the consent of the Holder or reduce the percentage of Units required to
consent to any of these amendments or waivers without the consent of all Holders
(Section 10.01).
The Indenture will terminate upon the maturity, sale, redemption or other
disposition of the last Security held thereunder but in no event is it to
continue beyond the mandatory termination date set forth under Investment
Summary in Part A. Any Fund with a Date of Deposit after June 16, 1987 will in
no event continue beyond the expiration of 20 years after the death of the last
survivor of eight persons named in the Indenture, the oldest of whom was born in
1985 and the youngest of whom was born in 1987. The Indenture may be terminated
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by the Sponsors if the value of the Fund is less than the minimum value set
forth under Investment Summary in Part A, and may be terminated at any time by
written instruments executed by the Sponsors and consented to by Holders of the
same percentage of the Units as stated in the preceding paragraph (Sections
8.01(g) and 9.01). The Trustee will deliver written notice of any termination to
each Holder within a reasonable time prior to the termination, specifying the
approximate final payment date. Within a reasonable time after the termination,
the Trustee must sell all of the Securities then held and distribute to each
Holder, upon surrender for cancellation of his Certificates and after deductions
for accrued and unpaid fees, taxes and governmental and other charges, that
Holder's interest in the Income and Capital Accounts (Section 9.01). This
distribution will normally be made by mailing a check in the amount of each
Holder's interest in these accounts to the address of the Holder appearing on
the record books of the Trustee.
RESIGNATION, REMOVAL AND LIMITATIONS ON LIABILITY
SPONSORS
Any Sponsor may resign if one remaining Sponsor maintains a net worth of
$2,000,000 and is agreeable to the resignation (Section 7.04). A new Sponsor may
be appointed by the remaining Sponsors and the Trustee to assume the duties of
the resigning Sponsor. If there is only one Sponsor and it fails to perform its
duties or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, then the Trustee may (a) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and as
may not exceed amounts prescribed by the SEC, or (b) terminate the Indenture and
liquidate the Fund or (c) continue to act as Trustee without terminating the
Indenture (Section 8.01(f)). Merrill Lynch has been appointed by the other
Sponsors as agent for purposes of taking action under the Indenture (Section
7.01). If the Sponsors are unable to agree with respect to action to be taken
jointly by them under the Indenture and they cannot agree as to which Sponsor
shall continue to act as sole Sponsor, then Merrill Lynch shall continue to act
as sole Sponsor (Section 7.02(b)). If one of the Sponsors fails to perform its
duties or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, then that Sponsor is automatically discharged
and the other Sponsors shall act as sole Sponsors (Section 7.02(a)). The
Sponsors shall be under no liability to the Fund or to the Holders for taking
any action or for refraining from taking any action in good faith or for errors
in judgment and shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the sale of any Security. This provision, however,
shall not protect the Sponsors in cases of wilful misfeasance, bad faith, gross
negligence or reckless disregard of their obligations and duties (Section 7.05).
The Sponsors and their successors are jointly and severally liable under the
Indenture. A Sponsor may transfer all or substantially all of its assets to a
corporation or partnership which carries on its business and duly assumes all of
its obligations under the Indenture and in that event it shall be relieved of
all further liability under the Indenture (Section 7.03).
TRUSTEE
The Trustee or any successor may resign upon notice to the Sponsors. The
Trustee may be removed at any time upon the direction of the Holders of the same
percentage of the Units as required to amend the Indenture (see Amendment and
Termination above) or by the Sponsors without the consent of any of the Holders
if the Trustee becomes incapable of acting or becomes bankrupt or its affairs
are taken over by public authorities. The resignation or removal shall become
effective upon the acceptance of appointment by the successor which may, in the
case of a resigning or removed Co-Trustee, be one or more of the remaining
Co-Trustees. In the case of resignation or removal, the Sponsors are to use
their best efforts to appoint a successor promptly and if upon
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resignation of the Trustee no successor has accepted appointment within thirty
days after notification, the Trustee may apply to a court of competent
jurisdiction for the appointment of a successor (Section 8.06). The Trustee
shall be under no liability for any action taken in good faith in reliance on
prima facie properly executed documents or for the disposition of monies or
Securities, nor shall it be liable or responsible in any way for depreciation or
loss incurred by reason of the sale of any Security. This provision, however,
shall not protect the Trustee in cases of wilful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties. In the event of
the failure of the Sponsors to act, the Trustee may act under the Indenture and
shall not be liable for any of these actions taken in good faith. The Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon. In
addition, the Indenture contains other customary provisions limiting the
liability of the Trustee (Sections 3.06 or 3.07, 3.09 or 3.10, 8.01 and 8.05).
EVALUATOR
The Evaluator may resign or may be removed, effective upon the acceptance
of appointment by its successor, by the Sponsors, who are to use their best
efforts to appoint a successor promptly. If upon resignation of the Evaluator no
successor has accepted appointment within thirty days after notification, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor (Section 4.05). 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 Sponsors or the Holders for errors in judgment. This provision,
however, shall not protect the Evaluator in cases of wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
(Section 4.04). The Trustee, the Sponsors and the Holders may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof.
MISCELLANEOUS
TRUSTEE
The Trustee of the Fund is named on the back cover page of this Prospectus
and is either The Bank of New York, a New York banking corporation with its Unit
Investment Trust Department at 101 Barclay Street, New York, New York 10286
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System); Bankers Trust Company, a New York banking corporation with its
corporate trust office at 4 Albany Street, 7th Floor, New York, New York 10015
(which is subject to supervision by the New York Superintendent of Banks, the
Federal Deposit Insurance Corporation and the Board of Governors of the Federal
Reserve System); The Chase Manhattan Bank, N.A., a national banking association
with its Unit Trust Department at 1 Chase Manhattan Plaza--3B, New York, New
York 10081 (which is subject to supervision by the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System); or (acting as Co-Trustees) Investors Bank & Trust
Company, a Massachusetts trust company with its unit investment servicing group
at One Lincoln Plaza, Boston, Massachusetts 02111 (which is subject to
supervision by the Massachusetts Commissioner of Banks, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve System)
and The First National Bank of Chicago, a national banking association with its
corporate trust office at One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126 (which is subject to supervision by
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the Comptroller of the Currency, the Federal Deposit Insurance Corporation and
the Board of Governors of the Federal Reserve System).
LEGAL OPINION
The legality of the Units originally offered has been passed upon by Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, as special
counsel for the Sponsors. Emmet, Marvin & Martin, 48 Wall Street, New York, New
York 10005, act as counsel for The Bank of New York, as Trustee. Hawkins,
Delafield & Wood, 67 Wall Street, New York, New York 10005, act as counsel for
Bankers Trust Company, as Trustee. Carter, Ledyard & Milburn, 2 Wall Street, New
York, New York 10005, act as counsel for United States Trust Company of New
York, as Trustee. Bingham, Dana & Gould, 150 Federal Street, Boston,
Massachusetts 02110, act as counsel for The First National Bank of Chicago and
Investors Bank & Trust Company, as Co-Trustees.
AUDITORS
The financial statements of the Fund included in Part A have been examined
by Deloitte & Touche, independent accountants, as stated in their opinion
appearing therein and have been so included in reliance upon that opinion given
on the authority of that firm as experts in accounting and auditing.
SPONSORS
The Sponsors of this Fund are listed on the cover of Part A. Each Sponsor
is a Delaware corporation and is engaged in the underwriting, securities and
commodities brokerage business, and is a member of the New York Stock Exchange,
Inc., other major securities exchanges and commodity exchanges, and the National
Association of Securities Dealers, Inc. Merrill Lynch, Pierce, Fenner and Smith
Incorporated and Merrill Lynch Asset Management, a Delaware corporation and
subsidiary of Merrill Lynch & Co., Inc., the parent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, are engaged in the investment advisory business.
Smith Barney Shearson Inc., an investment banking and securities broker-dealer
firm, is an indirect wholly-owned subsidiary of Primerica Corporation
('Primerica'). In July 1993 Primerica and Smith Barney, Harris Upham & Co.
Incorporated ('Smith Barney') acquired the assets of the domestic retail
brokerage and asset management businesses of Shearson Lehman Brothers Inc.
('Shearson'), previously a co-Sponsor of various Defined Asset Funds. Prudential
Securities Incorporated, a wholly-owned subsidiary of Prudential Securities
Group Inc. and an indirect wholly-owned subsidiary of the Prudential Insurance
Company of America, is engaged in the investment advisory business. PaineWebber
Incorporated is engaged in the investment advisory business and is a wholly-
owned subsidiary of PaineWebber Group Inc. Dean Witter Reynolds Inc., a
principal operating subsidiary of Dean Witter, Discover & Co., is engaged in the
investment advisory business. Sears, Roebuck and Co. indirectly has held a
controlling interest in Dean Witter Reynolds Inc. but has sold a portion of that
interest and is expected to sell its remaining interest in Dean Witter Reynolds
Inc. Each Sponsor has acted as principal underwriter and managing underwriter of
other investment companies. The Sponsors, in addition to participating as
members of various selling groups or as agents of other investment companies,
execute orders on behalf of investment companies for the purchase and sale of
securities of these companies and sell securities to these companies in their
capacities as brokers or dealers in securities.
Each Sponsor (or a predecessor) has acted as Sponsor of various series of
Defined Asset Funds. A subsidiary of Merrill Lynch, Pierce, Fenner & Smith
Incorporated succeeded in 1970 to the business of Goodbody & Co., which had been
a co-Sponsor of Defined Asset Funds since 1964. That subsidiary resigned as
Sponsor of each of
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the Goodbody series in 1971. Merrill Lynch, Pierce, Fenner & Smith Incorporated
has been co-Sponsor and the Agent for the Sponsors of each series of Defined
Asset Funds created since 1971. Shearson Lehman Brothers Inc. and certain of its
predecessors were underwriters beginning in 1962 and co-Sponsors from 1965 to
1967 and from 1980 to 1993 of various Defined Asset Funds. As a result of the
acquisition of certain of Shearson's assets by Smith Barney and Primerica, as
described above, Smith Barney Shearson Inc. now serves as a co-Sponsor of
various Defined Asset Funds. Prudential Securities Incorporated and its
predecessors have been underwriters of Defined Asset Funds since 1961 and
co-Sponsors since 1964, in which year its predecessor became successor co-
Sponsor to the original Sponsor. Dean Witter Reynolds Inc. and its predecessors
have been underwriters of various Defined Asset Funds since 1964 and co-Sponsors
since 1974. PaineWebber Incorporated and its predecessor have co-Sponsored
certain Defined Asset Funds since 1983.
The Sponsors have maintained secondary markets in these funds for over 20
years. For decades informed investors have purchased unit investment trusts for
dependability and professional selection of investments. Different Defined Asset
Funds offer an array of investment choices, suited to fit a wide variety of
personal financial goals--a buy and hold strategy for capital accumulation, such
as for children's education or a nest egg for retirement, or attractive, regular
current income consistent with relative protection of capital. There are Defined
Asset Funds to meet the needs of just about any investor. Unit investment trusts
are particularly suited for the many investors who prefer to seek long-term
profits by purchasing sound investments and holding them, rather than through
active trading. Few individuals have the knowledge, resources or capital to buy
and hold a diversified portfolio on their own; it would generally take a
considerable sum of money to obtain comparable breadth and diversity. Sometimes
it takes a combination of Defined Asset Funds to plan for your objectives.
One of your most important investment decisions may be how you divide your
money among asset classes. Spreading your money among different kinds of
investments can balance the risks and rewards of each one. Most investment
experts recommend stocks for long-term capital growth. For attractive income
consider long-term corporate bonds. By combining both stock and bond funds,
investors can receive attractive current income and growth potential, offering
some protection against inflation.
This chart shows the average annual compounded rate of return of selected
asset classes over the 10-year and 20-year periods ending December 31, 1992,
compared to the rate of inflation over the same periods. Of course,
54
<PAGE>
this chart represents past performance of these investments and is no guarantee
of future results of the Funds. Funds also have sales charges and expenses.
Stocks (S&P 500)
20 yr 11.33%
10 yr 16.19%
Small-company stocks
20 yr 15.54%
10 yr 11.55%
Long-term corporate bonds
20 yr 9.54%
10 yr 13.14%
U.S. Treasury bills (short-term)
20 yr 7.70%
10 yr 6.95%
Consumer Price Index
20 yr 6.21%
10 yr 3.81%
0 2 4 6 8 10
12 14 16 18%
Source: Ibbotson Associates (Chicago)
Used with Permission. All rights reserved.
By purchasing Defined Asset Funds, investors not only avoid the
responsibility of selecting individual securities by themselves, but also gain
the advantage of a higher degree of safety by holding interests in securities of
several different issuers. Spreading your investment among different securities
and issuers reduces your risk, but does not eliminate it. Defined Municipal Bond
Funds offer a simple and convenient means for investors to earn monthly income
free from regular Federal income tax. When individual bonds are called or
mature, investors might consider reinvesting their proceeds in Defined Municipal
Bond Funds. The securities in managed funds continually change. In Defined Asset
Funds, the portfolio is defined, so that generally the securities, maturities,
call dates and ratings are known before you buy. Of course, the portfolio will
change somewhat over time as additional securities are deposited, as securities
mature or are called or redeemed or as they are sold to meet redemptions and
limited other circumstances. The defined portfolio of securities listed in the
prospectus and regular income distributions make Defined Bond Funds a dependable
investment. Investors know when they buy what their estimated income, current
and long-term returns will be, subject to credit and market risks on the bonds
or if the fund portfolio or expenses change.
Investors buy bonds for dependability--they know what they can expect to
earn and that principal is distributed as the bonds mature. Defined Bond Funds
can offer most of these benefits, with steady income and a yield and maturity
similar to owning bonds directly. The tax exemption of municipal securities,
which makes
55
<PAGE>
them attractive to high-bracket taxpayers, is offered by Defined Municipal
Investment Trusts. Defined Corporate Income Funds, with higher current returns
than municipal or government funds, are suitable for IRAs and other
tax-advantaged accounts and offer investors a simple and convenient way to earn
monthly income. Defined Government Securities Income Funds offer investors a
simple and convenient way to participate in markets for Government securities
while earning an attractive current return. Defined International Bond Funds,
invested in bonds payable in foreign currencies, offer a potential to profit
from changes in currency values and possibly from interest rates higher than
paid on comparable US bonds, but investors incur a higher risk for these
potentially greater returns. Historically, stocks have offered a potential for
growth of capital, and thus some protection against inflation, over the long
term. Defined Equity Income Funds offer a smart, sensible way to participate in
the stock market. The S&P Index Trusts offer a convenient and inexpensive way to
participate in broad market movements. Concept Series seek to capitalize on
selected anticipated economic, political or business trends. Utility Series,
consisting of issuers with established reputations for regular cash dividends,
seek to benefit from dividend increases.
DESCRIPTION OF RATINGS (as described by the rating companies themselves.)
STANDARD & POOR'S CORPORATION
A Standard & Poor's rating on the units of an investment trust (hereinafter
referred to collectively as 'units' and 'funds') is a current assessment of
creditworthiness with respect to the investments held by the 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 will reduce payment to the unit holder of the interest and
principal required to be paid on portfolio assets. In addition, the rating is
not a recommendation to purchase, sell, or hold units, as the rating does not
comment as to market price of the units or suitability for a particular
investor.
AAA--Units rated AAA represent interests in funds composed exclusively of
securities that, together with their credit support, are rated AAA by Standard &
Poor's and/or certain short-term investments. This AAA rating is the highest
rating assigned by Standard & Poor's to a security. Capacity to pay interest and
repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating
56
<PAGE>
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B Rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B-rating.
CC--The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C--The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1--The rating C1 is reserved for income bonds on which no interest is
being paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
A provisional rating, indicated by 'p' following a rating, assumes the
successful completion of the project being financed by the issuance of the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.
NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE
Aaa--Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
57
<PAGE>
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols give investors a more precise indication of relative debt quality
in each of the historically defined categories.
Conditional ratings, indicated by 'Con.', are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds are given a conditional rating that denotes their
probable credit stature upon completion of that act or fulfillment of that
condition.
NR--Should no rating be assigned, the reason may be one of the following:
(a) an application for rating was not received or accepted; (b) the issue or
issuer belongs to a group of securities that are not rated as a matter of
policy; (c) there is a lack of essential data pertaining to the issue or issuer
or (d) the issue was privately placed, in which case the rating is not published
in Moody's publications.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
58
<PAGE>
EXCHANGE OPTION
ELECTION
Holders may elect to exchange any or all of their Units of this Series for
units of one or more of the series of Funds listed in the table set forth below
(the 'Exchange Funds'), which normally are sold in the secondary market at
prices which include the sales charge indicated in the table. Certain series of
the Funds listed have lower maximum applicable sales charges than those stated
in the table; also the rates of sales charges may be changed from time to time.
No series with a maximum applicable sales charge of less than 3.50% of the
public offering price is eligible to be acquired under the Exchange Option, with
the following exceptions: (1) Freddie Mac Series may be acquired by exchange
during the initial offering period from any of the Exchange Funds listed in the
table. (2) Units of any Select Ten Portfolio, if available, may be acquired
during their initial offering period or thereafter by exchange from any Exchange
Fund; units of Investment Philosophy Series or Select Ten Portfolios may be
exchanged only for units of another Select Ten Series, if available. Units of
the Exchange Funds may be acquired at prices which include the reduced sales
charge for Exchange Fund units listed in the table, subject, however, to these
important limitations:
First, there must be a secondary market maintained by the Sponsors in
units of the series being exchanged and a primary or secondary market in
units of the series being acquired and there must be units of the
applicable Exchange Fund lawfully available for sale in the state in which
the Holder is resident. There is no legal obligation on the part of the
Sponsors to maintain a market for any units or to maintain the legal
qualification for sale of any of these units in any state or states.
Therefore, there is no assurance that a market for units will in fact exist
or that any units will be lawfully available for sale on any given date at
which a Holder wishes to sell his Units of this Series and thus there is no
assurance that the Exchange Option will be available to any Holder.
Second, when units held for less than five months are exchanged for
units with a higher regular sales charge, the sales charge will be the
greater of (a) the reduced sales charge set forth in the table below or (b)
the difference between the sales charge paid in acquiring the units being
exchanged and the regular sales charge for the quantity of units being
acquired, determined as of the date of the exchange.
Third, exchanges will be effected in whole units only. If the proceeds
from the Units being surrendered are less than the cost of a whole number
of units being acquired, the exchanging Holder will be permitted to add
cash in an amount to round up to the next highest number of whole units.
Fourth, the Sponsors reserve the right to modify, suspend or terminate
the Exchange Option at any time without further notice to Holders. In the
event the Exchange Option is not available to a Holder at the time he
wishes to exercise it, the Holder will be immediately notified and no
action will be taken with respect to his Units without further instruction
from the Holder.
PROCEDURES
To exercise the Exchange Option, a Holder should notify one of the Sponsors
of his desire to use the proceeds from the sale of his Units of this Series to
purchase units of one or more of the Exchange Funds. If units of the applicable
outstanding series of the Exchange Fund are at that time available for sale, the
Holder may select the series or group of series for which he desires his Units
to be exchanged. Of course, the Holder will be provided with a current
prospectus or prospectuses relating to each series in which he indicates
interest. The exchange
59
<PAGE>
transaction will generally 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 Fund will be sold to the Holder at
a price equal to the bid side evaluation per unit of the underlying securities
in the Portfolio plus interest plus the applicable sales charge listed in the
table below. (Units of Defined Asset Funds--Equity Income Fund are sold, and
will be repurchased, at a price normally based on the closing sale prices on the
New York Stock Exchange, Inc. of the underlying securities in the Portfolio.)
The maximum applicable sales charges for units of the Exchange Funds are also
listed in the table. Excess proceeds not used to acquire whole Exchange Fund
units will be paid to the exchanging Holder.
CONVERSION OPTION
Owners of units of any registered unit investment trust sponsored by others
which was initially offered at a maximum applicable sales charge of at least
3.0% ('Conversion Trust') may elect to apply the cash proceeds of sale or
redemption of those units directly to acquire available units of any Exchange
Fund at the reduced sales charge, subject to the terms and conditions applicable
to the Exchange Option (except that no secondary market is required in
Conversion Trust units). To exercise this option, the owner should notify his
retail broker. He will be given a prospectus of each series in which he
indicates interest of which units are available. The broker must sell or redeem
the units of the Conversion Trust. Any broker other than a Sponsor must specify
to the Sponsors that the purchase of units of the Exchange Fund is being made
pursuant to and is eligible for this conversion option. The broker will be
entitled to two thirds of the applicable reduced sales charge. The Sponsors
reserve the right to modify, suspend or terminate the conversion option at any
time without further notice, including the right to increase the reduced sales
charge applicable to this option (but not in excess of $5 more per unit than the
corresponding fee then charged for the Exchange Option).
THE EXCHANGE FUNDS
The current return from taxable fixed income securities is normally higher
than that available from tax exempt fixed income securities. Certain of the
Exchange Funds do not provide for periodic payments of interest and are best
suited for purchase by IRA's, Keogh plans, pension funds or other tax-deferred
retirement plans. Consequently, some of the Exchange Funds may be inappropriate
investments for some Holders and therefore may be inappropriate exchanges for
Units of this Series. The table below indicates certain characteristics of each
of the Exchange Funds which a Holder should consider in determining whether each
Exchange Fund would be an appropriate investment vehicle and an appropriate
exchange for Units of this Series.
TAX CONSEQUENCES
An exchange of Units pursuant to the Exchange or Conversion Option for
units of a series of another Fund should constitute a 'taxable event' under the
Code, requiring a Holder to recognize a tax gain or loss, subject to the
limitation discussed below. The Internal Revenue Service may seek to disallow a
loss (or a pro rata portion thereof) on an exchange of units if the units
received by a Holder in connection with such an exchange represent securities
that are not materially different from the securities that his previous units
represented (e.g., both Funds contain securities issued by the same obligor that
have the same material terms). Holders are urged to consult their own tax
advisers as to the tax consequences to them of exchanging units in particular
cases.
EXAMPLE
Assume that a Holder, who has three units of a fund with a 5.50% sales
charge in the secondary market and a current price (based on the bid side
evaluation plus accrued interest) of $1,100 per unit, sells his units and
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<PAGE>
exchanges the proceeds for units of a series of an Exchange Fund with a current
price of $950 per unit and the same sales charge. The proceeds from the Holder's
units will aggregate $3,300. Since only whole units of an Exchange Fund may be
purchased, the Holder would be able to acquire four units in the Exchange Fund
for a total cost of $3,860 ($3,800 for units and $60 for the $15 per unit sales
charge) by adding an extra $560 in cash. Were the Holder to acquire the same
number of units at the same time in the regular secondary market maintained by
the Sponsors, the price would be $4,021.16 ($3,800 for the units and $221.16 for
the 5.50% sales charge).
<TABLE>
<CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET**
- ------------------------------------------- ----------------- -----------------------
<S> <C> <C>
DEFINED ASSET FUNDS--GOVERN-
MENT SECURITIES INCOME FUND
GNMA Series (other than those below) 4.25% $15 per unit
GNMA Series E or other GNMA Series 4.25% $15 per 1,000 units
having units with an initial face
value of $1.00
Freddie Mac Series 3.75% $15 per 1,000 units
DEFINED ASSET FUNDS-- INTERNATIONAL BOND
FUND
Multi-Currency Series 3.75% $15 per unit
Australian and New Zealand Dollar Bonds 3.75% $15 per unit
Series
Australian Dollar Bonds Series 3.75% $15 per unit
Canadian Dollar Bonds Series 3.75% $15 per unit
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series 4.50% $15 per 1,000 units+
Concept Series 4.00% $15 per 100 units
Investment Philosophy Series, Select 10 2.75% $17.50 per 1,000 units
Portfolios
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate 5.50%++ $15 per unit
Series
Intermediate Term Series 4.50%++ $15 per unit
Insured Series 5.50%++ $15 per unit
AMT Monthly Payment Series 5.50%++ $15 per unit
</TABLE>
<TABLE>
<CAPTION>
NAME OF INVESTMENT
EXCHANGE FUND CHARACTERISTICS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
DEFINED ASSET FUNDS--GOVERN-
MENT SECURITIES INCOME FUND
GNMA Series (other than those below) long-term, fixed rate, taxable income, underlying
securities backed by the full faith and credit of
the United States
GNMA Series E or other GNMA Series long-term, fixed rate, taxable income, underlying
having units with an initial face securities backed by the full faith and credit of
value of $1.00 the United States, appropriate for IRA's or
tax-deferred retirement plans
Freddie Mac Series intermediate term, fixed rate, taxable income,
underlying securities are backed by Federal Home
Loan Mortgage Corporation but not by U.S.
Government
DEFINED ASSET FUNDS-- INTERNATIONAL BOND
FUND
Multi-Currency Series intermediate-term, fixed rate, payable in foreign
currencies, taxable income
Australian and New Zealand Dollar Bonds intermediate-term, fixed rate, payable in
Series Australian and New Zealand dollars, taxable income
Australian Dollar Bonds Series intermediate-term, fixed rate, payable in
Australian dollars, taxable income
Canadian Dollar Bonds Series short intermediate term, fixed rate, payable in
Canadian dollars, taxable income
DEFINED ASSET FUNDS--EQUITY INCOME FUND
Utility Common Stock Series dividends, taxable income, underlying securities
are common stocks of public utilities
Concept Series underlying securities constitute a professionally
selected portfolio of common stocks consistent with
an investment idea or concept
Investment Philosophy Series, Select 10 10 highest dividend yielding stocks in a designated
Portfolios stock index; seeks higher total return than that
stock index; terminates after one year
DEFINED ASSET FUNDS--MUNICIPAL INVESTMENT
TRUST FUND
Monthly Payment, State and Multistate long-term, fixed-rate, tax-exempt
Series income
Intermediate Term Series intermediate-term, fixed rate, tax-exempt income
Insured Series long-term, fixed-rate, tax-exempt income,
underlying securities insured by insurance
companies
AMT Monthly Payment Series long-term, fixed rate, income exempt from regular
income tax but partially subject to Alternative
Minimum Tax
</TABLE>
- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 Units and
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
61
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM REDUCED
NAME OF APPLICABLE SALES CHARGE FOR
EXCHANGE FUND SALES CHARGE* SECONDARY MARKET**
- ------------------------------------------- ----------------- -----------------------
<S> <C> <C>
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series 5.50%++ $15 per unit
DEFINED ASSET FUNDS--CORPORATE INCOME FUND
Monthly Payment Series 5.50% $15 per unit
Intermediate Term Series 4.75% $15 per unit
Cash or Accretion Bond Series and 3.50% $15 per 1,000 units
SELECT Series
Insured Series 5.50% $15 per unit
</TABLE>
<TABLE>
<CAPTION>
NAME OF INVESTMENT
EXCHANGE FUND CHARACTERISTICS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
DEFINED ASSET FUNDS--MUNICIPAL INCOME FUND
Insured Discount Series long-term, fixed rate, insured, tax-exempt income,
taxable capital gains
DEFINED ASSET FUNDS--CORPORATE INCOME FUND
Monthly Payment Series long-term, fixed rate, taxable income
Intermediate Term Series intermediate-term, fixed rate, taxable income
Cash or Accretion Bond Series and intermediate-term, fixed rate, underlying
SELECT Series securities are collateralized compound interest
obligations, taxable income, appropriate for IRA's
or tax-deferred retirement plans
Insured Series long-term, fixed rate, taxable income, underlying
securities are insured
</TABLE>
- ---------------
* As described in the prospectuses relating to certain Exchange Funds, this
sales charge for secondary market sales may be reduced on a graduated scale
in the case of quantity purchases.
** The reduced sales charge for Units acquired during their initial offering
period is: $20 per unit for Series for which the Reduced Sales Charge for
Secondary Market (above) is $15 per unit; $20 per 100 units for Series for
which the Reduced Sales Charge for Secondary Market is $15 per 100 Units and
$20 per 1,000 units for Series for which the Reduced Sales Charge for
Secondary Market is $15 per 1,000 units.
+ The reduced sales charge for the Sixth Utility Common Stock Series of The
Equity Income Fund is $15 per 2,000 units and for prior Utility Common Stock
Series is $7.50 per unit.
++ Subject to reduction depending on the maturities of the underlying
Securities.
14099--8/93
62
<PAGE>
<PAGE>
DEFINED
ASSET FUNDSSM
SPONSORS: MUNICIPAL INVESTMENT
Merrill Lynch, TRUST FUND
Pierce, Fenner & Smith Inc. Insured Series--191
Unit Investment Trusts (A Unit Investment Trust)
P.O. Box 9051 PROSPECTUS PART A
Princeton, N.J. 08543-9051 This Prospectus does not contain all of
(609) 282-8500 the information with respect to the
Smith Barney Inc. investment company set forth in its
Unit Trust Department registration statement and exhibits
Two World Trade Center--101st Floor relating thereto which have been filed
New York, N.Y. 10048 with the Securities and Exchange
1-800-298-UNIT Commission, Washington, D.C. under the
PaineWebber Incorporated Securities Act of 1933 and the
1200 Harbor Boulevard Investment Company Act of 1940, and to
Weehawken, N.J. 07087 which reference is hereby made.
(201) 902-3000 No person is authorized to give any
Prudential Securities Incorporated information or to make any
One Seaport Plaza representations with respect to this
199 Water Street investment company not contained in this
New York, N.Y. 10292 Prospectus; and any information or
(212) 776-1000 representation not contained herein must
Dean Witter Reynolds Inc. not be relied upon as having been
Two World Trade Center--59th Floor authorized. This Prospectus does not
New York, N.Y. 10048 constitute an offer to sell, or a
(212) 392-2222 solicitation of an offer to buy,
EVALUATOR: securities in any state to any person to
Kenny S&P Evaluation Services whom it is not lawful to make such offer
65 Broadway in such state.
New York, N.Y. 10006
INDEPENDENT ACCOUNTANTS:
Deloitte & Touche
1633 Broadway
3rd Floor
New York, N.Y. 10019
CO-TRUSTEES:
The First National Bank of Chicago
Investors Bank & Trust Company
P.O. Box 1537
Boston, MA 02205-1537
1-800-338-6019
14491--7/94
